Are Price Too High
In Washington, D.C.?

Although trophy office properties sold for eye-popping prices last year while vacancy and rental rates in many markets continued to deteriorate, there's still no sign of a pricing bubble in the office investment market, according to a report to be released Thursday. But the report indicates that bubble trouble may be brewing in the Washington, D.C., market.

The report, a joint effort by Grubb & Ellis Co., PNC Real Estate Finance and Real Capital Analytics Inc., defines a bubble as price appreciation that is "unjustifiable" and "unsustainable" due to "irrational concentrations of capital." Based on leasing, sales and other data, as well as a survey of property owners, lenders and real-estate brokers, the report concludes that "for the most part, buyers are acting rationally" by accepting lower returns on their investments.

In fact, the average price paid for downtown office properties in the U.S. dropped slightly last year to $196 a square foot from $200 a square foot in 2002, according to Real Capital, a New York-based real-estate research firm. The average price paid for suburban office properties dropped to $134 a square foot last year from $137 in 2002. Nationwide, the average capitalization rate -- the initial return on investment -- for downtown office properties dropped to 8.3% at the end of 2003 from 9% at the end of 2002, according to PNC Real Estate, a unit of Pittsburgh-based PNC Financial Services Group Inc. The average cap rate for suburban office properties dropped to 9% at the end of last year from 9.7% in 2002.

However, office properties in Washington -- even those facing tough leasing prospects -- are trading at high prices, which are spurring speculative development, according to the report. Survey respondents suggest that "you can sell anything" in that market, the report says. About 2.6 million square feet of speculative office space was under construction and about 32% of that space was leased, according to real-estate brokerage firm Grubb & Ellis. "That's a low pre-lease rate that we only see in D.C.," says Nicholas Buss, a vice president at PNC Real Estate.

Hot Commodities

Nearly 20 of the 80 students who are expected to graduate in May from the real-estate graduate program at the University of Southern California in Los Angeles already have secured jobs. And about a dozen students are starting their own ventures.

Sonia Savoulian, director of alumni and student services at USC's Lusk Center for Real Estate, estimates that fewer than a dozen of the 70 students that graduated last year had jobs lined up by mid-March last year.

The number of companies contacting the Lusk Center this year about graduate students in real-estate finance, development, planning, public policy and construction has increased 70% from a year earlier thanks to the strong real-estate market, says Ms. Savoulian. Nearly three-fourths of the students who have accepted jobs so far are going into residential development. And most of the students who will be striking out on their own will focus on residential development as well, with a few concentrating on affordable-housing projects, she says.

Students that don't land a job before graduation may get some help later this year. Equinox Partners, a New York-based recruitment firm that focuses on the real-estate industry, plans to launch in the fall an online service that will list internships and entry-level jobs available in real estate and allow students to post their resumes.

The aim of the offering, says Equinox Chief Executive Anthony LoPinto, is to help introduce companies that might not have the means to visit universities outside of their area to a wider range of undergraduate and graduate students.

Marriage Prize

San Francisco hotel owners appear to have been the beneficiaries of same-sex couples saying, "I do."

From Feb. 12, when San Francisco began issuing marriage licenses to gay and lesbian couples, through March 6, the latest figures available, the occupancy rate at hotels in the area jumped to 64% from 56% during the year-earlier period, according to Smith Travel Research. Same-sex marriages in San Francisco came to an end last Thursday when the California Supreme Court ordered the city to halt the practice.

Chip Conley, chief executive of San Francisco-based boutique hotel operator Joie de Vivre Hospitality Inc., estimates that more than $40,000 in room reservations at his hotels can be attributed to gay and lesbian couples staying in town to get married.

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