By Adam Pagnucco.
B.F. Saul’s 8001 Wisconsin Avenue project in Downtown Bethesda is everything the county government says it wants. It would replace a set of small commercial buildings and four single-family homes with 350 housing units and 15,000 square feet of commercial space. Fifteen percent of the housing units would be classified as moderately-priced dwelling units. It would be located within blocks of the Bethesda Metro Station, a new Purple Line station and their associated hub of bus bays. It would eventually contribute significant sums of property, income and impact taxes to county coffers. But Saul is now asking the planning board to delay it by up to six years with no guarantee of construction.
Why?
In part, rent control.
D.C. Urban Turf reported this story earlier this week. Saul first applied for a preliminary plan on the project in 2020. It received approvals for its preliminary plan, site plan and adequate public facilities plan in February and March 2023. That was before the rent control law was passed in July 2023 and took effect a year later.
Now Saul wants extensions on its approvals of six years for its preliminary plan, five years for its adequate public facilities plan and four years for its sketch plan. This would enable the company to keep its entitlements on the property as far out as 2031-32. During that time, the company could build, sell or sit on the property. If nothing happens, one wonders if another extension is possible.
Why does Saul want these extensions? In its statement of justification to the planning board, Saul writes:
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When the Applicant originally processed the Sketch Plan and Preliminary Plan for Planning Board review and approval, it anticipated that future market conditions for the Property and the surrounding area would support the reinvestment necessary for high quality, high-rise construction with the associated public infrastructure and benefits required by the Current Entitlements. However, since the time of the Current Entitlements, the following has occurred: i) in July of 2023 the Montgomery County Council adopted a rent stabilization program that has dramatically altered the economic viability for multi-family housing (including the availability of finance and capital) throughout the County. There is further uncertainty about the County’s rent stabilization program that will likely not be resolved until after the 2026 County elections at the earliest; ii) as evidenced by M-NCPPC’s recent development pipeline study presented to the Planning Board on October 16, 20252, there have been virtually no building permits issued over the past few years for multi-family construction in the County, including in Downtown Bethesda; iii) interest rates remain stubbornly high, with the future rate trends difficult to predict due to uncertainties created by policies at the national level; and iv) starting in the pandemic and continuing to this day, there have been heightened construction costs and an inflationary period across national and global markets that have further constrained the viability of high-rise multi-family construction throughout the entire DMV region (and beyond).
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There’s a combination of factors here. Two of them – interest rates and inflation – are cyclical. Both have risen and fallen across business cycles, and when (hopefully) both of them abate, construction conditions will be more favorable. A delay until then makes economic sense and such rationales are common in the development industry.
The rent control law is a different matter. It’s on the books until it’s repealed, and since it has taken effect, private sector multifamily housing construction has nose-dived. The developer’s comment about “uncertainty” on rent control that may not be resolved until after the upcoming elections “at the earliest” suggests that its plans are contingent on who is elected. A triumph by rent control supporters would seem ominous for the project’s prospects.
Look, folks – macroeconomic factors like interest rates and inflation affect all projects everywhere. But MoCo’s neighbors, most of whom lack rent control, are issuing building permits for hundreds and even thousands of multi-family units while our county stagnates. Virginia developers don’t have to place bets on whether elections lead to rent control changes before deciding whether to build. Why would anyone want to endure such headaches to build here?
8001 Wisconsin Avenue is the kind of project that county leaders have long wanted to see. It offers hundreds of residential units, including affordable ones, near Metro, the Purple Line and bus routes. It helps meet county needs for housing and tax revenues. And it ought to be profitable because demand for housing in Bethesda has been traditionally high. The area has seen quite a few projects go up before rent control was passed.
But now the project sits unbuilt. Which developer will volunteer to be the next Saul, sinking millions into getting entitlements only to suffer the kiss of death of rent control?