Another view on the sale of federal buildings: need for updated facilities | Impact comparable to the closure of city-based navy shipyards?

I have been quick to criticize the Trump Administration for its agenda on shrinking its real estate portfolio.  While some of it, like abrogating leases, was a part of Trump/Musk DOGE agenda of destruction of the federal government without any connection to need for a functioning government--e.g. leases for Social Security offices and federal land management offices were broken--there is another issue.

The buildings, many built before 1980 are old, often poorly maintained and expensive to renovate.  Then it may make sense to sell and rebuild, or since the government is shrinking, lease smaller buildings.

The JFK Federal Building in Boston. Photo: Paul Marotta/Getty Images

From the Boston Globe article, "The federal government could soon sell these three big downtown Boston buildings The JFK, O’Neill, and McCormack federal buildings span 2.6 million square feet, combined. A federal board is considering putting them up for sale":

... much of the federal government’s 180 million-square-foot property portfolio needs extensive repair, and is riddled with expensive problems such as antiquated air systems, leaking roofs, unusable elevators, and flooding basements, the board said. Buildings managed by the GSA are on average more than 50 years old.

“Congress cannot appropriate its way out of this maintenance backlog,” said Nick Rahall, a former congressman from West Virginia and PBRB board member. “The inventory needs to be shrunk so tax dollars can be invested in properties where employees are actually coming to work.”

Like a broken clock being right twice a day, the Trump Administration has, amongst its chaotic and authoritarian decision making, made a couple of good decisions.  This may be one at least partially,.

-- "Trump Policies Shake the Foundations of the US Office Market," Natixis

-- "Trump May Sell Up to 67% of Government's Office Portfolio," CRE Daily

However, proponents of the sale of federal property argue that there is a lot of profit to be made ("Chance favors the prepared mind: residential conversion of federal buildings in Downtown DC needs "A Vision Plan for Judicious Conversion of Federal Properties in the District of Columbia."" [2025]) and that's a problem.  

The buildings are old, the commercial property market is soft, especially in Boston ("One of Boston’s skyline-defining towers is on the auction block — and expected to sell at a big discount," Boston Globe) and DC (The Increasing Levels of Vacant Office Space: The Achilles’ Heel of DC's Office Market), made only worse by federal government shrinkage and federal real estate being a significant element of the local market ("Trump wants to move 100K federal jobs out of D.C. What could that look like?," Virginia Public Media), and the buildings may not lend themselves to refurbishment, making the property valuable only in that it can be redeveloped after the expense of demolition of current facilities.

And, still, these decisions will be negative for most major downtowns where a sell off will occur ("The 443 federal buildings Trump administration could sell," Boston Globe).

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Impact as significant as closure of federal Navy Yards.  In the 1960s and later, the Department of Defense closed naval facility shipyard functions in cities like Brooklyn, DC, Boston, Charleston, South Carolina, and Philadelphia.  

Thousands of workers at the sites lost their jobs ("Military cutback will eliminate 37,000 jobs," AP, about a later round of closures), some functions were dispersed, often to suburbs, and with the multiplier effect even more jobs were lost (about the closure of the Navy Yard in Long Beach, "In Long Beach, an Era Ends in Tears," Los Angeles Times).

Blog commenter Will makes the point that this had significant impact on what was called 1960s "urban decline."  A lot of the jobs were industrial.  The closure shifted cities to a post-industrial economy but with fewer jobs overall, and fewer blue collar jobs especially.  (This is one of the arguments made by William Junious Wilson in When Work Disappears.

For example, at its peak in WW2, the Washington Navy Yard had 20,000 employees working on ships and munitions manufacturing, the Philadelphia Navy Yard, 40,000 employees (that facility didn't close until the 1990s), 42,000 at the Brooklyn Navy Yard.

At the time, too, these facilities were developers of innovative technology, although the concept of spinoff commercial technology transfer wasn't an issue then.

The shrinkage of the federal government under the Trump Administration will likely have similar effects.

National office space market is very bad (reprint from Bloomberg)

Salt Lake Downtown Skyline at night

This isn't news, more of a reiteration.  This affects cities both in terms of urban, especially downtown, vibrance, but especially local government revenue streams, which tend to be dependent on commercial property taxes, especially in major cities.

There's lots of talk about office to residential conversion, but that will take a couple decades to have significant impact (Myths about converting offices into housing—and what can really revitalize downtowns, Brookings).  From Bloomberg:

Not long from now, almost one-quarter of all US office space may be vacant. And if work-from-home—the key culprit—persists, commercial-property values will be further decimated by up to $250 billion, Moody’s warns. When combined with the impact of lower rents and lease turnovers, the vicious post-pandemic cycle will reduce revenue for office landlords by as much as $10 billion. That in turn could translate into a quarter-trillion dollars of “property value destruction,” Moody’s officials said. The figures illustrate the gloomy prospects faced by property owners and lenders as employers continue to jettison square footage or shift from multiyear leases to shorter-term and more flexible co-working arrangements. A full 85% of North American organizations polled by brokerage Jones Lang LaSalle have implemented hybrid work, and occupancy across offices in major US cities is stuck at about 50% of pre-pandemic levels. Wavering demand and increased borrowing costs have slammed office valuations, especially among older buildings. “The argument for maintaining or even increasing remote work practices remains compelling for many businesses,” Moody’s said. “If productivity remains stable and costs can be reduced by forgoing physical office spaces, the rationale for mandating in-office attendance diminishes.”

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Small downtowns may have an advantage because the cities are less unbalanced ("From Owatonna to Red Wing, Minnesota's small downtowns see resurgence," Minneapolis Star Tribune, archive.ph copy).  Also see "Revamping Nicollet Mall as a 24-hour district is one idea for downtown Minneapolis," MST, archive.ph link).

-- Downtown Next Report, Minneapolis Foundation

An illustration of Jane Jacobs' point about the value of "a large stock of old buildings" to center city health

In Death and Life of Great Cities, the author lists four factors that undergird healthy cities.  One is "a large stock of old buildings."

The interior of a second-floor office space in 123 S. Broad St, occupied by the architecture firm Coscia Moos.

The point wasn't that these buildings are attractive (hopefully) and support historic preservation, it's that "old buildings" are paid off and offer lower rents, and therefore support innovative uses like business startups that need low costs in order to develop ("Jane Jacobs and the value of older, smaller buildings," Journal of the American Planning Association, 2016, "Big Data Backs Jane Jacobs: Cities Need Old Buildings," Smart Cities Dive).

Of course, she wrote that 60+ years ago.  

In a city like Washington, where the height limit constrains development, old buildings tend to get torn down and rebuilt or renovated so that they can continue to command higher rents.  

That's why I argue DC should allow higher heights, because small organizations are displaced to the suburbs, reducing the economic vitality at the core (although this is mostly a theoretical argument).

-- "Another attempt to raise discussion about the DC Height Limit"

In Philadelphia, 123 S. Broad Street, an old building not paid off, but with lower financing and running costs, is able to thrive by renting to organizations attracted to historic architecture, the ability to lease smaller spaces than typically available in newer buildings, and lower rents ("123 S. Broad is finding a niche in Philadelphia’s uncertain office market," Philadelphia Inquirer).

