Commercial Property Redevelopment May Flourish with Plans for ‘Infrastructure Improvements’
The Trump Administration is developing its announced intention to invest $1 trillion in infrastructure improvements during the first 100 days after inauguration. Redeveloping existing obsolete commercial properties could be added to the mix. Such projects could help to achieve the administration’s stated goals of creating new jobs, revitalizing the construction industry, and giving a shot in the arm to hard-pressed local communities in need of commercial tax revenues.
The Trump proposal released just prior to the 2016 presidential election predicted that it would “transform America’s crumbling infrastructure with a golden opportunity for accelerated economic growth and more rapid productivity gains with a deficit neutral plan that envisions the private sector investing heavily in projects with long term financial rewards.”
Just what was meant by “Infrastructure” was unclear. Rather than relying on federal agencies to develop the projects, Trump’s proposal calls for incentives such as private-public partnerships, tax credits, and other private sector initiatives, to allow local markets to decide which projects are best for those communities.
One problem in implementing such a proposal is that there are not many “shovel ready” projects that can be launched in a short period of time. Even additions or enhancements to existing roads, bridges or water systems require extensive planning and can be delayed by local regulatory processes.
By contrast, Trump’s own experience as a commercial real estate developer purportedly has given him a lifetime of experience refurbishing obsolete commercial properties into desirable and profitable investments. As a recent example, Trump transformed the Old Post Office in Washington, D.C. into the elegant Trump International Hotel, demonstrating how quickly private developers can turn a nearly derelict building into a profitable structure.
Even though Northern Virginia has consistently added new jobs during the past five years, vacancy rates for office buildings have been stubbornly stuck well above normal. In some areas, rates still hover around 30 percent. Older office buildings are increasingly considered as future hotels or apartment buildings, while churches and day care centers eye vacant spaces in office buildings and older retail shopping centers for creative new uses.
The slump in commercial tax assessments since 2007, resulting from the vacancies, has led local governments to tighten fiscal belts, reduce budgets and rely more on residential property taxes to fund local services. New construction in booming markets such as Tysons and Reston has helped improve local finances, but at the same time has added costs by creating new demands for services. As tenants have exercised their “flight to quality,” abandoning older less attractive locations for the new modern structures, landlords in the older locations are forced to add tenant improvements and building amenities to reduce the burdensome costs of maintaining vacant buildings.
“Trump’s proposal calls for incentives such as private-public partnerships, tax credits, and other private sector initiatives, to allow local markets to decide which projects are best for those communities.”
Greater attention to find creative new uses for underutilized structures may be necessary to revive the market. Landlords could be encouraged to redevelop existing buildings to make them more “future ready” and capable of new uses.
Several local developers have already begun finding new purposes for hard-to-fill office buildings. Last September, long-time local developer Conrad Cafritz refurbished a largely vacant 12-story office building at 4501 Ford Avenue, just off I-395 in Alexandria. His firm has transformed the building into a new concept in commercial property, with 200 “loft” units ranging in size from 650 to 1200 square feet each. The lofts can be rented as apartments or workplaces, or both. Outfitted with stylish kitchens and bathrooms and featuring attractive building amenities, the units lease for $1,800 to $3,000 per month. Alexandria’s innovative zoning ordinance on its west end allowed for the mix of commercial and residential uses in the same property.
Building on the success of the project, several months later the Cafritz organization won approval from the Fairfax County planning staff to renovate a 50-year-old vacant office building at 5600 Columbia Pike and convert it into a 157 unit “e-lofts” building similar to its Ford Avenue project. A county zoning change to allow residential use at the commercial site “opened the door” for the project according to a report by Michael Neibauer in the Nov. 12 Washington Business Journal.
In another recent project, Fairfax County purchased a vacant five-story brick office building at 6245 Leesburg Pike and converted it into an elementary school. The conversion reflects the increasing surplus of vacant office space in the Bailey’s Crossroads area, along with the surge in homeowners resulting in schools that are overcrowded.
Panelists at NVAR’s 2016 Economic Summit speculated on the effect that the Trump Administration’s policies may have on Northern Virginia’s residential real estate market. But it could be that the new administration has a more profound and immediate impact on Northern Virginia’s local economy, by incorporating commercial properties into its plans for infrastructure improvements.