Avison Young's Kevill: Urbanization Causes Rental Growth(Audio)

real estate market in our nation's capital. We've got all the details coming up. But right now, let's go to Charlie Pellett and the Bloomberg newsroom for a Bloomberg Business Flash. I thank you very much, Pim Fox Nan stack of a record now fifty two sixty six, up twenty one points. Again there of four tenths of one percent. The dollar is falling after mixed economic day today. That is bolsterring speculation the Federal Reserve of will be in no rush

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gain of three tenths of one percent. People familiar with the matter of state negotiations between Buyer and Montsanto are advancing toward a deal after the company has made progress on issues including the purchase price and termination feed. Jeff McCracken is Managing editor for Global Mergers and Acquisitions at Bloomberg News, and on the Bloomberg Advantage this morning, he

outlined the competitive landscape in that industry. What's been going on in the agricam world is the bigest companies have been merging. So last year we had Dowin DuPont come together, and sometime perhaps later this year, that deal will get approved. And those companies, once they come together, then they're going to break of heart. They will come together and they will put divisions like divisions if you will together and

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by depth. Michael Barr Bloomberg Radio Global News twenty four hours a day, powered by more than journalists and analysts in more than one twenty countries. I'm Jill Schneider and this is Bloomberg Charlie, and we thank you and again recapping the SMP five hundred index up six to nine, a gain of three tents of one percent. Navstack trading at a record of four tenths of one percent, downd US reels up two tenths of one percent. I'm Charlie

Pellett and Pat's a Bloombred business flash. You're listening to taking stock with Kathleen pim Fox on Bloomberg Radio. Commercial real estate in our nation's capital. We've got an expert. John Kevil is Principal Managing direct or if US Capital Markets for Abison Young. He's based in Washington, d C. John, thank you very much for being with us. Thank you, Pam. Tell us a little bit about your company, about Avison Young, because you're based in Toronto, but you have lots of

experience in the DC market. You've executed more than twenty five billion dollars worth of transactions over your nearly quarter century career. Well, Avison Young is Toronto based and in the US we're Chicago based, and then we're we're the largest the fastest growing real estate services firm in in the country. We've gone from four n people just four

years ago to nearly three thousand people. And we've done that through requiring acquiring companies, acquiring and keep people, and really focusing on on high levels of client service and markets across the country. We're in seventy markets globally, including Canada, Mexico, Germany, the UK, and UH and we're continually growing. So tell all right, so tell us about some of that. I know you've broken uh seven real deals in Washington, d C. And UH, we'll tell us about two of them in particular.

I know that those are regarded as some of the largest deals ever well in in Washington. I think the is an interesting market right now. UM, we're we're a little bit lower on the on the scale and the attractiveness scale for global investment than we typically have been. And that's that's Um, that's I think largely due to the fact that the federal government has not been in

sort of a growth on mode over the last few years. Uh. That being said, what we've seen is not that not necessarily the largest deals, but some of the most interesting deals.

I've been on our deals where are quite frankly, some of the smaller deals, some of the deals where we've seen the urbanization trends that we're seeing across the area take route and office investors are increasingly looking to live, work, play environments where where the firms that our tenants in the buildings UM, the buildings are close to where people live, where people play and UM, and those buildings become sort of more of a part of the fabric of the tendency.

And and therefore the tenants are more more prone to staying there, and and and you see higher rental growth, and those tend to be the investments that people can make sense of a little bit better right now than than those that we rely on the pure sort of economic growth on the back of our traditional demand generators, which have been the government and law firms and contractors. Now we're just going to really point to one particular deal.

This was the one inteen five five five twelfth Street Northwest that was a nearly five hundred million dollar deal going for six hundred and thirty five dollars a square foot. Can you tell us what does prime business commercial space rent for or sell for right now in Washington, d C? Well, right now that the best indicator of the prime space is not necessarily the price per square foot, but more to cap right that investors are willing to pay UM.

I would say that for prime trophy rental in downtown d C right now, someone would buy that first, say a three three and a half percent cap rate, assuming that there's some some level of growth implied in the rent based on who the tendency is. UH, stabilized cap rates would be a little bit higher in that particular case. That was a deal that was a full city block in downtown d C. And that's the sort of investment that gets global attention, UH. And that was that was

really the key there. The the global attention that that asset received in the market because of its size and because of its location in a gateway city almost transcends Washington, d C. And really is an indicator of how attractive it is to put major amounts of capital to work in in gateway cities across the US. And just to do the quick definition of cap rate, it's the ratio of net operating income to property asset value. Tell us a little bit about the expansion of infrastructure in Washington.

I keep thinking, for example of the Metro, which is the second biggest UH public transport system in the US. For example, the the expansion of the Silver Line. How's that changing commercial real estate? Well, what you're seeing on the Silver Line in particular is is real estate investment is occurring around mass transportation around the country. And I think that's that's one of the that's one of the

key drivers in this region. So investors from from outside the market and inside the market are focusing on where people want to live, where people can office, and where people can get around the region without cars, and and so that's leading to dense development around metro's and that's where we that's where investors for sea run growth and so that makes that that that that makes those investments

more attractive. And I think you're seeing more and more capital um wanting to pay up to be around Silver Line metros. And you see it through Tyson's Corner, you see it out, and you see it out and resting in Herndon, and certainly you've seen it for a long

time the Rose and Boston Quarter locally. Just last point to make the distinction for us between rental growth and asset types, because that's not necessarily what you think of when you think institutional assets, is it um I'm not social leading to rental growth, business trends leading to rental growth, and asset types that are not typically thought of as true institutional assets. Right, So I think, what what? What?

What people have looked at? And you need to find cap rate a little while ago, and I think what what Many institutional investors have come to the conclusion that for the most part, pure cap rate compression has has stabilized, and they're going to get there. They're going to get their investment growth based on uh demographic increase, in demographic growth and the urbanization trends, and that's where where their urbanization is occurring. That's where you're gonna see rental growth.

And I think that's where I leave it there. John Kevil, Principle, Managing director US capital Markets for Avaston Young. This is Bloomberg coming up Von Bloomberg taking stock. We're going to take stock of a potential deal Monsanto Bayer. Will the deal come together for these two giant agrichemical companies. Details ahead.