Brookfield Properties defaults on two properties in Los Angeles

Brookfield Properties is one of the largest US commercial property owners, with large holdings in major cities including NYC and Washington.  

With the impact of covid on working in central business districts--most cities have at best 50% of employees back in the office--the value of commercial property is taking a big hit.  Most companies are reducing their office footprint in favor of work from home, and this is devaluing property.

Cities haven't really started reducing property tax assessment values in response ("Real Estate Values in the Time of COVID," NBER).

Another way to see the impact is whether or not there is an increase in loan defaults, because the revenue from leasing isn't enough to cover the loan, especially as mortgage rates rise.  

That's why this loan default is big news ("One of the biggest landlords in Los Angeles just defaulted on $755 million in loans for two sky scrapers as remote work keeps offices vacant," Fortune).  From the article:

The two properties in default, part of a portfolio called Brookfield DTLA Fund Office Trust Investor, are the Gas Company Tower, with $465 million in loans, and the 777 Tower, with about $290 million in debt, according to a filing. The fund manager had warned in November that it may face foreclosure on properties. 

The company had the option to extend the maturity on the loans tied to the Gas Company Tower, but elected not to, according to its latest filing. It also elected not to get interest-rate protection that was required for loans for the 777 Tower property, which amounts to an event of default, the filing said. 

“We believe DTLA’s decision to default on these two assets increases the risk for the remaining loans in their portfolio,” Barclays Plc research analysts Lea Overby and Anuj Jain wrote in a note Tuesday.  Brookfield declined to comment. 

The values of comparable office buildings have broadly dropped, according to the Barclays analysts. Office vacancies have increased across the country since the pandemic made working remotely more routine. The vacancy rate in the Los Angeles central business district vacancy rate was 22.7% in the fourth quarter of 2022, according to a Jones Lang LaSalle Inc. report.

Commercial real estate market decline and central city business districts in the face of the pandemic

The Financial Times reports ("Destruction of value in US real estate revealed") that properties severely affected by a decline in business as a result of the pandemic are seeing a minimum 25% reduction in value.  

Even signature properties like the Palmer House Hotel in Chicago are going into foreclosure ("Palmer House foreclosure points to industry's trouble," Chicago Sun-Times), and well-funded property firms like Brookfield are letting weak properties go into foreclosure, and they have no interest in trying to fix them ("Brookfield and Namdar plan to hand over keys to struggling malls," The Real Deal), preferring to spend their money and attention on stronger sites.

Disney has laid off 28,000 employees at Disneyland in California and Disney World in Florida.

The Washington Post ("The pandemic has devastated downtown D.C. Some fear the damage is permanent") and the New York Times ("We're at War: New York City Faces a Financial Abyss") have articles about the difficulties faced by central business districts, how many of the service businesses located there will fail before people are able to return--presuming that a vaccine will make it possible for people to go back to the office in large numbers, and the economic fallout that this will have on local governments, facing a drop off in property, sales, and income tax revenues.

Relatedly, most transit systems are in dire financial straits, because of the loss of ridership ("Public Transit Officials Fear Virus Could Send Systems Into Death Spiral," New York Times).

Corporate real estate is a cutthroat business

I remember back during the Great Financial Crisis, when there was lots of writing and talk about the moral obligation to pay your mortgage ("Faced with an underwater mortgage: the moral choice to pay," Christian Science Monitor), about the contradiction of big firms like Related Companies "walking away" from loans, by "giving the keys to the property back to the loan holder" ("Commercial Property Owners Choose to Default," Wall Street Journal).

From the WSJ article:

Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as "jingle mail." These companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense.

From the CSM article:

Call it what you will – a “strategic default” or simply cutting one’s losses in a business decision – this trend to walk away is creating an erosion of trustworthiness, and not just for the financial industry. It is a creeping moral crisis that needs a solution soon.

Yes, under certain circumstances and in those states where lenders have limited rights to go after a walk-away’s assets, a default can make sense – in an amoral calculation of personal finances. A buyer took a risk by assuming a rise in home prices and failed, similar to a failed business or a speculator in commodities.

Yet if more Americans get used to being deadbeats in a heartbeat, it will lead to higher interest rates and create other hurdles for those want to buy a residence and honor their contract. It would also create more uncertainty for still-wobbly banks and put a drag on the economic recovery, helping keep unemployment high.

While a program to modify home mortgages was developed, most of the banks didn't handle it very well, many people didn't get modifications, and millions of houses went into foreclosure. 

And speaking of taking advantage of new investment opportunities, a number of capital investment firms bought single family houses in bulk from banks, and now rent them out, changing the nature of residential housing market more generally.

A lot of the anger that has affected politics since 2008 was the idea that regular people weren't helped very much during this time, that most of the government "help" went to corporations, and the officers of these corporations faced no consequences.

There's an article in Bloomberg about what's going on in the commercial property market now, with big firms walking away from some mortgages and properties, while still raising funds for new endeavors.   In these cases, "it's just business," proving that residential mortgage owners are treated much differently from big capital.

From "Real estate investors skip paying loans while raising billions":

Some of the largest real estate investors are walking away from debt on bad property deals, even as they raise billions of dollars for new opportunities borne of the pandemic.

The willingness of Brookfield Property Partners LP, Starwood Capital Group, Colony Capital Inc. and Blackstone Group Inc. to skip payments on commercial mortgage-backed securities backed by hotels and malls illustrates how the economic fallout from the coronavirus has devalued some real estate while also creating new targets for these cash-loaded investors.

"Just because a prior investment didn't work out doesn't necessarily mean that should tarnish the reputation for future endeavors," said Alan Todd, head of U.S. CMBS research for Bank of America Securities. "It's not like something was done in bad faith."

While cutting losers to buy winners is an age-old investment proposition, the Covid-19 pandemic may create even more openings than the past crises that became bonanzas for real estate investors. ...

Missing payments on CMBS debt is relatively painless, because it's typically non-recourse, meaning borrowers can hand over the keys to a property and lenders won't be able to come after other assets. Property owners are more likely to walk away when their equity has been wiped out by lower values. ...

Now these firms are raising money for their next round of bets, even as they skip debt payments on old obligations.

At least 11 Brookfield malls with more than $2 billion in CMBS debt are delinquent or seeking payment relief because of COVID-19. The company has already repurchased some of its former debt at reduced prices.

"The lenders are willing to sell us their loans or the mortgages back at a discount," Brookfield Property Chief Executive Officer Brian Kingston said during an Aug. 6 earnings call. "And so in that case we've been able to essentially reacquire the asset at an attractive basis."

Brookfield Asset Management Inc., the parent of the property firm, raised $23 billion from investors in the most recent quarter, including $12 billion in new commitments for a distressed fund.

The article discusses similar moves by other real estate companies including Colony Capital, Starwood Investment Trust, and Blackstone.

Conclusion.  I'm not saying that people shouldn't worry about paying mortgages and treat it as an important obligation.  I'm just pointing out the double standard.  I suppose someone will point out the difference between recourse and non-recourse loans.  In recourse loans, the lender has call on other assets owned by the mortgagee.

But given the impact of the coronavirus on the retail, hospitality, and entertainment industries, there's going to be a property bloodbath, and many communities will be harmed by it, just as they were in the real estate fallout from the Savings and Loan Crisis in the 1980s and 1990s and other times of overbuilding followed by crashes.

