Now that Congress and the White House have taken steps to quell the crisis on Wall Street, multifamily investors and brokers are calling Washington, D.C. the nation's new financial capital. Banking and workout analysts are moving from New York into apartments at DuPont Circle or along Connecticut Avenue, bolstering the city's apartment sector.

Already one of the healthiest metro regions in the country, the capital is benefiting from government hiring as the newly installed Obama administration tries to shore up the nation's financial system. The implosion of investment banks Lehman Brothers and Bear Stearns triggered greater federal scrutiny of big banks and created a need for more workers with auditing and investment expertise in government regulatory offices.

“Now that the federal government is getting involved in so many more areas of the economy — banking, the automotive industry, the insurance business — all of those expenditures will require lots of people to oversee them, and they will all be hired here,” says Rob Seldin, senior vice president for Archstone, an apartment developer and investment firm.

Headquartered in Englewood, Colo., Archstone owns 18,000 apartments in greater Washington, D.C., and its development pipeline holds 4,000 more units. The government's expanded role in private industry is drawing new enterprise including lobbyists, says Seldin. “All of that bodes well for multifamily housing.”

But the city's apartment market weakened in the first quarter, according to New York-based research firm Reis. The vacancy rate rose to 5.4%, up 60 basis points from the fourth quarter and 130 basis points from the first quarter of 2008. Still, the figures looked good compared with the national vacancy rate of 7.2%. Locally, the average effective rent dropped 1.3% to $1,331 per month.

Concessions ease sticker shock

Multifamily developments planned well before the recession struck in December 2007 are bringing a stylish new generation of housing to the region. But they're not cheap. The 246-unit Axiom at Capitol Yards, recently completed by Irving, Texas-based developer JPI Cos., commands rents starting at $1,595 for a studio, $1,885 for a one-bedroom and $2,725 for a two-bedroom unit. Concessions to entice new tenants include three months of free rent, and lengthy free parking.

The complex, near the new Nationals Park baseball stadium, has a rooftop pool and a glass-and-steel staircase. It is one of three multifamily projects JPI recently completed in the Capitol Yards district at a combined construction cost of $320 million, and the company said it would invest another $180 million in the Yards by the end of the year.

The Bozzuto Group, based in Greenbelt, Md., recently built the mixed-use Monroe Place, in Herndon, Va. With two months of free rent, the effective rate for a one-bedroom apartment is $1,345.

In Charles Country, Md., Archstone recently completed Westchester at the Pavilions. The 491 units sprawl over 30 acres, providing boxing studios and a soccer field, along with swimming pools.

In its investment strategy, Archstone looks for a diversified economy, high-income levels and limited land, along with job creation and potential growth near subway stops. “Right now the D.C. metro area is our single largest focus for development in the U.S.,” Seldin says. “It's really the one place that has been the most insulated from the financial downturn.”

The government's plunge into the financial sector is attracting investment that typically would have gone to Manhattan, says Mike Muldowney, executive vice president of brokerage CB Richard Ellis at its mid-Atlantic multi- housing group. “There are German banks investing in hotels and office buildings.”

In one complex deal, 16 banks agreed to invest in a major property, and the deal is rolling toward closing. Because of the turmoil in Manhattan and the loss of jobs elsewhere, the capital has emerged as the country's most stable investment market, Muldowney adds.

But the city is not immune to layoffs. In 2008, employers cut 12,100 positions, and for 2009 the projected loss is 18,400 jobs, a 0.6% reduction in the work force, according to Encino, Calif.-based real estate services firm Marcus & Millichap.

The education, health services and hospitality industries generated 22,000 positions in the past year, but other losses drove the unemployment rate in the first quarter to 5.6% from 3.5% over the past five years — still a far cry from the national unemployment rate of 9.4% in May.

Bases loaded in Maryland

Ramon Kochavi, regional manager of Marcus & Millichap, isn't worried. “The government will grow,” he says. Kochavi anticipates a contraction of defense contracting and an expansion of biotech firms under the new administration.

New research and development firms are springing up in Rockville, Md. and along the Dulles corridor in Virginia to support the National Institutes of Health in Bethesda. Medical-services growth is anticipated, too, as access to health care becomes a national priority.