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TEXT OF ARLINGTON NEWSLETTER, JUNE 2006

Submitted by Mark Tarallo, winner of the 2007 Washington Writing Prizes for Newsletter

Real Estate Showcase: Commercial Still Strong, Condos Uncertain

Arlington is not even close to being built out commercially, as both the office and retail markets are remaining fairly strong, the county’s economic development director told attendees on May 5th at the 2006 Real Estate Showcase and bus tour, sponsored by the county.   

“We are still in a good position. We’ve been able to maintain value in the markets,” said Terry Holzheimer, director of Arlington Economic Development, in a briefing to the more than 300 attending the conference, which included developers and consultants, architects and designers, county planning staff and Planning Commission members.

“Creativity, on the part of the county, and on the part of the development community, will keep growth happening,” JBG’s Ken Finkelstein said at the briefing. 

But all is not paradise in the county’s real estate sector. Although office construction is moving forward and more opportunity exists, vacancy rates -- X-- are higher than the county would like, Mr. Holzheimer said. 

And the supply-and-demand equation in the condo market is somewhat disquieting:   sales have been slowing since June 2005, yet 5,000 new units are now under construction in Arlington, according to county statistics. 

Active Office Market, But Vacancies Still Loom

Arlington’s office market remains active, with about 2.7 million square feet of office space now under construction, and seven buildings scheduled for delivery in 2006. The last year was also strong one for office sales, with nearly a billion dollars worth changing hands.

“A lot of trading is going on, in major office product,” Mr. Holzheimer said. 

On the more negative side, overall office vacancy rates in Arlington are still higher than what county officials would like. Of the submarkets, Crystal City leads in this category, with a vacancy rate of almost 15%.

The vacancy rates for other submarkets, as of February 2006, are 8% for Ballston; 5% for Rosslyn; 4% for Clarendon/Courthouse; 2% for Virginia Square, and 0% for Pentagon City, which is completely filled.

“The vacancy rates of all of our submarkets are well above healthy levels in the rental sector,” Mr. Holzheimer said.

However, a few silver linings have emerged from negative office market developments in the last few years. One has been “good office recovery,” Mr. Holzheimer said. For example, more than half of the office space in Crystal City that was vacated by the U.S. Patent and Trade Office a few years ago has now been re-filled.

           And unlike in other area jurisdictions such as Fairfax, large-scale moves out of the county, such as PTO’s move, have not hurt office rent rates. “We didn’t see a reduction in rent in Arlington,” Mr. Holzheimer said.

Hoping to Bring DARPA to Ballston

Another silver lining involves the Pentagon’s Base Realignment and Closure (BRAC) plan, which calls for roughly 3.5 million square feet of leased office space in Arlington to be vacated by various defense-related agencies. 

            When the BRAC report was approved late last year, it looked to some to be a potential disaster for the county’s office market. But at the May 5 conference, Mr. Holzheimer said that before that office space can be vacated, the Defense Department must build or secure new space.

            And that could take awhile, as the federal budget for securing new space is “way underfunded,” Mr. Holzheimer said. As a result, county officials now expect the near-term office loss due to BRAC to be minimal. The longer-term effects, however, could be more serious, so the county is working on luring new tenants into vacant or soon-to-be-vacant space.

On this front, county officials are hoping to bring the Defense Advanced Research Projects Agency (DARPA), which is the central research and development organization for Defense Department, into the old bus yard site at Ballston.  The bus yard site could accommodate both office and residential use,” Mr. Holzheimer said. 

The private sector has also been buzzing with a potential DARPA move to Ballston. 
“The agency we hear the most rumor about possibly relocating there is DARPA,” said Dave Millard, a senior director at Cushman Wakefield.

As for the future, there is only one office building in the county scheduled for delivery in 2009, and that may slip to 2010, Mr. Millard said. This lack of new supply in the future has had the effect of keeping rents firm, even raising them in some cases, he added.

Thus, Holzheimer’s message on the future of the county’s office market was that plenty of opportunity still exists.

“We still have maybe 20 million square feet of space to build,” Mr. Holzheimer said. “We are not built out in the market.”

Retail, Hotel Still Strong

Similarly, the county’s retail market is nowhere close to being built out.  “Three million square feet of retail space still can be built,” Mr. Holzheimer said. 