Be afraid, be very afraid about the US's real estate centric economy

The latest post, "The Commercial Real Estate Future: Bankruptcy, Foreclosure, Workout, Value Added Reinvention and Redevelopment," in Larry Littlefield's Saying the Unsaid in New York blog is very disturbing (and the kinds of things that charlie has been saying for awhile about financialization of the economy).

Since local governments rely on property taxes for the bulk of their revenues ("The real lesson from Flint Michigan is about municipal finance" and "A correction (and update) to a March post on municipal finance: addition of land transfer tax to the list") this is "worrisome."

Revisiting the Purple Line as an economic development driver

Is this livery design particularly exciting and design forward?

Last year I wrote a series of pieces about the Purple Line light rail program in Suburban Maryland--Montgomery and Prince George's Counties. 

-- "Setting the stage for the Purple Line light rail line to be an overwhelming success: Part 1 | simultaneously introduce improvements to other elements of the transit network"
-- "Part 2 |   the program (macro changes)"
-- "Part 3 |   influences"
-- "PL #6: Creating a transportation development authority in Montgomery and Prince George's County to effectuate placemaking, retail development, and housing programs in association with the Purple Line

While the major thrust of the series was on how to leverage this extension of the transit network as a way to drive complementary improvements across the rest of the transit network, a number of the pieces, especially about Silver Spring but also about New Carrollton, discussed how the counties could simultaneously reposition lagging conurbations in much more innovation forward ways.

-- Part 4 |   Making over New Carrollton as a transit-centric urban center and Prince George's County's "New Downtown"
-- PL #5: Creating a Silver Spring "Sustainable Mobility District"
- Part 1: Setting the stage
- Part 2: Program items 1- 9
- Part 3: Program items 10-18
- Part 4: Conclusion
- Map for the Silver Spring Sustainable Mobility District
- "Creating the Silver Spring/Montgomery County Arena and Recreation Center"


Montpellier chose famed designer Christian Lacroix to create the liveries for their metropolitan tram system as a way to brand transit and the community as design-centric and design-forward.

The last piece in the series specifically made the point that Montgomery and Prince George's Counties, like Montpellier, France, could make forward design a key element of the Purple Line light rail vehicle program and in turn could leverage this to make the counties innovative and design forward more generally.

-- Part 7 | Using the Purple Line to rebrand Montgomery and Prince George's Counties as Design Forward

(This piece, part of the series, is more standalone, outlining what I am now calling "Transformational Projects Action Plans."  But I pulled together the concept in outlining a wide-ranging "revitalization" program for Silver Spring.

-- "(Big Hairy) Projects Action Plan(s) as an element of Comprehensive/Master Plans"

A more recent piece on Bilbao updates the TPAP concept further:

-- "Why can't the "Bilbao Effect" be reproduced? | Bilbao as an example of Transformational Projects Action Planning")

Suburban Maryland in the news.  Sadly, while collectively this is some of my best writing, it hasn't seen much traction. 
A couple recent articles make the work worth revisiting.

1.  In the face of high vacancy, development is shifting to the Purple Line catchment area.  A couple weeks ago Bisnow ran a piece, "Purple Line Construction Already Sparking Suburban Maryland Office Renaissance," making the point that most of the new commercial development occurring in Montgomery and Prince George's Counties is in association with the future Purple Line routing--not unlike how development outside of the transit shed in Fairfax County is shifting to areas served by the Silver Line.

Interestingly, much of this development is around College Park, home to the University of Maryland's flagship campus ("Revisiting past blog entries: College Park as a college town and economic development | PG County and Amazon").

That being said, Montgomery County has a high office vacancy rate, but some steps forward as business headquarters are moving to areas adjacent to transit stations, such as how Marriott will relocate to Downtown Bethesda.

2.  Montgomery County's economy lags.  Despite the County being short-listed for Amazon's HQ2 ("Study Predicts Bonanza If Amazon HQ2 Comes To Montgomery County," Patch), the Washington Business Journal reports ("New report shows MoCo's economic growth 'shockingly slow'") on an economic study of Montgomery County by Sage Policy Group, calling the County's economy somewhat moribund, clearly not helped by the recent announcement that Discovery Channel is relocating after their merger with Scripps ("Discovery Channel to leave Silver Spring"). 

The report was released today in association with a candidates forum for the County Executive election.

--The Coming Storm: How Years of Economic Underperformance are Catching up with Montgomery County

3.  But fails to acknowledge the primacy of the military economy within the region.  While it's always good to be self-reflective, years ago I wrote another great piece, making the point that the difference in economic success between Montgomery County and Fairfax County in Northern Virginia is that Montgomery's County is less intertwined with the military economy although it does participate in that end of the federal government related economy.

-- "Montgomery County's real economic development problem: it's not part of the military economy," 2011
-- "Montgomery County's real jobs problem is that it is an adjunct, not a full-fledged, member of the military-industrial complex," 2012

4. More focus on leveraging federal laboratories.  Now it's economy is slowing down because of federal government downsizing, even though the county is home to two major federal laboratories, the National Institutes of Health and the National Institute of Standards and Technology. The spillover economic development out of those two agencies is considerable--e.g., Montgomery's position in the biotechnology sphere is nothing to sneeze at--but it still lags because military spending seems to be garnering the greatest growth.

Still there is no question that the area jurisdictions, Montgomery County included, have to figure out on how to stoke the development of the commercial business sector outside of the federal sector, because of the slowdown of federal spending.

Note that Montgomery also has the FDA headquarters. But it is less of a laboratory and more of a regulator.  Nonetheless, the County aims to boost the place of the biotechnology and pharmaceutical industries in that area as well.

Conclusion.  Leveraging the Purple Line is a great way to rebuild, extend, and reposition the economic development opportunities in Montgomery and Prince George's Counties to be more than just run of the mill strategies.

Concepts outlined in my Purple Line series are a great basis for such a re-set.

The loss of a nonprofit hub in Boston: the Congregational Library and Archives

United Methodist Building, DC. Photo from the Interpreter.

Not unlike how the United Methodist Building is a hotbed of social activism located across the street from the US Capitol ("A Beacon on Capitol Hill: The United Methodist Building," Interpreter), Congregational House in Boston serves a similar role in Boston, across the street from the State Capitol of Massachusetts.

Primarily the home of the Congregational Church Library and Archives, over the years the church has rented space for offices to social justice groups. More than 30 nonprofits rent space there, and the cost is significantly less than market rate.

But the church sold the building because of its high property value, and the other groups located there are being pushed out by the for profit owners, who aren't particularly as community minded as they suggested they would be ("As Beacon Street landmark changes hands, nonprofits fear losing access to power," Boston Globe).

Although I don't think that should be a surprise.  They bought the building as for profit real estate developers, not as a provider of low cost space to nonprofits.

Ideally, through a community foundation, the building could have remained in nonprofit hands with a social justice purpose, but most communities don't have processes in place that aim to do that.

The Nonprofit Centers Network is a national technical assistance organization that works with nonprofit shared use facilities like the Congregational House, although that particular organization is not a member.

This story is about Orange County Shared Spaces located in The Village at 17th Street office complex. This is OC's first "shared spaces" building for nonprofits. By clustering in one building, nonprofit groups can collaborate and share amenities. Leonard Ortiz, Orange County Register, "This Village is Orange County's first building dedicated to housing nonprofits."

