There’s a lot to like about the Tower Cos. plan to redevelop its Blairs residential and retail complex next to the Silver Spring Metro station.
New shops and restaurants. Two dog parks. High-density, transit-oriented residential space. And a 200,000-square-foot office building in a market where other developers are tripping over each other to convert existing office space to apartments.
In fact, the Montgomery County Planning Board likes the 3.8-million-square-foot project so much, it approved a preliminary plan on Thursday that could cut many months or even years off its multi-phase construction.
Addressing common developer complaints about lengthy review times, the board granted the Rockville-based firm a waiver that would allow it to submit demolition applications before completing site plan approval.
“We’d like to be able to start digging that hole because time is money,” said attorney Robert G. Brewer, representing the developer.
Over the next 20 years, Tower plans to transform the sprawling, 30-acre, 1960s-era suburban property into a genuine urban neighborhood. In addition to multiple parks and the office space (which will add a net 127,438 square feet after demolition of an existing 72,562 square-feet), the proposal includes 250,000 square feet of retail space, a 125,000-square-foot hotel, and 3.4 million square feet of residential space. The plan calls for a total of 2,800 housing units, including 1,110 existing ones that would be preserved.
Planning commissioner Norman Dreyfuss said he was impressed by the willingness of the multi-generation Tower firm to sacrifice short-term profits by committing to such an ambitious redevelopment.
“It’s a great thing for the county to have a company with this long-term vision,” he said.
The project is an affirmation of planners’ hopes for Silver Spring, planning chairwoman Françoise Carrier said.
Tower will begin by tearing down the four-building Blair Tower next year. Another major demolition would be delayed until 2024, when the lease ends for the existing Giant grocery.
Altogether, the project involves seven new buildings, each of which will require Tower to go through the county’s site plan approval and demolition and construction permitting process. That adds about two and half months to the approval process for each building, Brewer said.
The ad hoc change in the application schedule is a boost for the county as well, planning board member Casey Anderson said.
“It commits them to move if they tear all the buildings down,” he said.
Virginia took a new swipe at Maryland with the announcement that Cvent, a cloud-based event management firm, will relocate to Tysons Corner after considering moving across the river.
The dig at Maryland might be dismissed as pointless chest-thumping, considering that Cvent is staying in Fairfax County. But it is fresh evidence that the Northern Virginia market has more to offer than suburban Maryland, despite the Free State’s lower office rental rates.
“Virginia successfully competed against Maryland for the project, which will create 400 new jobs in three years and retain 451 jobs,” a press release from Virginia Gov. McDonnell said on Oct. 22.
It’s very likely that the look across the Potomac was part of the local corporate routine of threatening to move out of state to win taxpayer concessions. In fact, Cvent’s half-mile move from McLean will cost Virginia a $1 million grant from the Governor’s Opportunity Fund.
Cvent’s relocation won’t involve any new build-to-suit construction either, because the firm will take 130,000 square feet from the former 900,000-square-foot headquarters campus of military contractor SAIC, which signed for smaller space in Tysons Corner.
But the fact that the crowded Tysons Corner’s market is so dynamic to allow such moves is one sign of Virginia’s advantages over Maryland, according to a new report by broker Colliers International.
Its white paper, “The Road More Traveled: Why Employers Continue to Choose Northern Virginia Over Maryland,” concludes that taxes, health insurance costs and developer risk-taking all play a part in corporate-relocation decisions.
The report concluded “Suburban Maryland and Northern Virginia continue to compete over the same tenants while Washington, DC typically does not. The lesser cost of doing business in Virginia versus Maryland creates a competitive advantage for ownerships in Northern Virginia.”
In looking at corporate tax rates only, the reports notes that Virginia’s is the lowest at 6 percent; Maryland is second at 8.25 percent; and D.C. has the highest rate at 9.975 percent. The difference compounds the fact that average employer health insurance premium costs give an advantage to Virginia, at $32.4 million for a firm in a 200,000-square-foot office space, compared to $40.9 million in Maryland.
Combined, corporate income tax and health costs more than wipe out the fact that the Maryland suburbs offer lower average rents at $25.38 per square foot than in Northern Virginia, where the average is $30.62.
Anyone choosing Maryland will have to absorb a 27-percent higher cost of doing business when accounting for the corporate tax and health insurance. That’s a major factor for employers who value Maryland’s schools or liberal social policies affecting employers, such as recognizing gay marriage.
The Colliers report adds that “tenants are also choosing Northern Virginia over suburban Maryland due to the considerable edge in development momentum Northern Virginia possesses.”
It cites communications firm Intelsat’s decision to move to Virginia from D.C., passing on 4500 East West Highway in Bethesda, which the report noted is Maryland’s only “trophy-quality new construction.” Intelsat has signed for 188,000 square feet at a 22-story building that is expected to be completed in early 2014. It also helps Virginia that the first phase of the new Metro Silver Line is expected to be completed in December, while Maryland’s proposed Purple Line light rail system linking Bethesda to New Carrollton is not a sure bet for needed federal funding.
Finally, Colliers notes the fact that more speculative office space is under construction in Northern Virginia, with almost 4.5 million square feet in the pipeline, compared to about 2.25 million square feet in the Maryland suburbs. And only 40 percent of that space is pre-leased in Virginia, compared to 84 percent in Maryland.
“In addition to the quality of buildings in Northern Virginia, a great indicator of tenant demand is ownerships’ willingness to go speculative in construction. … This creates far more options in Northern Virginia than exist in suburban Maryland,” The report said.
The General Services Administration needs to improve its real estate planning and consider better alternatives when it leases space, according to a new report by the Government Accountability Office, the internal federal watchdog agency.
In a review of 218 high-value leases — about 60 percent of which are in the D.C. region — the GAO found that the GSA is hobbled by Congress, which provides insufficient funds to allow agencies to make the often cheaper decision to buy needed space rather than rent it. The report to the Senate Committee on Homeland Security and Governmental Affairs also said that the “GSA and tenant agencies have faced challenges in funding space renovations and moving costs,” which “contributed to delays and some cases in which GSA continues to occupy space after the lease expires.”
The report noted savings the GSA has achieved through its office consolidation program. Notably, GSA recently negotiated for more than 1.2 million rentable square feet in suburban Maryland with an estimated annual lease cost reduction for National Institutes of Health of $4.4 million.
A 2012 GSA report said planned consolidations by HHS would improve its utilization rate and increase the number of staff in the space by about 50 percent, creating an estimated savings of more than $10 million in annual rent.
But the GSA also “does not follow capital-planning practices involving alternatives evaluation, project prioritization, and long-term capital planning,” the report said.
One such example is the ongoing consolidation and renovation of the HHS Parklawn building next to the Twinbrook Metro station in Rockville by Chevy Chase-based JBG Cos. The GAO noted that the new 15-year lease starting in 2015 results in a space reduction of about 28 percent.
One advantage of leasing the 935,000-square-foot complex is that the developer has more flexibility to finance major renovations for which the GSA would have difficulty securing funding from Congress because the project is backed by a long-term federal lease.
But passing financing costs through to taxpayers can be more expensive than the costs to the government of borrowing money from the Treasury.
“Considerations of such trade-offs could be factored into an analysis of whether the government should own or lease such high-value space needs, but the prospectus for this [Parklawn] lease did not consider alternatives to continuing to lease this long-term space need,” the report said.