An Interview With: Bill Regardie

When we talked to him last week, Bill Regardie was looking at his new business card, which says simply, “Washington Legend” — and it’s not far off the mark. He grew up with humble roots at 14th and Park Road in DC, his father a soap salesman, his mother a secretary at the National Education Association, and getting his education at public schools such as Coolidge High until he did his undergraduate and MBA at American. But through the high profile pubs he created with wife Renay (New Homes Guide, born in 1975 and sold to the Post in 1998; and Regardie’s Magazine, published from 1979 to 1996, with a brief reincarnation in the late 90s), plus his saucy opinions and nearly everyday appearance at the Palm downtown, Regardie has created the mystique of one colorful character. He has lived his life in DC “except six years in Maryland, when I couldn’t wait to get back to DC.” He started professional life as a page at NBC, became “Charlie Brotman’s go-fer” at Griffith Stadium, then a press release writer at the Washington Star, where he says his first effort was to spend three weeks and 29 tries drafting a release that that Mo Siegel had joined the paper. Regardie says Siegel thereupon called him the most incompetent writer he’d ever met, but not long after they became lifelong friends. He did similar work at the Post, UPI, the Food and Drug Cosmetic report, and the Suburban Maryland homebuilders association, the American Wood Council, Artery builders, and Levitt Homes, and even sold Burroughs business machines, but he craved to be an entrepreneur. Working with Renay, his first home run was creating Housing Data Reports in 1973, where he sold big loose leaf binders to the first 39 people he called on. Their other successes followed. Today at 65 Bill’s taking it a little easier, but he retains his interest in the happenings of local real estate.

Bisnow on Business: Anything today remind you of the early 90’s real estate depression?
I remember 1990 well. Regardie’s magazine went from 8.5 million dollars in sales to 1.1 in a matter of four years. And our sales forecasts went out of date before they were out of the computer. We’re not going through anything like that yet. And I don’t expect to. But clearly the condos are way overbuilt, certainly in the suburban areas. They’re probably 30-40% overbuilt. Some of the office buildings are overbuilt. I don’t know that you’ll see the banks take them over, although probably that will happen to some. Home prices will probably come down in the neighborhood of 10-15%. You’ve just got too many products that were sold too high.

With the memory so fresh of 15 years ago, why would this happen?
Well, first of all it’s not fresh. People forget. I’ve been through five recessions. I started in this business in 1964. They teach history in school. But history is only for codgers. And that’s the only time you learn it, when it’s too late.

But people who are in leadership positions at the developers…
The developers never learn!

Why?
Because it’s like the story of the scorpion and the frog. The scorpion has got to get across the river. He sees a frog and says take me across the river. And the frog says, oh, no, no, no, no. You’re going to sting me and kill me. And the scorpion says don’t worry. I really need to get across the river. I promise I would never do that. And the frog says, oh, okay. He climbs across his back, but just as they get across the river to the bank, the scorpion sticks his fangs into the frog’s neck. And the frog says why did you do that? The scorpion says, I couldn’t help it. It’s in my nature. A developer does what he has to do. You put money in front of a developer and a developer will build. We’ve had so much money thrown in front of the developers to build buildings and condos. They had to build. The serious good builders haven’t really invested or bought a property in the last three years. The only people who have put up properties in the last three years have been the kids. The JBGs of the world have been selling for the last two years. They haven’t been building. You have not been seeing David Hillman of Southern Engineering buy any apartment deals the last three years, because the deals don’t make sense. It’s the kids that have been building. The kids have been buying up properties. Paying ridiculous prices, with no real sense of returns because they’re the only ones who will pay the ridiculous prices. All of my friends who have owned serious properties have been selling them the last year and a half because they’ve been getting absolutely ludicrous prices that are now beginning to collapse.

So you think there is a collapse occurring?
Yep. Let’s put it this way. The top of the market is there.

And this is for office as well as condo and residential?
Yeah.

All over, including downtown?
Well, downtown DC is still the best in the country. Don’t misunderstand me. I mean the prices that have just been reached for office buildings. The best of the best always goes down the least. You’ve just had the Four Season’s hotel sold for $800,000 a room, which is the highest price paid in the country as far as I know. And the downtown office buildings have now broken $70 a foot rent. You know if you’re a foreign investor and you’ve got money to invest, where are you going to invest that money? Look around the world. Some of that money is going to come to the United States, right? And some of that money is going to go into real estate, right? Where are you going to put that money? You’re going to put some of it in Washington DC. And where are you going to put it in Washington DC? Downtown. You’re not going to put it in far out Prince George’s County. You’re not going to put it far out in Fairfax County where there are 40,000 condominium apartments. You’re going to put it in an office building at Connecticut and K.