As discussed in the 2016 piece, "BTMFBA revisited: nonprofits and facilities planning and acquisition," in strong market cities, as commercial property rents and cost to own rises, nonprofits are increasingly priced out of the market too, just as lower income residents get displaced in the residential housing market.

Planning offices ought to do overarching plans for the nonprofit sector, including facilities planning, just as I suggest this be done for cultural planning and for cities generally ("Town-city management: we are all asset managers now").

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I was doing filing yesterday, and came across an older article about this as it relates to colleges and universities.

-- "Protecting and Enhancing Campus Facilities: 6 Principles for Boards," College Trusteeship, v20:2 p22-27 Mar-Apr 2012.

The principles:

• Principle #1: Make Facilities Stewardship a Core Governing Board Value
• Principle #2: Link Long-Range Capital Planning Directly with Institutional Strategic Priorities
• Principle #3: Ensure Institution-Wide Leadership Responsibility in Facilities Stewardship
• Principle #4: Create Credibility for Capital-Investment Decisions
• Principle #5: Ensure Accountability in Implementation
• Principle #6: Sustain Continuity of the Long-Term Plan through Leadership Changes.

Further evidence of DC being an international/national real estate market

At a City Council hearing maybe 13 or 14 years ago, when people were complaining about property taxes "forcing" legacy businesses out of business, I had a realization that the problem had to do with the nature of the DC commercial real estate market being shaped by extra-normal market forces.

Skansa is a Swedish firm active in constructing, financing, and owning buildings in major US real estate markets.

Foreign firms invest in the DC real estate market for many reasons, not strictly on the basis of direct economic returns. To wit, the market involved international and national developers and financiers, and their business calculations were not made strictly on the basis of local market conditions, but to park capital safely overseas, because economic returns were better than in own-country markets, for diversification, etc.

Significant foreign presence in the Central Business District real estate market reshapes the taxation of all commercial properties.  What this did though is reshape the local property tax assessment regime, so that in effect, at least within DC, most commercial real estate, regardless of location, is valued as if it could become a big office building owned by a pension fund or insurance company. This is the case whether or not most neighborhood commercial real estate markets were decidedly local, with local owners and locally-owned businesses.

And large actors trickle down and reshape "local" submarkets serving regional audiences as they expand their reach.  Increasingly, what were once "neighborhood" real estate markets like Dupont Circle, Cleveland Park, and Friendship Heights have been "reproduced" because of the presence of national and international firms ("Problematic outcomes as real estate investment trusts buy more "high street" retail real estate," 2015) like Acacia, Federal Realty, and Grosvenor--a British company for whom real estate ownership has made the family the wealthiest in Britain.

Even local submarkets (as opposed to regionally relevant submarkets) are not immune.  Plus, as larger regionally active firms run out of properties to develop in larger submarkets, they shift downward to the next ladder on the commercial district/town center scale, in the process reproducing the market conditions in those places.  Think Takoma (Rock Creek Property) or Fort Totten (JBG).

The ability to build housing and bigger buildings is another stressor on valuation.  This is further exacerbated in the smaller sub markets like Petworth, by the fact that commercially zoned property can be taller (65 feet) and mixed use with housing, so this puts property under pressure too, and because most of the neighborhood districts don't have requirements for first floor retail use, the commercial and retail nature of the districts is threatened with serious change.

Testimonies.  I testified about this for a few years running, and in 2007 was quoted in an article by Post writer Paul Schwartzman on the subject, "Feeling the Pinch Of D.C.'s Prosperity," and had a letter to the editor in response to the article, "Tax Policy Hurts D.C.'s Local Businesses."

These entries are representative of the argument:

- "Avoiding the real problem with DC's property tax assessment methodologies," 2007
- "Testimony -- Historic Neighborhood Retail Business Property Tax Relief Act," 2006
- "Forcing Displacement by the disconnection of tax assessment models from public policy goals," 2005
- "Displacement of retail businesses through increasing property tax assessments," 2005

I stopped testifying when I figured out that the City Council/City Government wasn't interested in addressing this in a systematic way, but was more enthralled about helping "legacy businesses" ("Revisiting the issue of neighborhood commercial district property tax methodologies," 2013) and failing to recognize that this was and is a systemic problem equally problematic for new and existing businesses that aren't decades old.

DC real estate promoted at MIPEM international property exhibition.  The Capitalize DC real estate promotion organization sent out a press release about how they are promoting the Greater DC real estate market at the world's leading international property marketing exhibition, called MIPEM, in Cannes, France.  From the press release:

Capitalize DC, a collaborative regional consortium formed by the Northern Virginia Association of Realtors®, Greater Capital Area Association of Realtors® and District of Columbia Association of Realtors®, will be part of the growing USA pavilion, hosted by the National Association of Realtors®, the United States' largest real estate trade organization. NAR and Capitalize DC will be among the 3,100 exhibiting companies at the 2018 event. ...

"MIPIM provides a unique opportunity to showcase local property markets on a global scale," continued Mendenhall. "While Class A asset prices in many large markets have surpassed pre-crisis levels, Realtors® in many middle- and smaller-tier markets stand to benefit from the increased interest from foreign commercial property investors. Further, the current interest in industrial and logistics properties due to the growth of online shopping, creates opportunities in markets not traditionally identified as a destination for foreign investment."

The Washington, DC /Northern Virginia/Montgomery County (MD) markets will be featured in the USA pavilion along with Arizona, Illinois, Missouri, Nevada, North Carolina, Rhode Island and Washington State, as well as other metro areas such as Beverly Hills/Greater Los Angeles, Coastal Carolina/Myrtle Beach and San Antonio. Markets participating in the USA "zone."

I guarantee you, the actors that matter already know about the value of and the opportunities within the Greater DC commercial real estate market.

And as discussed above, increased participation by national and international actors in local markets can have negative consequences, unless a city's planners and taxation officials take forward steps to mitigate them.

One more effect: the cost of property/rents for nonprofits and arts groups.  As discussed in a number of entries including "BTMFBA: the best way to ward off artist or retail displacement is to buy the building," in a highly charged real estate market, "nonmarket" actors can't compete/afford property.  The solution is community development corporations focused on buying and holding properties for these kinds of uses.

An element of the system of upward pricing of residential real estate/reproduction of urban space

I came across this postcard posted on the bulletin board of a supermarket in Petworth around when I was writing this piece in December, "The nature of high value (strong) residential real estate markets," and DC specifically, but I forgot to use this photo as an illustration of how the process of reproduction of space and neighborhoods works. There are companies that specialize in emptying houses of tenants...

Separately, my neighborhood is involved in a discussion because the old Takoma Theatre was bought by a regional real estate developer. What this did was change the nature of the property, from one with a local/neighborhood-based owner, focused on serving the neighborhood, to one that is part of the system of regional real estate property development.

This is what urban sociologists call the reproduction of space.

For this property it significantly increases the asking price for rent, the financing changes the nature of who is considered as possible tenants, the likelihood of independent uses drops significantly, etc.

Anyway, they have a lease for a clinic and are asking that the requirements for first floor space for retail be significantly relaxed.

