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I attended an event this morning hosted by Bisnow on 'Hot Topics in NoVa.' The hot topics surround commercial real estate development around Tysons-Dulles corridor and transportation. Congressman Gerry Connolly (VA-11) and Til Hazel (attorney-developer) were the keynote speakers. Before Connolly becomes Congressman, he was the Chairman for Fairfax Board of Supervisors. Listening to his talk, now I understand why Tysons Corner is clogged during the day specially during rush hours. The burb is a classic example of suburban city that is auto-dependent.
Imagine this. There are 150K jobs in Tysons. The area covers 1,700 acres with only about 17, 000 people live there. And 150,000 people commute into and out of Tysons at exactly the same time via Route 7 and 123. D'oh. That explains why we need to create another mode of transportation. Furthermore, eighty-percent of the storm water is untreated. Connolly says, there are some 46M of stuff in underground Tysons.
The next generation of Tysons will have to have the density right. Higher density, that is, than originally zoned for. He also mentioned that Vienna and McLean benefit with the transformation going on in Tysons.
Dulles is the largest corridor of employment in the Commonwealth. Thus, making Tysons a very important corridor. He reminds the audience, that the first reference to Dulles metrorail was in 1962. 47 years later we could see it coming. What's interesting is the way the transportation dollars is distributed. It's complicated and have uneven playing field between roads and transit. For transit the state will have to apply directly to the Feds. Though, Dulles metrorail matching funding formula is 80/20, at the end of the day, when this project finally completed in 5 years, the real dollar from the Feds translates to only 16% of the total cost.
The discussion for density in Fairfax and Northern Virginia will be the moment of truth, specifically for Tysons Corner area. If we look at the example, Arlington, even though it has 4x the density, it has no impact on its roads.
So land zoning is an important part of the future.
The idea of transforming Tysons to a new level urban, mixing it with suburban mindset, where more density means more cars scares a lot of people. You don't buy an apartment next to a metro station without paying the premium. There's a reason for that. Overcoming fears and resistance to change will be a big challenge for the task force.
Springfield is next. (I think this is what Connolly means, Springfield will be the next big project here).
Til Hazel really speaks his mind. ( I would add here his tone is less upbeat than Connolly). He said twice that "Virginia is financially broke!" We have education, transportation problems. Furthermore, he says that Virginia doesn't have transportation plan. And we have serious NIMBY (not in my back yard) problems.
The thing that he said rings true is, that many of the big employers here do not participate at all - in policies. They're non-participant. Business community is disengaged? Why? Because when things are bright, no one cares. He said that we need to find solutions to these issues: transportation and education. He's been in commercial real estate since cows outnumbered people. (He definitely has a lot of knowledge on these issues). So, get with it. Don't think someone else will solve the problems. Problems won't be solved until you take charge. That's so true.
Next, we move to a discussion around transportation, commercial real estate market for this area. Cathy Delcoco, EVP of CB Ellis gave a state of the market update. When comparing '06 vs. '09 commercial vacancy rate in '09, it was totaled 14.2% vs 8.2% in '06. She said we'll double that vacancies at the end of the year. Absorption rate in 2001 is net negative rate. People think just because we're in the nation's capital, we're not immune to this. We are. She said that we've seen negative absorption rate this year around 700k SF.
What's true in residential, like location is prime factor in real estate, is also true in commercial. Vacancy rate for outside the beltway is 16.7% vs 9% for inside the beltway.
The market drivers around here, is the Feds. The top 25 transactions either defense related or GSA deals.
Listening to the panelists, it seems that everyone agree about how commercial real estate is the next shoe to drop. Loans are coming due in 2010-2013, while values of building not equal to debts or have gone down.
A bit shift into residential, the price appreciation from '01-'05 of 14, 14, 20, 22 percent have been "completely" wiped out, we're now back to residential land value equal to 2001 prices. One of the panelists said that while residential slowly coming out of the woods, commercial only beginning to see their part of tsunami. The first hit was residential. Then corporate, stock market, last is commercial. It will be a couple of years before market recover.
Other hot topic heard there: transportation. We need enormous sum of money in VA dedicated for transportation about $100B at the state level. The question is who's going to pay for it?
One of the panelists, I think it was Arthur Fuccilo, EVP Lerner Enterprise, said that 'tax increase is the only way to solve this problem, and no one wants to talk about it.' I'm sure a lot of people in the room don't like to hear what he said..
Full disclosure: I was there on behalf of EcoBuild.