Some of this strength is due to retail sales, which continue to rise. Taxable sales went up roughly 5% in 2005 over the year previous, for a new total of $2.7 billion.  

In the hotel sector, occupancy rates in the county went up slightly in 2005 to 75%, from 73% in 2004, according to county statistics. 

In fact, the venue of the conference -- JBG’s Arlington Westin hotel at 801 North Glebe Road -- has recently opened as the first new full-service hotel in the county in 15 years. 

“It’s 60 days old. It’s just getting its legs under it,” said Mr. Finkelstein of JBG. 

And the county is expecting more hotel construction in the next few years. “Several other hotels are about to submit site plans,” Holzheimer said.

But What About Condos? 

On the residential side, construction is still booming in Arlington, and home prices continue to rise. The average sales price of a single-family home rose to a whopping $741,882 in 2006, up from $688,527 in 2005.  The average condo price rose to $390,951 in 2006, from $363,187 in 2005.    

Over 1,000 new residential units were completed in 2005. Currently, there are 5,671 high-rise residential units under construction, according to county construction.

“Residential development is at an all-time high,” Mr. Holzheimer said.

But while condo supply keeps increasing, demand has started to diminish. The downward trend began in June 2005, when monthly sales dropped below sales for June 2004.  
“Things started changing a little bit in June of ‘05,” Mr. Holzheimer said. 

The trend stayed consistent from then on, with monthly condo sales from June 2005 to March 2006 all lower than the same month of 2004. “The inventory is starting to get slightly larger,” Mr. Holzheimer said.

Despite the dip in sales, Mr. Holzheimer contended that the condo market remains strong. But given the supply-and-demand situation, the future of that market seems to be much more uncertain.

Review of Plan Review

At the briefing, county officials also offered a summary of some of the Arlington’s development priorities for the immediate future.

Susan Bell, director of Community Planning, Housing, and Development for the county, said that building is booming in Arlington: there are roughly 8 million square feet of development projects under construction, and an additional 8 million square feet are in the pipeline.

But Ms. Bell conceded that the building boom is causing serious delays in the county’s permitting process. “Permit and inspection processes are really straining under that 8 million square feet,” she said. 

And so this year Arlington officials allocated an additional $1.8 million in budget funds for the Inspection Services Division (ISD). Ms. Bell said the department would work on several fronts to improve operations, with a particular emphasis on workload management and customer relations.

The ISD will also better coordinate operations so that applicants will be able to check the status of plan review on the Internet. “We’re going to be working with the zoning side of the house,” she said.
 
Finally, Ms. Bell’s division will also conduct an audit of the site plan review process later in the year. 

“We’re retooling the process that makes life torturous for yourself and your clients,” Ms. Bell said. Her statement was greeted by vigorous applause from conference participants.

But however much developers may become frustrated with Arlington’s slow project review pipeline, building community members such as Mr. Ken Finkelstein said that the county still offered “a very exciting market” for the right project. 

“Arlington is a great, great place to do business. They really have the smart growth thing down,” Mr. Finkelstein said

On the subject of smart growth, Mr. Holzheimer said that “green building,” --  encouraging building practices that are compatible with sustainable development – would be a top county priority for the upcoming year.

“We’re going to put more emphasis on environmental development in the future,” he said. 

In terms of recreation facilities, in 2006 the county will continue to develop the North Tract park as a “world-class” recreation facility, and the new Ballston Skating Rink will be opening in the fall, Mr. Holzheimer said. 

“This is going to be the finest skating establishment in the mid-Atlantic area,” he said.

The Grand Bus Tour

After the economic outlook briefing, conference participants piled on a series of buses for a grand tour of the various county real estate submarkets.

 The Ballston submarket, for example, continues to remain active. Some are thinking that the Peck building site, located at the corner of North Glebe Road and Wilson Boulevard, will be redeveloped with two office buildings, said Cushman Wakefield Managing Partner Dave Millard. The site itself is more than two acres, is considered one of the last remaining office sites in Ballston.

And the existing Harris Teeter at 600 North Glebe Road may be exchanging hands in the near future. “It’s rumored to be for sale,” said Mr. Millard. He added that a new owner would have an option to convert to 450,000 of office space if the sale is made. 

Similarly, the existing IHOP site at 935 North Stafford Street also has the potential to be redeveloped as 100,000 square feet of office, but a sale of that local institution is not expected. “It seems unlikely they will do anything with that,” Mr. Millard said.