It will be interesting to see how this plays out. But in the discussion on the neighborhood e-list, I pointed out that once the property was purchased by a company active in the regional real estate market system, things changed.

Still, by having a coherent position (not a certainty) the neighborhood will be able to extract concessions in return for agreeing to a zoning exception.

But getting to that point is very difficult. It's why in my writings on community benefits agreements, I call for the creation of neighborhood-scale consensus priorities through planning processes more generally, and the use of this information when negotiating zoning changes, to yield structural improvements, rather than always dealing with ad hoc processes.

A problem for cities like Detroit isn't lack of land for development

... this comes up in legacy center cities that have lost much of their past base of manufacturing, they have thousands of acres, if not tens of square miles of unused land.

So the article, "Factories or Runways? Municipal Airports Face Economic Pressure," in yesterday's New York Times about cities like Detroit looking to deaccession their municipal airports (I lived for a time near the old "Detroit City Airport" in the late 1960s...) to "offer prime space for development" misses the point.

There is plenty of other land already available elsewhere, not being developed, and much of it is better located.

Furthermore, in weak real estate markets, you want to focus development on the areas where you have critical mass, and build from there, rather than do development willy-nilly.

E.g., in the DC area, Prince George's County claims to be focused on transit oriented development, but its two biggest projects, National Harbor ("National Harbor Is a Private Urban Island Designed for Fun—If You Can Get There," Washington City Paper) and Konterra ("Development in Prince George's Could Rival Tyson's Corner, NBC4) lack high quality transit connections and are located outside of the county's core.

Similarly, earlier in the week the Washington Post ran a story, "Isiah Leggett's signature plan for Shady Grove is less lucrative than promised," about the failure by Montgomery County Executive Ike Leggett to stoke development of county-owned property in the Gaithersburg area. From the article:

The idea was ambitious when Montgomery County Executive Isiah Leggett pitched it in 2008: transform 90 acres of county-owned industrial land at the Red Line’s Shady Grove terminus into a transit-friendly urban village.

Leggett’s Smart Growth Initiative would be a break-even proposition for taxpayers over time, he said, and might even make money as the county got an attractive new residential neighborhood and replaced outdated warehouses and garages with state-of-the-art facilities elsewhere.

But nearly a decade in, as Leggett (D) nears the end of his 12-year tenure, this signature project has not gone forward as expected. Only a fraction of the money anticipated from land sales to private developers has been paid so far. And the county’s difficulty in finding a new site for a school system bus depot has slowed progress on a major portion of the planned Shady Grove community, including a new park and elementary school.

Shady Grove Station is about 20 miles from Downtown Washington.  It's not centrally located.  Other developments in the vicinity are doing poorly, like Lake Forest Mall ("Struggling Lakeforest Mall faces foreclosure," Washington Business Journal), even though sprawl development continues unabated, although some firms like Marriott, are relocating their headquarters from outer suburban locations to transit-connected locations closer in ("Marriott Signs Letter of Intent for Headquarters in Downtown Bethesda ," press release).

In any case, less well connected land is underdeveloped for a reason.

This is true in DC as well.  The city government has spent millions of dollars of time and energy aimed at redeveloping the Skyland Shopping Center in Ward 7, a more than 20 year process ("Blaming Walmart for Skyland's failure is misdirected: the culprits are DC's economic development and elected officials") and the St. Elizabeths West Campus ("Here's what the St. Elizabeths East first phase will look like," WBJ).

These sites won't develop until better located properties on the north and west side of the Anacostia River are built out.

Even the redevelopment of the Walter Reed Medical Campus will have that issue, vis a vis other sites that are better located or have more desirable demographics. The Wegmans that developers were trying to land at WRMC is being developed on Wisconsin Avenue in Ward 3 instead ("Wegmans to open in DC, anchor Fannie Mae redevelopment," WTOP Radio).

The struggle for local governments is that for political reasons they want and need to push these projects, but because the projects aren't economically viable on their own terms as 100% private sector funded, they require extranormal government funding, and take forever, with many failures along the way, because they are marginal to begin with.

On the other hand, it's very difficult for elected officials to say "the market isn't ready, so your neighborhood/this site will languish for a long long time and there's nothing we can really do about it."

Instead, they throw tons of money at it, in the end for naught, but no one can accuse them of not trying, not doing anything.

Washington Post reports that plans to redevelop the FBI headquarters are being scuttled

See "Federal government cancels costly, decade-long search for a new FBI headquarters."

According to the article:

The federal government is canceling the search for a new FBI headquarters, according to officials familiar with the decision, putting a more than decade-long effort by the bureau to move out of the crumbling J. Edgar Hoover Building back at square one.

The decision follows years of failed attempts by federal officials to persuade Congress to fully back a plan for a campus in the Washington suburbs paid for by trading away the Hoover Building to a real estate developer and putting up nearly $2 billion in taxpayer funds to cover the remaining cost.

... Officials and executives involved in the process also said a lack of permanent leadership at both agencies [the FBI and the General Services Administration] could have hindered the case for funding.

Interestingly, given the alleged interest by President Trump in promoting infrastructure development, this is an example of the incredibly backwards way that the Federal Government handles capital budgeting.

First, unlike state and local governments, the federal government doesn't have a separate capital budgeting process separate from annual appropriations ("The FBI Building as another example of 'I told you so'," and "Town-city management: 'We are all asset managers now'").

This creates distortions in how projects are conceived and scored.

Second, (unfortunately) large projects require specific approval by Congress, and because so many Representatives and Senators believe that "the government is bad by definition" they start from a position of being unfavorable.

I expected this to be a big problem for DC's economy with the election of President Trump and Republican control of both houses of Congress ("Implications of a Trump/McConnell/Ryan Administration on DC's commercial real estate market") and sadly I am being proved right.

Third, this is accentuated by the fact that long term projects are funded from a particular year's appropriations. Which gives rise to arguments that such investments "add to the deficit" rather than add to the economic productivity of the federal government.

Because of this, the GSA did something I thought made little sense, promoting the idea of a land trade "to get a new building for free," which did not work out because it wasn't economically feasible, and it confused the issue.  Note that the Government Printing Office tried the same thing a few years ago, for nought, because again, the economics didn't make sense for the private sector ("GAO-09-392R, Government Printing Office: Issues Faced in Obtaining a New Facility").

Infrastructure is an investment.  Note that the "adding to the deficit" argument is usually fatuous because of the experience of the Civilian Conservation Corps ("Civilian Conservation Corps honored, USA Today), the Public Works Administration and the Works Progress Administration.

From the VCU webpage "The Social Welfare History Project":

Between July 1933 and March 1939, the PWA funded the construction of more than 34,000 projects, including airports, electricity-generating dams, and aircraft carriers; and seventy percent of the new schools and one third of the hospitals built during that time. It also electrified the Pennsylvania Railroad between New York and Washington, D.C. PWA workers built the state capitol building in Oregon, the highway linking the Florida Keys to the mainland United States, the Bay Bridge in San Francisco, the Federal Trade Commission Building in Washington, D.C., the city hall in Kansas City, Outer Drive Bridge in Chicago, the Ellis Island Ferry Building, Washington National Airport and the Grand Coulee Dam in the state of Washington.

Not only did these programs put people to work, these Depression-era "works programs" built significant infrastructure across the country--buildings, roads, bridges--which contributed to the post-war economic resurgence of the US, and many of these projects continue to serve the nation today.

