By Adam Pagnucco.
Part One told a brief history of the Viva White Oak project. Part Two discussed the nature of Tax Increment Financing (TIF), which is being proposed to fund infrastructure for the project. Part Three featured my questions to and answers from MCB Real Estate, the project developer. Today I’ll give my opinion on this project and the TIF proposed to support it.
First, let’s deal with the TIF. Its critics are calling it corporate welfare and the Washington Business Journal called it “an infrastructure subsidy.” Until I see evidence otherwise, I won’t characterize it that way. TIFs as I understand them collect property taxes, they just use them for infrastructure bonds rather than send them to the operating budget. The term “subsidy” implies that the county is handing money to the developer and that’s not how TIFs generally work. Now, if there is a subsidy, it may involve the status of the county’s 110 acres of land that it intends to be used for the project, but that’s a different issue than the TIF itself.
Should a TIF be used? As long as the county verifies that the developer obtains financing for project phases before it issues bonds backed by future property tax revenues, I don’t see a problem with it right now. (The question of financing is up in the air at the moment, but we’ll get to that soon.) This county is not great about funding infrastructure, so if this method works out, then why not? The potential problem I see is one of those feared by the Leggett administration – that one TIF will lead to lots of others, eventually constricting the county’s tax base. To account for that, I think the county should hold off on future TIFs until it can evaluate how this one functions if it chooses to create this one.
My concern is more about the project itself. Let’s go back to the world of 2014, when the White Oak Science Gateway Master Plan was originally approved. That plan referred to the headquarters of the U.S Food and Drug Administration (FDA) as an anchor for future development. It stated, “FDA could serve as a gateway to attract companies that offer high quality employment in fields such as health care, pharmaceuticals, life sciences, and advanced technology.”
That was more than a reasonable belief at that time because FDA was planning to consolidate its various operations on its White Oak campus. In 2018, FDA obtained approval from the National Capital Planning Commission for a final master plan that “will add approximately 1.9 million gross square feet of new office and special/shared use space to accommodate a population of 18,000 employees and support staff.” This was a powerful rationale for the county’s “LifeSci Village” concept, which would have combined housing, retail, and bioscience/biotech facilities.
Does anyone believe that that expansion will now occur under the administration of President Donald Trump, who is now trying to dramatically shrink FDA (along with other federal agencies)?
Another change in the last decade is the county’s passage of its rent control law. I have chronicled again and again and again how the national real estate industry has branded us a pariah for project financing because of that law.
In Part Three, I asked Viva White Oak’s developer about the potential impact of both those events on the project. In response to the FDA issue, the developer said it “will continue to advance the project in a way that does not rely on the federal government.” In response to rent control, the developer said it “would not be undertaking this project if we believed there wasn’t a market in Montgomery County.” My take here is that the developer is saying that these factors won’t make a difference.
I’m not so sure. This developer – and really any developer – will build whatever it can get financing for and whatever will pencil out. If rent control prevents multifamily rental financing and if Trump’s activities prevent most employment-related construction, there is a real possibility that this plan will ultimately generate a combination of townhouses and a bit of local retail to support them. That’s not a bad thing – we desperately need more housing – subject to the caveat that these residents are likely to flood US-29 and/or the Beltway to commute to jobs in D.C. and Virginia. But it would fall far short of what we were promised in 2014 and what is promised today. We can’t control Trump, but if county leaders really want to ensure rental housing construction, they should exempt this project from rent control. Of course, they won’t, so let’s see what the real estate financing industry thinks about that.
One more element of uncertainty is the next county executive election. If the next executive is Council Member Will Jawando, who is arguably the father of the county’s rent control law and has told developers “Don’t come here,” few will want to invest a dime in this project or any other in MoCo. If it’s Council Members Andrew Friedson or Evan Glass who win, the rent control law will still be a problem but perhaps a little less of one. The smart move for the real estate community is to wait and see the election’s outcome before committing.
That means even if the TIF is approved, it will still take quite some time to see what will happen to Viva White Oak.