- The Washington Times - Friday, March 28, 2003

The conventional wisdom about real estate stocks is that they are immune to many of the events that cause other stocks to rise and fall.
Supporters say shares of real estate investment trusts, or REITs, usually remain stable during changes in the economy, political instability or even war.
But since the United States began Operation Iraqi Freedom last week, the performance of REITs has been nearly identical to that of most other investments.
Consider: On March 17, the deadline President Bush placed on Iraqi leader Saddam Hussein to disarm, the Standard & Poor's 500 index rose 3.54 percent, its biggest increase this year. The Morgan Stanley REIT index, the most popular index among real estate stock analysts, rose 2.1 percent, also its biggest increase this year.
The S&P; 500 continued to climb last week, rising 62.5 points, or about 7 percent. The Morgan Stanley REIT index rose about 24.8 points, or 5.9 percent.
The similarities did not stop there. On Monday, when it appeared that the war was not going as smoothly as some predicted, investors decided to take some profits and the S&P; fell about 332 points, or 3.5 percent. The Morgan Stanley REIT index fell 10.4 points, or 2.4 percent.
Overall, REIT stocks have risen an average of 2 percent to 3 percent since the war started, and some analysts have questioned whether the increase is justified.
Merrill Lynch real estate analyst Steve Sakwa said this week that REITs are "close to the upper end of what we would deem fair value," and that the economy must significantly improve after the war to justify current values. Mr. Sakwa downgraded five retail-oriented REITs yesterday.

Germans make a buy
The influx of German investment in D.C. real estate continued last week. Blue Capital Investment, an indirect subsidiary of Germany's second-largest bank, bought 2300 N St. NW from Boston Properties for $114 million, or $408 per square foot.
The purchase is another example of Germans buying office space in the District and taking advantage of changes to financial rules that allow German funds to invest more money overseas. The German funds, which don't have many top-notch commercial buildings in their country, have shown a willingness to overpay for space in the United States.
The $408-per-square-foot price surprised some analysts, who noted that the building was constructed in 1986 and is not in the central business district. What's more, the building has seen its asking rent decline by nearly 20 percent in the past year to about $28 a square foot per year, or nearly $10 off the average asking rent downtown.
But real estate analysts said the building is considered top-notch because it is 99 percent leased and houses the headquarters of Shaw Pittman, one of the nation's top technology law firms.

In other news
Portions of the redeveloped Silver Spring will be officially revealed next week. Discovery Communications will hold its grand opening at its new headquarters at Georgia and Wayne avenues Monday, and the American Film Institute Silver Theatre and Cultural Center at 8633 Colesville Road will have its grand opening Friday.
Montgomery County's Design Competition Screening Committee selected five teams to present designs for the Silver Spring Town Square at Ellsworth Drive and Fenton Street. The teams are Bethesda-based Grimm and Parker; District-based Smith Group; Macho and Silvetti of Boston; District-based Hellmuth, Obata and Kassabaum; and Muse Architects, a District firm that is joining with EDAW of Alexandria.

Tim Lemke can be reached at [email protected]washingtontimes.com or 202/636-4836.

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