As property values for commercial office space are declining in cities like New York and San Francisco, the value for office space in the District is poised to take the No. 1 spot as the most expensive in the country.
This comes as both good and bad news for GW, which owns and leases out commercial office space in D.C. and puts the profits toward its $1 billion endowment.
The University made the choice to lease the Square 54 property – located across the street from the GW Hospital – to Boston Properties, a real estate investment company, to both develop and lease out. For 60 years, Boston Properties will control every aspect of the property in exchange for a flat ground rent, which they will pay to the University annually.
Executive Vice President and Treasurer Lou Katz said only time will tell for certain whether or not the decision to give the Square 54 property to Boston Properties to build and lease out could have been more profitable to the University in the long-run.
“We’ll be able to measure it over time to see literally if we were right or not on a financial basis,” Katz said.
Commercial real estate in the District currently costs about $42 per square foot, according to a Wall Street Journal report.
Economists say that the D.C. area has been able to avoid severe declines in commercial rent because the main industry in the District is government, which is one of the few sectors in the country to add jobs rather than cut them.
Katz added, however, that the decision the University made to not develop the space on its own was the safest decision to make.
“First and foremost, we did not want from a University standpoint to take the risk of developing that large of a property,” Katz said. “That is a major risk and it’s not the business we are in.”
For the time being, Katz said he is pleased with the decision the University made to give the space to Boston Properties to deal with.
“On a risk basis, I definitely think we did really well,” Katz said. “If you think about it, during a period of time where many projects stopped, this project continued to move forward, and we have been getting the ground rents on a regular basis and the project is moving along well. In fact, it is a little ahead of schedule, and that is a major undertaking to do something on that scale. We would not have done that ourselves.”
The University does not manage any of the investment properties it owns; instead, it hires management firms to deal with leasing out the space. The management companies get a piece of the nearly $62 million in rent the properties take in, and the rest goes directly into the endowment.
Properties the University owns include those at 2000 and 2100 Pennsylvania Ave.