The county is still trying to encourage the redevelopment of Columbia Pike with the “form-based code,” which means that Arlington planners have detailed blueprints for what they want new projects to look like.

“What’s really important is the form. Form, in this case, trumps use,” Mr. Holzheimer said.

But so far, most developers have been taking a wait-and-see approach, so few projects have been submitted in the area. Gary Cook, of Charles E. Smith Realty, said he hoped that the diversity of Columbia Pike -- such as the many casual ethnic restaurants -- would eventually attract more projects.    

“You’ve got a pretty cool vibrant area,” Cook said. “It’s very similar to what Clarendon was 15-20 years ago.”

And in one bright note for the area, the homebuilding giant Toll Brothers has submitted a residential project for the Pike (see story below on new site plans).

Shirlington, Crystal City Redeveloping

Shirlington, by contrast, is further along in the redevelopment process than Columbia Pike, as evidenced by the many construction sites in the area. The new Shirlington Library and Signature Theater is scheduled to open later this year. Trammell Crow, Ed Peete, and Bozzuto and Associates all have major residential buildings going up. 

“It’s getting ready to get a lot better,” Mr. Cook said. “It’s not your father’s Shirlington.” 

And Crystal City has been experiencing something of a comeback since the U.S. Patent and Trade Office (PTO) moved from there to Alexandria a few years ago, leaving roughly 2 million square feet of office space vacant. 

When the PTO left Crystal City, “we realized changes needed to be made,” said Tod Talley of Charles E. Smith Commercial Realty, which owns most of the office space there.

So Smith made changes. It added restaurants like Jaleo to make Crystal City more of a night-time destination. In addition, the ample amount of evening parking in Crystal City has staring luring diners away from other places, like Clarendon and Alexandria, where finding a parking spot is harder, Mr. Cook said.

In terms of its office space, Smith has made a push to bring in new clients. The Smithsonian complex plans to lease office space there, as well as publishing giant BNA and Olsson’s Books and Records.   

“We’re competing with the District for major tenants, and we’re winning,” Mr. Talley said.

Five Major New Projects Filed With Arlington Zoning Office

 
Redevelopment is continuing at a brisk pace in Arlington, as five new major projects have been filed the county’s zoning office in the last month or so.

The projects include a site plan from Toll Brothers for the Columbia Pike, where projects have been slow in coming despite the county’s efforts to encourage revitalization. They also include a proposal from Charles E. Smith to convert an office building to a residential tower in Crystal City.

Other projects include the lastest building in George Mason’s Arlington campus, a new residential and retail building on Fairfax Drive, and an office-residential complex off Glebe Road. 

New Columbia Pike Proposal

            Toll Brothers is proposing to build a mixed-use building containing 113 living units and 18,120 square feet of ground floor retail at 3717 Columbia Pike. The project is filed as an amendment to an existing site plan. 

The applicant is also requesting a rezoning, from R-5 to C-0. Toll Brother is based in Horsham, PA.

The county is trying to encourage the redevelopment of the Columbia Pike in the last two years, but projects thus far have been few and far between. Thus, this new project is significant in that it represents an attempt by a major developer with a national scope to give Columbia Pike redevelopment a try.

There is a Site Plan Review Committee meeting on the new project tentatively scheduled for July 10.

Mixed Use on Glebe Road

Over on Glebe Road, Reston-based Silverwood Homes has proposed a mixed-use project, anchored by a new nine-story building that will contain 145 residential units and 2,500 square feet of office space.
The proposed project also includes the upgrading of an existing Exxon automobile service station, so that it would also include 5,000 square feet of convenience retail. A landscaped strip of land is proposed to separate the residential building from the Exxon site. There would also be a small courtyard built behind the building.
The site is located on the west side of North Glebe Road, between North Carlin Springs Road and 7th Street North.  The site is currently zoned “C-2” Service Commercial; the applicant is requesting a rezoning to “R-C” Apartment Dwelling and Commercial. The General Land Use Plan (GLUP) designation of the site,  “High-Medium Residential Mixed-Use,” need not be changed.
An SPRC meeting on the site is tentatively scheduled for June 15.

A Crystal City Conversion

In Crystal City, Charles E. Smith is proposing add six stories to an existing office building, and then convert it to residential use. According to the staff report for the project, it would be the first proposal in Arlington that would reuse an existing large building and convert the use from office to residential. 

