Tony Marquez is the President of Commercial Banking at EagleBank. Headquartered in Bethesda, Md., EagleBank is a community bank serving the Washington, D.C. metropolitan area with over $10 billion of assets. Tony joined EagleBank in 2011 as the Chief Real Estate Lender. Prior to joining EagleBank, Tony established the real estate lending franchise for HSBC for the Washington, D.C. market in 2005. He has over 32 years of experience in the banking industry in the Washington, D.C. area, is a graduate of George Washington University with a B.A. and an M.A. in International Affairs, and he also holds an MBA from Adelphi University.
Tony spoke with lev.co to discuss some of the unique features of the real estate market around Washington, D.C.
lev.co: The DC area features the second busiest rapid transit system in the country. How has work-from-home affected the DC office market, and have you seen any difference between the city proper and its suburbs?
Tony Marquez: The DC office market is going through a material transformation buffeted by a trifecta of rising interest rates, less demand for space from tenants, and rising costs to get the tenants into space. This process of value/price discovery will take several years to unfold and will certainly feature value adjustment as one of its hallmarks. The story will play out along the timeline of lease maturities over the coming years and as the reality of the trifecta begins to impact individual owners, investors and lenders. As to the difference between downtown and the suburbs, it is always submarket specific even when one compares one submarket in “the city” to another in “the city”.
How have borrowers reacted to the rapid rise in interest rates? Has the pace of acquisitions and developments slowed down, or are deals moving forward with lower leverage?
There is little doubt that the cadence of Fed rate hikes and the magnitude of the rate bumps has had an impact on all of us as we undertake go / no go decisions on both investments and lending. Rate hikes have an impact on the decision to lend and at what credit spread and leverage point to compensate for the uncertainty caused by the rate hikes. We have seen borrowers correctly reacting by slowing down and being more cautious in their approach. Having said that, each borrower and project/company has its own criteria for investment and risk tolerances, so opportunities can be found to deploy capital with an appropriate risk adjusted return both on the investment and lending sides of capital deployment.
In which submarkets around the DC area do you see strengths and weaknesses?
We have seen some considerable resilience and strength in both multifamily and warehouse, with data centers impacting some of the pricing for warehouse land in Northern Virginia.
Northern Virginia is actually the largest market in the world for data centers. Do they have a significant effect on the real estate market, or are they just a feature that happens to boost industrial demand?
EagleBank is fortunate to be in proximity to one of the largest data center markets in the world. We have benefited by participating in the financing of various data center projects for experienced sponsors who typically bring with them very good end user tenants with effectively bondable leases. The growth of the data center market is highly dependent on access to power, and again we are fortunate that the varied energy companies and utility providers have been able to supply the sector with sufficient megawatts to support the growing sector.
What is the multifamily construction environment like in DC, and has it been able to keep pace with demand?
There has been for several years a steady supply of new multifamily product in the DC area, and to date supply has been absorbed. But like any good thing, at some point there will be a better balance, and rents and demand may curb and impact rental rates. The trick of course is to anticipate submarket by submarket where demand will be resilient and assess that supply / demand dynamic several years out to better position new product to meet a future that is certainly less clear today across varied cost inputs.
The US government leases real estate, both as a tenant and a landlord, through the General Services Administration (GSA). What should a property owner think about when considering a GSA lease?
The US Government / GSA market is a niche within the office sector, and just like with regular office supply demands, this niche will see a revaluation. Here the issues are perhaps more focused on specific dynamics for the agencies that are housed in a particular GSA building. At the same time, remote work in this sector is also impacting how the Federal Government assesses its needs with perhaps the only difference being that the GSA buildings and leases have a variety of different hurdles and GSA-specific matters that push it into a niche category. Examples are helpful, in many GSA leases the agency has holdover provisions that allow them to stay in the building beyond the lease maturity and this and other specialized features make these office deals and leases take on their own set of challenges. In less uncertain times, GSA transactions can be viewed as perhaps safer due to the tenants, but come with their own level of complication, and not all owners fully understand how to play in this niche.
About how many years after the completion of Nationals Park and Capital One Arena did the surrounding areas take to redevelop, and how have these markets endured 15-25 years later?
Any objective look at both the area around Capital One Arena and Nationals Park would lead one to conclude that during the years subsequent to their construction the surrounding areas benefited greatly from having those particular growth/attraction nodules developed. There is little doubt that other investment followed into those submarkets with more confidence. In each case, the submarkets in question greatly benefited from the foresight of the initial investors/developers, and the city has benefited from those developments. The number of years is a harder question to answer and really depends on the metrics applied to assess impact and when each submarket could really be considered completely stabilized, but each was transformative for the areas and the city.
What are some of the most recent CRE projects Eagle Bank has financed?
Lending into the affordable housing sector has been a good source of business for EagleBank. Some of that lending has been catalyzed by our FHA lending platform, which has added to the bank’s collective understanding of the affordable housing sector. As a community bank, this type of lending fits right into how we think a good community bank should be using its lending capabilities to address a need for affordable housing where we do business.