Developers Worried About DC’s Economic Future

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Washington, DC has enjoyed strong economic growth for much of this century, with thousands of people moving to the city and sparking development in neighborhoods across the district.

This continued growth over the next decade may seem inevitable, but commercial real estate executives fear the district government will take it for granted while implementing policies that could stifle the city’s economy.

Bisnow / Jon Banister

Steven Kenney of Cherry Bekaert, Ruth Hoang of Jair Lynch, Andrew Lyons of Fulcrum, Richard Lake of Roadside, Bo Menkiti of Menkiti Group and Andy Altman of Fivesquares

Several leading developers speaking Thursday on by bisnow DC State of the Market, said the district’s growing regulatory and tax burdens are leading investors to favor suburbs over city and look to other markets.

“Growth is not a given,” said Andy Altman, director of Fivesquares Development. “There is a feeling of, ‘Oh, look at the cranes everywhere, this will continue. We’re now at 700,000 people and it’s just that straight line going up. “”

That misguided sentiment forgets DC’s history over the past three decades, said Altman, who served as DC’s planning director under Mayor Anthony Williams. By the late 1990s, DC’s agencies were placed in receivership and managed by a federal supervisory board and the city had a rating for junk bonds, Altman said.

“There is a danger in not recognizing that history can repeat itself,” Altman said. “Cities can operate in cycles, and policymakers have an important role to play in what is happening.”

Policies that developers criticized included increasing district tax rates in 2019 on the transfer and registration of commercial properties, the Tenants Buyability Act, which creates barriers for acquisition of DC apartments, and the lengthy process of rezoning the city that has become fraught with appeals. and the associated delays.

“I have never seen a more inhospitable place for business,” said Richard Lake, Roadside Development partner. “I’m really, really concerned that everyone thinks this thing is just going to continue. The risk the city has is this feeling that no matter what we do, everyone is going to build here and everyone is going to want to. live here and you don’t. whatever. “

Lake, who has been co-chair of the Washington DC Economic Partnership since 2012, built the mixed-use Shaw City Market project in O and is working on the City Ridge project anchored by Wegmans on Wisconsin Avenue NW. He said local regulations and business taxes have made it more difficult for retail and office tenants in Washington.

“It’s getting harder and harder to operate in the city,” Lake said. “We have to recognize that. If we don’t change course, if we don’t educate the board, it will be a long road until we return.”

Lake said the district’s policies made it a more expensive place to develop than its surrounding suburbs and other neighboring towns, and he said that scared off investors funding new projects.

“Capital doesn’t feel like they’re being treated well in the city,” Lake said. “With fiscal policies, regulatory policies, it costs more to build the exact same product in Washington as it does in our inner suburbs. This is something we need to fix.”

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Bisnow / Jon Banister

Steven Kenney of Cherry Bekaert, Ruth Hoang of Jair Lynch, Andrew Lyons of Fulcrum and Richard Lake of Roadside

Jair Lynch Real Estate Partners, vice president of development, Ruth Hoang, said the company has acquired several apartment properties totaling 2,000 units since the start of 2020, and they are all in the nearby suburbs. She attributed this in part to DC’s TOPA law making it more difficult to acquire apartments in the city.

“It all happened just outside the DC line,” Hoang said. “We’re looking at things in DC, but we’re still in this long, long TOPA process.”

Hoang said DC’s transfer and registration taxes also present obstacles to making acquisitions in the district. She said Mayor Muriel Bowser’s administration should waive taxes for projects that will produce or preserve affordability to help meet its housing goals. She also said the process of getting tenants to affordable inclusionary zoning units comes with delays that can leave apartments empty for months.

“There are regulatory changes that need to be adopted,” Hoang said.

Menkiti Group CEO Bo Menkiti saw firsthand the risks associated with development in DC with his 220-unit project across from Brookland metro station. The project was first proposed in 2010, has had its approval overturned by the DC Court of Appeals three times, and it has yet to move forward.

Menkiti said DC must become a more business-friendly jurisdiction if it is to continue attracting the businesses and developments that have grown its economy over the past two decades.

“There’s this idea that the show will always go on, no matter how many restrictions we have, no matter how hostile we are, that it’s going to continue,” Menkiti said. “At one point, companies have opportunities and capital has choices, and they’re very fluid.”

While local developers and businesses may be loyal to their hometowns, Menkiti said outside investors who fund many DC projects don’t have the same dedication and will be quicker to look elsewhere.

“The capital doesn’t care,” Menkiti said. “It’s not going to go to places with additional uncertainty and additional costs. The question is whether we’re going to deal with that.”

Fulcrum Real Estate and Construction associate director Andrew Lyons said it’s harder and more expensive to grow in DC than in surrounding jurisdictions.

“If the district doesn’t pull itself together, it’s more opportunity for Virginia and Maryland because the district is expensive and bureaucratic,” Lyons said. “If the district is to keep pace, they have to change their game and make it more affordable, otherwise they’re going to lose to Montgomery County and Fairfax County, and people are just going to build around town.”

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Bisnow / Jon Banister

See Brian Klansky and Akridge’s Chip Akridge

In addition to making it harder to build homes, the district’s tax policies are also increasing costs for an office market struggling with record vacancy rates, Akridge chairman Chip Akridge said. He said DC’s taxes on office buildings were as high as $ 20 per SF, and for comparison he said office rents when he started building in the 1970s were around $ 7. by SF.

“Property taxes are triple the office rent when I came to Washington,” Akridge said. “It’s expensive to do business in Washington, DC”

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Bisnow / Jon Banister

Angie O’Grady of Stellapop, John McDonnell of Clyde Restaurant Group, Lucia Hedke of Cresa, Oliver Carr of Carr Properties, Katie Yanushonis of Meridian Group, Eric Martino of ThinkFoodGroup and Doug Hocking of KPF

As the downtown DC foodservice industry struggles to recover from the coronavirus pandemic, restaurateurs say the city’s transportation system adds additional challenges. Clyde’s Restaurant Group chairman John McDonnell said hiring new staff has been difficult this year for a variety of reasons, but one is that workers have few options to return home afterwards. a night shift.

He said employees at the group’s DC restaurants, including Old Ebbitt Grill, The Hamilton and Clyde’s in Gallery Place, often work until the subway closes, and it has also become more difficult and expensive to hail a car. with a carpooling app at that time.

“It has really been a big headwind for our night shift staff as there just aren’t a lot of employee transportation options right now,” he said. “They don’t have a late night subway, and it was not possible to get an Uber. It affects us. If the district can find something for transportation, that would be great.”


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