Examining the Dulles Corridor

Q&A with Ryan Goeller, principal at KLNB

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Real estate in Northern Virginia is experiencing a strange year. Ever since the pandemic, the region has seen the office market crater, multifamily rise and industrial explode — but investors remain wary about all sectors given the uncertainty in today’s markets.

Ryan Goeller, a principal at KLNB, specializes in the sale and leasing of office and industrial properties in Northern Virginia, focusing primarily in the Dulles Corridor. Over his 14-year career, he has concentrated on data centers and industrial properties.

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This year, Goeller led 17 different properties on 100 acres in Loudon County through the entitlement process to various owners and sold them for data development in what he called the “$210 million Arcola Assemblage sale.” 

Goeller spoke to Commercial Observer about how the NoVA market was faring amid the headwinds.

Commercial Observer: How would you characterize what you’re seeing in the Northern Virginia market as we head to summer?

Ryan Goeller: The market in general is active. I say that because there’s a lot of activity, but depending on what sector you’re talking about it could be good activity or bad activity. There’s a learning curve among the owners. With interest rates moving the way they have been, there’s a lot of people in the market being extremely cautious or sitting back and waiting to see how it all shakes out. Owners don’t want to come to the realization that their real estate has been devalued pretty significantly as interest rates have moved significantly upwards. You have a lot of buyers and investors trying to find opportunities that may or may not be there because everyone is sitting on the sideline.

What is the KLNB’s strategy at this point in the year?

For my team, we’re looking for opportunities. We’ve seen this in the past with other cycles. So far, this feels a little different, but down markets bring opportunity. We’re looking for maybe someone’s loan coming through and it forces a sale, or maybe there’s defaults. We’re also seeing a lot of aging office buildings and redevelopment opportunities, and they can be redeveloped into better use, be it flex, warehouse, multifamily or a data center based on location and zoning.

Redevelopment has been a big trend in this area over the last two years. Do you expect that to continue?

I believe it’s just the start of what we’re going to see.  I think some owners are looking at their rent-roll and realizing how difficult it’s going to be to backfill some of the spaces without putting a lot of money into it, and realizing they can get out and sell for a good price while the redevelopment opportunity is still there.

What are you seeing with industrial?

Industrial is as strong as ever and I don’t expect that to change. There is just no inventory. It’s very difficult to purchase an industrial building. Sellers, despite the hot prices, don’t want to sell. The ground-up development opportunities on the industrial side are very few and far between. Leasing activity has been extremely strong. We’re seeing rents that we’ve never seen before on the flex/industrial side or even the more traditional — rents in the $20 range triple net on large block distribution warehouses. It will continue to be strong in our area.

The market continues to have lots of challenges. How do you think these will play out for the rest of 2023?

I think the markets are active and there’s money out there to be spent. There are still buyers and investors, and we’ve seen some institutional money that was sitting on the sidelines over the last 24 months who are back in the market. I think the activity will be good the rest of the year. 

But if you’re talking about office, I think it will continue to struggle. Things will get worse before it gets better.  I think there will be a delayed effect of these interest rate increases. It will send a ripple through the market from a commercial lending standpoint. Some of the leasing activity has been strong, but banks are tightening their regulation. When it comes time for an owner to get approvals for deals or loans, these interest rate increases will have an effect. It’s going to require buyers to come out of pocket more.

You mentioned office. What can be done to get this sector back on track?

I just think it’s going to take time for everyone to adjust to the remote work and fall into place with the equilibrium of how much office space these companies really need. We’ve seen this in the past before, where everyone downsizes and then realizes they do need space. 

So, what do you expect in the year ahead?

We are looking really strongly at some of these redevelopment opportunities, whether it be multifamily or data centers. A large part of my work is in the data center industry, which is also really strong. That’s how I’m staying afloat through these times. The key is to be open-minded and nimble. It takes years to put these redevelopment deals together so it’s not so much what’s happening right now, but where are we going in two to three years and what can we do with this property, and things could be better or worse by then. But right now, the outlook is looking good and I’m feeling good about things.

Keith Loria can be reached at Kloria@commercialobserver.com.