Turnabout is fair play: why Topher Matthews/GGW is wrong about TIF incentives for a department store in Georgetown...

Recently, Greater Greater Washington contributor Topher Mathews wrote a post, "Citywide historic review is not the answer to ugly pop-ups," "criticizing" an entry I did ("Changing matter of right zoning regulations for houses to conform to heights typical within neighborhoods, not the allowable maximum") calling for design review guidelines for the entire city (and changing how matter of right zoning works in extant residential neighborhoods.

I actually thought it was great that he challenged/wrote about my post because it's exactly what the blogosphere is supposed to, which is create, add to, and extend discourse.

It brought more attention to my post, and raises in more quarters, the problems with how matter of right zoning works.

(It's also a rare example of a GGW post acknowledging the blogosphere outside of its own self-created and contained blogworld.  Most posts there do not acknowledge any other writings, with the exception of author cross-postings and the morning/afternoon links.  I think that this "failure" results in many of the entries being found wanting.)

Anyway, Topher has a provocative post at GGW, "Don't waste public money to woo Bloomingdale's," in response to a Current article about a Vornado Realty Trust initiative to get tax incentives to land a department store at Georgetown Park Mall.  He's against it.

His basic point is that TIF is "supposed to increase value of a particular property" (paraphrase) and that most of the value of Georgetown Park Mall has already been captured.

I disagree.  TIFs are not just about increasing the value of individual properties, they are about contributing to the improvement of districts, which he argues for in the verysame post.

The question is would the Georgetown commercial district, not just Georgetown Park Mall, benefit from having a department store there?  Note:  I also wrote about this in 2007, when the previous owner of Georgetown Park Mall was trying to land Nordstroms ("Why it's okay to give tax increment financing to department stores but you still need to think long and hard about where you put your money").

I think the answer is obvious.  But the reasoning is a bit more nuanced.

And it took me 20 years of paying attention to urban revitalization before I fully understood the issues.

I saw a presentation by retail consultant Bob Gibbs in 2003 (I've been meaning to write a review of his recently published textbook on retail planning), and I started to understand this from the other side.

Before that, my attitude was "why the f* should wealthy developers and super-successful retailers expect to get free money from often hard-pressed communities?"

Then, as I got more involved with commercial district revitalization I learned the other main reason.  And finally I came to understand how the regional retail landscape bears on this issue as well.

1. Anchor retailers expect subsidies (and they make a good argument for why).

Department stores (and supermarkets) expect to pay below market rent because they spend a lot of money on advertising, especially in local newspapers, and this advertising draws not just customers to their store, but also to adjoining stores, from which they don't earn any revenue.

That's why such stores are called anchors.

2.  Property owners charge other tenants more rent to make up for the opportunity costs (rent revenues foregone) involved in landing anchors.


In typical developments, the developer makes up for the low cost rent paid by anchors (or no cost -- at traditional shopping malls it is not uncommon for the department store to own their own site and only pay maintenance fees to the mall) by charging higher than normal rents to the other tenants.  They can do that because they own all of the property.  And in return they reap all of the financial benefits from charging more to other tenants.

The tenants agree to pay more rent because of the adjacencies to the anchors.  (But they also have opt-out clauses in their leases if the anchors don't pan out.)


3.  However, in mixed ownership retail districts, all property owners do not share equally in the cost of attracting and retaining anchors.

In traditional commercial districts, where the properties are owned not by one developer, but by dozens, the cost of providing extranormal rent benefits to anchors are not shared equally, but are borne by one developer specifically.

That's why TIF incentives are a reasonable response.  It's a way to subsidize the cost to one developer, because other property owners are making profit off another's actions.  Another way to think of this is an investment in the "district" where the development is located, not just as an investment in a particular property.

4.  Furthermore, the issue is also about Georgetown as a district and as a destination and how it competes within the regional retail landscape.  Decisions about retail attraction and incentives need to be made in that broader context, not by comparing Georgetown to marginal commercial districts in DC.

I also used to say something like "F*** Georgetown!" why do they need public money when they are already successful, when places like H St. (at least back then) were on the ropes?

But that's the wrong perspective.  The right way to look at the issue is in terms of Georgetown's place in the regional retail landscape and helping them better compete with other destinations not just in DC, but in the metropolitan area.

Georgetown competes with Friendship Heights (the DC side has Lord & Taylor and Neiman-Marcus; the Maryland side has Saks Fifth Avenue and Bloomingdales) Tysons Corner, Montgomery Mall, Pentagon City, Alexandria (as a walking district), and Bethesda Row (another walking district) primarily, not other commercial districts in DC, not even downtown.

5.  Finally, DC Government is also paying to create competition for Georgetown at CityCenter in Downtown DC, and so should continue to invest in Georgetown so that it remains competitive in the face of this coming change.



Mayor Williams quote from a publication about the CityCenter DC development, circa mid-2000s.

One final wrinkle is intra-city competition.  Normally, Downtown and Georgetown don't compete because Georgetown is seen as a more authentic traditional commercial district, and is a regional entertainment destination and a leading destination for tourists visiting the city, especially international tourists, who spend more money than domestic tourists.

HOWEVER, DC is providing taxpayer subsidized competition for Georgetown through the creation of CityCenterDC, which is supposed to provide an outdoor and exclusive retail orientation not unlike a traditional commercial district like Georgetown.  Plus it will be more easily accessible by public transportation and it will be adjacent to other attractions like Verizon Center.

(This is not unlike how the Takoma Park commercial district is battered by how Montgomery County invests tens of millions of dollars in the revitalization of Silver Spring, without considering how this impacts, at times negatively, Takoma Park, which doesn't receive county money for revitalization efforts.)

Note that in the past, the city attempted to land Nordstroms to the CityCenter site but were rebuffed.  (See this 2006 blog entry, "(G)Rumblings over plans for redeveloping DC's Old Convention Center site.")

I would therefore make the argument that if we want the Georgetown commercial district to remain competitive, not just in terms of the regional retail landscape, but increasingly within the city vis-a-vis both Friendship Heights and CityCenter/Downtown, then we have to allow projects there access to TIF funding, especially when we are spending city monies elsewhere on projects designed to compete with Georgetown.

Conclusion.

Tax incentive financing is one of the many tools we have at our disposal to use to help our commercial districts maintain their competitiveness vis-a-vis other places, both within the city and in the metropolitan area.

Georgetown should not be put at a competitive disadvantage by failure to consider TIF requests from a broader perspective that is traditionally considered.