This 1.72 acre site is part of “Crystal Plaza,” an eight-building project built in the 1960s. The site is located at the southwest corner of 20th Street South and Crystal Drive. Smith is proposing to carve out part of the existing Crystal Plaza site plan into a new site plan that would include the proposed converted building and existing associated retail. 

The existing 190,320 square foot Crystal Plaza 2 office building would be the one converted to residential use. The extra six stories would make it a total of 324,165 square feet. There is 27,812 square feet of existing retail space that is physically connected to the proposed site. 

In addition, Smith proposes to designate 281 existing Crystal Plaza parking spaces, which are located on the G2 level of the garage, for parking to support the proposed residential development. 

The site is currently zoned “C-O” Commercial Office Building, Hotel and Multiple-Family Dwelling District. The GLUP designation of the site is mixed - 3/7 “High” Office-Apartment-Hotel, and 4/7 “High” Residential. Neither a rezoning nor a GLUP amendment would be needed.

There is an SPRC meeting on the project tentatively scheduled for June 12.

Donohoe and Virginia Square

The last two projects are still being hashed out with county staff, so only limited details were available as of press time.

On Fairfax Drive, the DC-based Donohoe Corporation has proposed a new mixed-use building at 4000 Fairfax Drive. The building would contain 232,638 square feet of residential space, and 7,753 square feet of ground-floor retail.
  
An SPRC meeting on the project is tentatively scheduled for June 15.
Finally, in the Virginia Square area, George Mason University (GMU) is proceeding with Phase 2 of its already approved master development plan for its Arlington satellite campus. GMU is proposed to build an academic building of 256,362 square feet.

County Announces New Program to Assist in Home Buying

Residential developers, take note: the county is starting a new program that will make it easier for 11,000 county residents to buy your product.

Arlington has joined up with Freddie Mac to form Arlington County Homeownership Made Easier, Inc. (AHOME), an entity that will help employees of participating county businesses purchase homes. The new program was announced on June 6 at a press conference held at the offices of Arlington Economic Development, at 1100 North Glebe Road.

The eligible county residents will have access to a variety of home buying resources, including flexible mortgages, down payment assistance from various programs, home buyer education, and credit counseling.

In addition, the county plans to work with developers to encourage them to set aside properties to be sold at a discount to eligible program participants. Participating developers include KSI Services, IDI Group Companies, and AHC, Inc. 

“Promoting new workforce housing initiatives gives local employees a real opportunity to become homeowners. I salute the employers, non-profits and the county for advancing this thoughtful initiative,” said Congressman Jim Moran (D-Va), who attended the June 6 press conference.  

Five private employers are participating in the program: AHC, Inc.; Ethiopian Community Development Council Inc.; George Mason University; Marymount University and Virginia Hospital Center.

Other participants are the Arlington County Government and Arlington County Schools. All told, the five private companies and two government-run organizations employ roughly 11,000 workers. All will be able to participate in the program. 

Five private employers: AHC, Inc.; Ethiopian Community Development Council Inc.; George Mason University; Marymount University and Virginia Hospital Center are participating in the program, along with Arlington County Government and Arlington County Schools. Together, they employ 11,000 workers.

“This is an innovative program that offers employees now facing long commutes a chance to make Arlington County their home,” said County Board Chairman Christopher Zimmerman, who also attended the press conference.

The new program will give participating employees access to mortgages and services specifically designed to meet their needs. Local lenders, including Citibank, First Horizon Home Loans, George Mason Mortgage, National City Mortgage, SunTrust Mortgage and Wells Fargo, will make available flexible mortgages that address credit and down payment issues.

Freddie Mac will purchase eligible mortgages from the lenders. In addition, the Virginia Housing Development Authority will offer down payment and closing cost assistance programs and mortgages for eligible individuals with household incomes up to $100,000.

Briefly Noted

The Arlington-based Shooshan Company was recognized as one of county’s best businesses at a May 16th awards ceremony by the Arlington Chamber of Commerce and the Arlington Economic Development Commission.

            Shooshan was recognized for its practice of maintaining good community relations, and for its efforts to pursue development projects with integrity. 

Shooshan is a full-service development firm that oversees the design, construction,  leasing and property management of roughly two million square feet of real estate in the D.C.  metro area. Its major projects in Arlington include One and Two Liberty Center, and One Virginia Square.