(The right kind of) Infrastructure sets the stage for economic growth.

A chance for reconsideration does have some benefits.  While this sets back redevelopment of the Pennsylvania Avenue corridor by at least a decade, and makes effective management of the FBI that much harder, one good thing could come out of restarting the process--except for the fact that the people running the Executive and Legislative Branches of the Federal Government are anti-government and the Federal Government doesn't have a separate capital budgeting process--new criteria could be set that make keeping the FBI in DC a greater possibility.

Resizing/reallocating space.  In terms of space demands and optimal sizing of agency functions, the FBI could consider dividing certain headquarters/management functions and operations functions and keep the headquarters functions in DC, while relocating certain other functions elsewhere* either in the city or elsewhere in the region.

-- "Intelligent Enterprise," James Brian Quinn
-- Resizing or Right-Sizing?, CCIM Institute
-- "Law firms are 'rightsizing' their office spaces, JLL says," Boston Globe
-- Rightsizing the Multi-Divisional Firm: Individual Response to Change Across Divisions," M@n@gement Journal, Vol. 2, No. 3, 1999, 195-208

While there are many problems now with having federal agencies "in the city" because security requirements usually require that buildings be set apart from the city rather than being integrated within it, agglomeration economies make keeping the headquarters functions of agency in the city beneficial, being close to the Department of Justice, the Department of Homeland Security, ATF, Congress, and other agencies.

Possibly DC could consider trying to lease part of the St. Elizabeths East Campus to the Federal Government for the FBI.  Or maybe, at least for the management/headquarters functions, there would be enough room on the St. Elizabeths West Campus, which remains under the control of the Federal Government.

======
* I am in the process of writing a piece comparing the issues of the DC and NYC rail transit systems, and the Southern Rail system in Greater London and Penn Station in NYC, because the issues are different, but too often conflated (e.g., "Call it Metro schadenfreude: As New York's subway woes worsen Washingtonians offer sympathy," Washington Post).

The problem with the NYC transit system is popularity reaching the system's breaking point, while in DC it's about failure to maintain the system and the addition of a new line stretching the system beyond equilibrium.

Anyway, as part of the review of the problems with the London railroad system, the British Government commissioned a review by rail executive Chris Gibb. Reading the report I was struck by what a difference in seriousness, rigor and thoroughness compared to the recent announcement of a million dollar prize "to fix" the NYC transit system by Gov. Cuomo ("Subway upgrade contest from Cuomo to pay $3M to anyone who can fix signals," AM New York).

It's obvious what the problems are with the NYC Subway--they need new signal systems capable of supporting more trains, and continued investment in tracks and equipment. Instead, lack of budget means it will take decades with the current capital program before the signals are upgraded.

The Gibb report made some amazing recommendations ("Gibb report into improving Southern performance published," Railway Gazette), recognizing that when creating the franchise by merging three different railroads, the "program" on offer was not seriously evaluated or "rationalized," and the reality is that the lines compete, even today, so that the timetable is not optimized for efficient operation.

Given that the system (Southern Railway, Thameslink, Gatwick Express) is the busiest in Britain, the various changes put on the franchise, including new equipment and moving to single engineer operation which is opposed by the Union and led to labor action, along with unnecessary duplication stresses the system. 

Given the usage--not unlike the problems experienced in NYC both on the subway and at Penn Station--extra normal shocks to the system like derailments bring everything to a standstill, although in the case of Southern Rail, Gibb argued it was the labor union strikes and other actions that pushed the system to the edge ("Southern rail strike causes worst disruption in 20 years," Guardian).

Five recommendations stuck out to me:

1. Rightsizing the schedule between the services, focusing on the Thameslink brand
2. Retroceding the Southern Metro train line, which functions more as transit for London, to Transport for London, to provide more resources
3. Electrifying the one diesel line, to make common operation possible, and releasing the diesel equipment to other areas, and eliminating the need for investment in diesel-specific storage and maintenance facilities**
4. Possibly selling the Gatwick station to the airport, because it matters more to the airport to invest in the station than it does to the rail system
5. Changing the way hiring and depots are organized, distributing staff around the system in ways that mean more time is spent moving active trains rather than on off-schedule equipment moves

This kind of detailed analysis seems to be out of the scope of similar processes in the US. Instead, there is political grandstanding.


** Similarly, when David Gunn ran Amtrak, he changed the Cardinal--the only train Amtrak created on its own--from ending in DC, to NYC. He did this because NYC had the maintenance equipment already in place for that kind of train and DC did not. Rather than pay for and install such equipment in DC, he routed the train to NYC. Interestingly, not only did it save money, it increased ridership of that train by 40%.

BTMFBA revisited: nonprofits and facilities planning and acquisition

Because of DC's height limit, the kinds of buildings that Jane Jacobs was thinking about when she wrote that healthy cities need "a large stock of old buildings" that have been paid off and have low running costs and therefore lower rents affordable to start ups, nonprofits, and other innovative uses looking for lower cost space, tend to get demolished and rebuilt to the maximum allowable size, and because the buildings are new, at the current highest rents.

A few weeks ago there was an op-ed in the Washington Post, "The rent is too darn high for nonprofits, too," about how DC nonprofits face a crisis because of the cost of space.  This isn't a phenomenon unique to DC, it's a particular problem in San Francisco ("SF takes action: perspectives on nonprofit displacement, NCG; "Skyrocketing Rents Challenge San Francisco Bay Area Nonprofits, Nonprofit Quarterly), New York City, and other high cost markets.

Like my frustration with the art community complaining about the same problem, but rarely availing themselves of the opportunity to buy buildings ("BTMFBA: the best way to ward off artist or retail displacement is to buy the building" and "When BTMFBA isn't enough: keeping civic assets public through cy pres review"), the nonprofit community needs to come together, develop a facilities/space plan, and create vehicles to assist them to buying and holding buildings.

Organized as the Center for Public Administration and Local Government, in the late 1980s, the Metropolitan Washington Council of Governments did this for themselves and a couple of related nonprofits, including the International City/County Management Association, constructing a building close to Union Station.

But there hasn't been much of a push to do something similar for groups of lesser means. I discuss some options in the BTMFBA article.


Photo: Leonard Ortiz, Orange County Register.

Nonprofit shared spaces.  The Nonprofit Centers Network is an organization that assists facilities across the country that offer shared spaces for nonprofit groups.

The Village in Orange County is one example, with a focus is providing space to housing-related organizations ("This Village is Orange County's first building dedicated to housing nonprofits," Orange County Register).

More communities should work to develop spaces to support nonprofit groups as well as civil society initiatives (although neighborhood groups could be provided space/facilities access at community centers and branch libraries).

A way to "use up" a so-called "white elephant" buildings: multi-faceted arts centers.  With deindustrialization, many communities have large manufacturing buildings that have been abandoned.

In many instances, buildings and communities have been revived by redeveloping these buildings or complexes into multi-faceted arts centers.  Examples include the creation of the MassMOCA contemporary arts museum in North Adams, Massachusetts, which has huge spaces capable of displaying very large art pieces and installations, the GoggleWorks in Reading, Pennsylvania, the Cablefactory in Helsinki, or LaFriche in Marseille, France.

