DC: 'The Smallest Hole in the Boat'

WASHINGTON, DC-Resilient amid economic turmoil, Washington, DC metro area has largely maintained its status as one of the strongest investment markets in the country or as Gregory H. Leisch, chief executive of Delta Associates, referred to it: “the smallest hole in the boat.” He explained, at Transwestern’s 13th annual Trendlines here, that while near term challenges persist, the area is ripe with long-term opportunities.

“Opportunities of this magnitude come along once every 20 years or so,” said Leisch, who presented Transwestern’s outlook before some 1,000 people. Low prices and interest rates, the economist pointed out, will allow savvy investors to selectively accumulate assets. Prices in Washington will fall another 5% to 10% before hitting bottom at the end of this year or early 2011, according to Transwestern’s Trendlines report. Cap rates in the area likely peaked in late 2009, and are expected to edge down for high-quality deals this year. Leisch stressed, “There will be opportunities to amass portfolios well below replacement cost.”

Trying to time the exact bottom of the real estate cycle, he said, is a waste of time. Values, which have declines roughly 45% from peak 2007 levels, are low enough for investors to pounce in the Washington area now, said the report. Historically, Leisch noted, the sunset of previous downturns produced a couple of years of choice acquisition opportunities. “I believe we are in that 36-month window, where you’ll have a few good years,” he said.