The Real Deal New York

Washington, D.C.: Threatened Crystal City closures appear derailed

Initiative to vacate buildings in Washington, D.C., leased by military, defense contractors loses steam

December 05, 2007
By E.L. Wasson

Two years ago, when the Pentagon announced its Base Realignment and Closure plan, a flutter went up in Crystal City.

By day, Crystal City, an enclave of office buildings in Arlington, Va., adjacent to Washington, D.C., is full of uniformed officers, defense contractors and camouflaged soldiers. The military is the area’s biggest lessee, accounting, brokers said, for more than 90 percent of the occupied office space.

The fear was that BRAC would leave the area’s concrete plazas deserted, making it feel less “Dr. Strangelove” and more “2001.”

Lately, however, brokers have been doubting that the military has made enough infrastructure preparations to move large numbers of personnel, and they indicated that BRAC could actually be significantly delayed.

“I’m all but certain that BRAC won’t happen, or that it won’t play out the way it’s been announced,” said Herb Mansinne, a national director of Jones Lang LaSalle. “What was going to be an exodus of over 20,000 government workers onto secured military bases will only be a few hundred.”

Under the BRAC plan, the Department of Defense had committed to moving 17,000 jobs out of Arlington and to vacating about 3 million square feet of office space. Much of that would come from Crystal City, where the commercial vacancy rate, at 16.7 percent, is already higher than the rest of the region, where it is 10.3 percent.

A major reason given for the relocation was the need to secure the facilities where soldiers work. New rules say that buildings that house military and intelligence agencies have to have greater offsets from the road to guard against truck bombs. Walls, too, must be thicker than in normal office buildings.

“One attack in Crystal City could conceivably cripple the country’s national security. They’re all clustered there,” said Mansinne.

As part of BRAC, personnel would be moved into office parks located on military bases since guarding a perimeter is more cost-effective than securing mixed-use buildings in urban settings.

To mitigate the damage to the real estate market from military departures, Crystal City landlords including Vornado, the neighborhood’s largest owner of office space, have been granted millions from federal and state governments and have been actively wooing new office tenants.

“We’ve done a number of things, and one of them is look at the redevelopment of Crystal City, which is the area that will be most impacted,” said Terry Holzheimer, director of Arlington Economic Development. “We have always said that BRAC is serious but manageable.”

Now, however, some brokers speculate that BRAC’s momentum has slowed because it was an initiative strongly backed by former defense secretary Donald Rumsfeld.

As a result, don’t expect workers who now take Washington, D.C.’s Metro to Arlington to start driving in the opposite direction, to Fort Belvoir in Fairfax County, Va.

Rents in Crystal City and elsewhere in northern Virginia are priced to attract tenants — $37 per square foot compared to about $55 in Downtown Washington. Still, the fact that the axeman’s blow won’t fall just yet doesn’t mean Crystal City will be filled up.

Or as a recent Colliers report put it, the “robust demand of 2004 and 2005 is over.”

In wider terms, the area as a whole shouldn’t suffer, though. Brokers said the government leases about 70 percent of the office space in northern Virginia, up from about 60 percent just five years ago.

Brokers indicated that expansions within the military and intelligence agencies have, since the ruptures of Sept. 11, represented far and away the fastest growth sector of commercial leasing.

“All the government is expanding its office space, but nowhere near as quickly as the military and national security agencies,” said Avi Fisher, a researcher with the commercial brokerage Cassidy Pinkard Colliers.

While a new headquarters for the Department of Homeland Security is being planned across the Potomac in a historic section of Anacostia, funding for the massive development is in question. Federal officials proposed a $3 billion, 4.5 million-square-foot complex for 14,000 employees. The project would be one of the largest in the Washington area since the construction of the Pentagon in the 1940s, according to the Washington Post. President Bush has signed off on $318 million for construction to start in 2008, but Congress has not given it the green light.

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