The Trans-Europe Halles organization is a collective of such arts facilities across Europe.

-- New times, new models: Investigating the internal governance models and external relations of independent cultural centres in times of change
-- CREATIVE BUSINESS MODELS: Insights into the Business Models of Cultural Centers in Trans Europe Halles
-- Managing Independent Cultural Centres

In my opinion, DC should have done this with the old Walter Reed Medical Center building on Georgia Avenue in Northwest DC.

The 2.1 million s.f. building could have seeded arts and cultural initiatives for a generation.

But white elephant buildings can be used more generally for nonprofits too.  Note that the best nonprofit arts centers also provide low cost office space to cultural organizations.

Central libraries have the potential to become multi-faceted cultural centers.  There are some examples of libraries sharing some of their space with related organizations.

In the DC area, Arlington County expanded the Shirlington Library to include theater facilities, the Signature Theatre Company. Some Montreal neighborhood libraries include cultural centers.  The provincial "state" library in Montreal has spaces on its back alley/court for small booksellers.  The Hollywood library branch in Portland has a cafe on the ground floor and affordable housing above.

The Drumbrae Library in England has a teen center, cafe, and day care.  Some libraries have space for used bookstores.

The best example is how the Salt Lake Central Library has space for related facilities such as the local NPR station and the Community Writing Center program of the local community college.

I've suggested that libraries could expand upon the SLC example in significant ways ("Civic assets and mixed use: Central Library edition") but thus far we don't see many examples of such co-locations.

Note that community center facilities could be similarly reconfigured to serve more and multiple uses along these lines.

Conclusion:  Um, how about some planning?  The point of urban planning is to manage community needs, land use, and other characteristics of a community.

Given the increasing importance of the nonprofit sector as an element of a community's social, cultural, and community health, as well as a source of economic activity, planning offices should step in and provide leadership for planning space needs for the nonprofit sector, and work with local governments to create ways of providing such space, perhaps through community development corporations comparable to the "Center for Public Administration and Local Government" or the SEMAEST organization in Paris.

In San Francisco, the Northern California Community Loan Fund has stepped in to provide such assistance through the San Francisco Nonprofit Displacement Mitigation Program, which is a model easily exported to cities like Washington.

Implications of a Trump/McConnell/Ryan Administration on DC's commercial real estate market

The Bisnow real estate e-letter posits the DC commercial office market (and the area economy) will benefit from a Trump presidency.  From the article:

Avison Young US capital markets managing director John Kevill expects to see a pickup in leasing activity from the GSA, government contractors, consultants and lobbyists. "His promise to spend on infrastructure, reinvigorate the military, hire more ICE agents than ever before," John says, "will lead to a growth in the local government footprint."

He says this may result in a resurgence in demand for existing suburban office stock that has largely been considered functionally obsolete. He also predicts a growth in lobbying for industries like healthcare and tax reform, leading to increased demand for trophy CBD office space.

Elizabeth Norton's research team at Transwestern looked at the market impacts of every election since World War II, and found generally greater local office demand when the White House was in Republican hands. 

Although, she says, this is largely due to the timing of events like military conflicts and recessions, and cautions against looking too much into the party in power. "It's hard to speculate the true impact at the end of the day, but historically we find it's events, rather than the president, that truly impact the market[.]"

I am not disposed to be as positive.

(This blog entry from 2015 discusses the state of the local economy within DC and this recent post is about the high cost real estate market within the city making it difficult to attract businesses seeking lower cost locations, "Choosing urbanized places vs. choosing DC as a place to locate significant headquarters business operations: Marriott and CoStar.")

While there is no question that "events' shape what happens with government and its growth and post-9/11 hyper growth of the federal government, especially the national security elements, are the perfect example.

For example the Washington Post series from 2012 on the rise of the homeland security function ("Top Secret America") outlines how the rise of the National Security State in the post-9/11 environment has significantly benefited the DC region, and more IT-related military contractors (like SAIC) are relocating their headequarters to Northern Virginia to be closer to their clients. (Also see "Montgomery County's real jobs problem is that it is an adjunct, not a full-fledged, member of the military-industrial complex.")

But while that happened, there has been plenty of stinting on other areas of government, and plenty of animus towards investing in large scale projects such as a unified campus for the Department of Homeland Security or a new campus for the FBI.

Plus military installation consolidation away from Arlington County, Virginia has crushed their commercial office market in Crystal City especially, and has for many years.  And Congress hasn't been much open to paying extranormal market rates for federal leases in the Washington area ("A follow up example with regard to Metropolitan Revolutions: the National Science Foundation moving to Alexandria").

It's important to distinguish between what we should call the Legislative or Congressional Republican Party and the Presidency.

Increasingly year after year since the Gingrich Speakership in the early 1990s, Congressional Republicans haven't been much interested in "investing" in the federal government, outside of projects in their districts or state, and they especially haven't been interested in investing in federal facilities in DC in particular.

-- "Neglected National Mall Languishes," Associated Press, 2009
-- "Washington's Boom Goes Bust," New York Magazine
-- "Federal Government Downsizing Sends D.C. Region Tailspinning," Falls Church News-Press
-- "Will Congress Pull the Plug on Homeland Security's Move to St. Elizabeths," Government Executive
-- "New Year's Post #3: an illustration of the decline of the federal role in DC's real estate market (at least right now)"

That kind of sentiment was expressed earlier in the year by Iowa Congressman Ron Blum, animated and angry about the success of DC's local economy.

With conservative control of the House and Senate I can't see them becoming pro-government in terms of agency expansion and real estate, especially in DC, or in Virginia or Maryland, both of which went for Clinton, although in Virginia it was much closer and outstate Republicans still control the state government more or less.

Another project to watch will be the final selection of a site for a completely new FBI headquarters campus.  Maryland, a very Democratic state, has a Republican Governor, while Virginia's Governor is a Democrat, but the State Legislature is dominated by the Republican Party.

The Washington Business Journal ("How Donald Trump's victory might affect the FBI headquarters competition) figures the project will land in Maryland.  From the article:

Clinton is a close friend of Virginia Gov. Terry McAuliffe, and her running mate, Virginia Sen. Tim Kaine, is a former governor of the commonwealth. It stands to reason that if Clinton had defeated Trump, it would have significantly boosted Virginia's shot at landing the 2.4 million-square-foot FBI headquarters.

Maryland, long the front-runner for the $2 billion-plus HQ project, should remain there with Trump's victory.

That the federal government doesn't do traditional capital budgeting is another problem. See the past entry "We are all asset managers now."

Twitter photo by Ellison Barber.

But, with the Trump International Hotel in the Old Post Office Building, maybe President Trump will be inclined to push for real estate investment in DC.  Or not ("Protestors gather outside Trump hotel in DC," WUSA-TV)

What about the residential market?  As far as DC's residential real estate market is concerned, Republicans tend to live in the suburbs, Democrats in the city.  Maybe it will stay about the same, maybe it will decline.  I don't think that it will continue to be extranormally successful.

I can also see the potential for a rise of Mideast-policy-related terrorist incidents in the U.S., which mostly has been immune from it, outside of "homegrown" incidents (Orlando, San Bernardino, etc.).

If such incidents happen in DC, it could have major implications on the residential real estate market because for safety reasons, people may choose to not live in the city.

