Washington Business Journal Interview w/ Bruce Baschuk and Tour of The Pacifica
From the Washington Business Journal:
Bruce Baschuk is done developing new office buildings for now.
He isn't retiring as chairman of The J Street Cos., the District-based commercial and residential real estate services he launched after stepping down as CEO of the Cafritz Co. about 15 years ago. But after three decades in the business, he knows a down market when he sees one. As he sees it, D.C.'s office market is most definitely in one, and it's not likely to get better any time soon.
"I’m not sure, unless it was a fire sale, that I would be involved or engaged in anything that was dependent upon office demand," Baschuk said.
Residential condominiums, he said, are another matter entirely.
For a more little context, the vacancy rate in downtown D.C. is as high as it has been since the early 1990s. Landlords have resorted to offering generous concession packages and free rent to fill empty office space. Meanwhile, many tenants are either shedding excess space, moving to more efficient workplace layouts, or taking up residence in coworking spaces where they don't have to lock themselves into a long-term lease.
In other words, there's a shrinking pool of tenants competing for a growing supply of office space — when you count recently developed buildings, those now under construction or in the pipeline. So J Street isn't going to be adding to that imbalance.
"It’s gong to continue to be that way for at least 5 to 10 years as these leases roll over, so there is no — save for Amazon, what they’re doing in Northern Virginia, or Virginia Tech — driver for new jobs, and those drivers are not creating new office space," Baschuk said. "My business is pretty simple: supply and demand. So you’re not going to create new supply if there is no demand, and I don’t see any demand for new office space."
Baschuk and J Street have tackled a wide range of developments over the years including 111 K St. NE, an 11-story, trophy office building developed in NoMa in 2010. The firm also manages buildings on behalf of other owners, including one at 555 Fourth St. NW that landed a lease with the Offices of the United States Attorneys in September.
The company will continue to manage office buildings for other landlords, but while he waits for demand to pick up on the office side, Baschuk has turned J Street's development chops toward the for-sale condo market. The shift has been in the works for a while now, and J Street recently developed a boutique, luxury condo building on N Street between Dupont and Washington Circles called the Pacifica. It's also behind a 62-unit condo project in NoMa.
Baschuk recently showed the WBJ around the Pacifica, which replaced a pair of mid-block townhouses along N Street between 21st and 22nd streets NW. Pre-sales began at an awkward time in the market, between the busy fall and spring buying seasons. J Street retained McWilliams|Ballard Inc. to market the units.
"We got forced into delivering at this stage because we had record rainfall last year that delayed the project, " Baschuk said. "The contractor busted their pick to get it ready for spring, but we've already got a third of the units sold."
The building was designed by GTM Architects, with its nine units ranging in price from the $900,000s to $2.6 million. Sales so far have come in well over the project's pro-forma price of $1,100 per square foot, Baschuk said. And unlike in the office leasing market, J Street hasn't needed to dangle incentives like free rent or tenant concession packages to generate sales. There's a supply-demand imbalance in that part of the market, he said, but it favors the developer.
"The demand is so good ... I can’t imagine we’re going to be doing anything other than residential for the next few years," Baschuk said. "We have some clients that own big buildings, and we’re gong to manage those and lease them up and help them, but far as our development appetite, what are we recommending to our existing clients? Go residential."