So that’s relatively safe, and it has been logical to develop there.
Oh, yeah. Or to buy and tear down there. Or to buy or renovate there. So those buildings are safe.

But how about other areas?
It depends on supply and demand. Look, if you’re the West Group and you own the ground and you have a two story building on there now, and your property is going to be re-zoned, you can’t lose. Your ground cost in there is zero because you’ve owned it for 25 years. Or if you’re the Learner Company and you own those 15 pads around Tyson’s Galleria, and you have zero land cost, you can’t lose. But if you’re coming into the game late, and you’re badly leveraged and you don’t have a tenant and you’re putting up a spec building, there ain’t enough tenants. There are empty office buildings in southeast Washington now because the government has finally stopped leasing. The great boom that came with 9/11 has finally stopped. And financing came when rates were low. All of a sudden rates are going up.

Who’s going to be left holding the bag if there’s a collapse?
If you’ve got a consumer with an adjustable rate mortgage at 8%, and they’ve got credit card bills at 21% and one of them loses their job or whatever. A lot of people can get hurt. I’m not saying people will get hurt, but you have the potential. Any time when your mortgage goes from 4% to 8%, obviously your payment doubles. If your payment was $2,000 a month, it’s now $4,000. Who can afford a doubling? I remember when I was starting to buy when I was 30 years old. I couldn’t afford a doubling. The house that we really wanted was $41,500. We settled for a house at $39,900 because we couldn’t afford the difference.

So we could have a hard landing?
None of us can tell until afterwards. Nobody can sit here today and say this is the difference today between now and 1990. But I think it’s going to be much softer and much less severe than in 1990.

Why is that?
I don’t think there is that much excess capacity of office buildings today. On the other hand, I think you have a hell of a lot of condos in at least two areas being thrown up. Certainly in the farther western Fairfax County and in Loudoun County. And I look at the number of condos being built in downtown Washington. There’s probably at least a five or six year supply. And of course these buildings will be sold out from underneath the developers. The lenders may take them back, the buildings will be foreclosed, a new buyer will come in, he’ll pay 60 cents on the dollar, the apartments instead of being $400 a foot they’ll be priced at $250 a foot and everybody walks away happy except for the people who paid.

So if you were advising a young person about buying a condo, would you tell them to wait?
Yes, at least a year, maybe two and one-half years for prices to play out. You know, you’ve got something like 15 condominiums within nine blocks of MCI. Some of them are just now coming out of the ground. Some of them are very innovative and are selling well. Others are block square buildings, towers of 400 units that are on the fringe of downtown. The city is very strong because people have just had it in terms of transportation time. They don’t want to spend an hour or more on the subway or trying to drive in. There is an extraordinary trend, which is just now beginning to show up. A stratospheric shift of people moving into the city. It’s much much greater than is even showing up in the official statistics. This may soften the condominium glut somewhat. And it may keep the prices up more than it would at any other time just because of the gasoline problems. But you get out into Fairfax County where there’s something like 40,000 condominium units on the market. When you get into single family homes in Loudoun County, you drive on the street and there are ten or twelve for sale signs up. I don’t know what in the hell happens there, except that prices get dropped. These are communities where prices went up 20% a year. And these are communities where prices will go down 20% a year.

As for DC’s continued boom, do you think it matters who’s the next mayor?
Nope. Makes no difference at all. The city has a tradition going back to Marion Barry of voting in a fresh young face. When Marion Barry was elected in 1978, his opponent was Walter Washington. And Marion Barry at that point was seen as a fresh young face who promised change. Linda Cropp is a Walter Washington. I happen to like Linda. I think Adrian Fenty is still very very young. I don’t think he has any serious experience in running the city. On the other hand, I think the city is such that it’s almost on automatic pilot. From my personal standpoint I’d much rather see a seasoned professional run the city. The problem is the school system. And there’s got to be something done because all of these young people are flooding into the city, and this is going to be their number one issue now and in the next few years.