Successful retail today often includes food, experiences, social elements, and isn't rote

I wrote about retail within the last couple weeks but last week the Washington City Paper had an article, "Can coffee and booze coexist with local retail?," about the rise in coffee shop + bike shop combinations.

I didn't think the conclusions were particularly scintillating.

The Bike Rack + Filter Coffee operation at Monroe Street Market in Brookland, next to the Metropolitan Branch Trail.  (What I like is that they have a public air pump outside.  More bicycle shops should do this.)

Bike cafes might be "new" to Washington, but there are plenty of cool examples around Europe (this article from Time Out London lists 15, "London's best cycle cafés") and even the US--some killer bike-oriented bars in Iowa of all places, according to the Des Moines Register ("Beers and bikes popular along High Trestle Trail" and "Windsor Heights bike hub could have cafe, art, music") etc.

Also see the Duvine story "Coffee Bikes and Beer Bicycle Bars and Cycling Cafes Across America" from 2015 and this NBC News story from 2011, "Bike cafés brewing in surprising places."

Food + retail is not new.  Kramerbooks and Afterwords Cafe, a bookstore-restaurant on Dupont Circle has been a premier example for decades.

Interestingly, in the early 1990s, Boogie's Diner, a food + apparel concept from Leonard Weinglass, founder of the now-defunct Merry Go Round clothing chain, opened in Georgetown but closed a few years ago.  However, the Aspen sibling of the long since closed combo stores in DC and Chicago remained open until a few months ago.

1.  Food yes, retail less.  I mention all the time that since people eat and drink everyday, but buy other goods, especially specialty goods infrequently, retail districts are shifting towards food as a majority of the "retail" storefronts.   This is abetted by a shift to e-purchasing of a wide variety of goods by the higher income demographics also most likely to patronize local shopping districts.

Sometimes I use the term eater-tainment districts to describe this.

Straight up retail can function, but only as a part of ever larger "regional shopping destinations."  At the neighborhood scale it's much harder to pull off, with notable exceptions.  In any case, it's much more boutique-y and the proprietor has to be satisfied with making a living, not getting rich.

Note that because of the shift to food as a greater proportion of "retail spending" narrow limits on the number of hospitality businesses that can locate in commercial districts as part of zoning regulations can be ill-advised, as it is hard to fill retail spaces with retail stores that don't exist (think of the destruction by e-commerce of various retail categories such as office supplies, travel agencies, camera shops, record stores, and bookstores to some extent.

I mention this because approvals for a restaurant in Cathedral Commons have been held up in part by a 20% limit on the number of restaurants in the development.

2.  Convenience retail can hold its own, other categories not so much.  Convenience retail, groceries and gasoline (impossible to purchase online), to some extent hardware and pharmacy, attracts customer who make frequent purchases.  Other retail does not.  E.g., I buy a bike every 4 to 7 years, and accessories infrequently, plus tune up and repair services, but I drink coffee or eat food every day.

I would still dude up much more the coffee bar at Sylvester & Co. in Savannah, but it provides a reason for people to visit the store every day.

So yes, adding coffee to a bike shop can make sense... just as it does for a variety of other retailers.

But plenty of retailers have been doing it for awhile, e.g., in a trip to Savannah years ago, I was impressed by an espresso bar at the back of Sylvester &Co. Modern General Store, a housewares store, and a coffee bar as part of the Paris Market store (clothing, accessories, and housewares), not to mention a coffee bar in a used book store.

Department stores like Macy's in NYC and Harrod's in London are known for the food halls, etc. Recently, Barnes & Noble announced they'd be expanding their coffee corners into more full blown cafes and Urban Outfitters bought an artisan pizza restaurant group ("Why Urban Outfitters Made Its Controversial Pizza Purchase," Fortune  Also see "Why fashion retailers are staging food experiences," from Business of Fashion.  From Fortune:

The move to buy Pizzeria Vetri, a pizza operator with just two locations in operation in Philadelphia, makes little sense at first glance. But analysts that weighed in on the results pointed out that Urban Outfitters and other retailers are suffering from a broader consumer shift in spending. People are spending less money on apparel, and more on trips, dining out and other “experiences.”

“Urban Outfitters has tested adding restaurants to select stores, and we believe these tests have proven successful, likely driving traffic and increasing the amount of time consumers stay in the stores,” said Stifel analyst Richard Jaffe. Jaffe added that there could be a great challenge of operating a new business to integrating it with what Urban already does.

Note that Ikea has long integrated child care areas and restaurants into their stores.

3.  Experiential retail. The trade publications are full of articles about how consumer interest is shifting to "experiences" ("The New Era of Experiential Retail," Stores) and retailers have to make their displays and approaches much more interesting as a result.  Another element is linking the bricks and mortar to digital commerce.

charlie shares with us this article, "Mall Owners Push Out Department Stores," from the Wall Street Journal, about how shopping centers are getting rid of department stores and replacing them with food and what we might call other "active retail" concepts where customers are likely to patronize these businesses multiple times in a week or month instead of a couple times per year.

4.  Social spaces as an element of commodified spaces and the experience.  Rather than just focusing on buying stuff, now customers are looking for spaces to be in and around stuff to buy.  That includes cafes within stores, places to sit, and fun and comfortable furniture, such as the chairs and sofas in places like Barnes & Noble or Starbucks, etc.  Such spaces will migrate to more types of retail stores.  How much of that will be digital as opposed to analog will be interesting to see how it plays out.  Shopping centers are doing this too, in the common areas inside and outside.

Outdoor area at the OC Mix at South Coast Collection in Costa Mesa, California.  Photo: Ana Venegas, Orange County Register.

5.  Bifurcation in retail chains between unique and standardized spaces.  I think this means that we'll be seeing more bifurcation of retail in terms of what is presented on the part of chains  Chain retail, which has focused on standardization, will split out a set of stores/companies that remain somewhat standardized, especially among the big boxes, like a Walmart or Best Buy, while another set will shift towards differentiated, creative, special retail.  It will trend higher end, e.g., Room & Board, and for higher cost items, e.g., Apple Store.

In some ways Urban Outfitters/Anthropologie has a been a leader in the differentiated/creative end of chain retail for awhile.  Same with how LAB Holdings in Orange County, California has developed unique retail concepts and centers ("Most Influential 2014: Shaheen Sadeghi led an independent revival in Anaheim" and "Can anti-mall and Packing House developer work his Midas touch," Orange County Register).

6.  Fast fashion/fast retail as experiential.  Another element of "experience" in retail might be the "fast fashion" category ("Fast fashion leader keeps H&M at bay," Wall Street Journal), where stores like H&M, Zara, and now Primark frequently change their apparel inventory on a daily and weekly basis to bring in new looks and colors, and to get rid of what isn't selling.  They price clothing relatively low, so that casual apparel segment has become somewhat disposable, rather than something you buy with the aim of wearing it for years and years.

The frequent change out of inventory makes it a form of experience retail because what's there today might not be there tomorrow and if you skip going to the store for a week or a month you fear missing out.  That's much different from the traditional four-season cycle of clothes marketing that had been practiced by by large retailers for decades, with spring, summer (bathing suits, outdoor apparel), fall (especially "back to school") and winter (coats etc.) being reliable boosts for sales.