The Planning Board of Maryland's Montgomery County told two prospective developers of large mixed-use projects that it would not retreat from imposing new fees or "exactions" as conditions of approval, absent more details about development costs and economic benefits associated with the plans.
At a morning-long work session Thursday the board members in favor of the new exactions said they were unconvinced by an economic analysis submitted by consultant RCLCO for Johns Hopkins University and local developer Percontee.
In a 15-page analysis of the so-called Gaithersburg West project, which seeks to build a combined 8 million square feet of new life-sciences space, RCLCO concluded that the increased exactions would hurt their projects by reducing land values, raising rents, and driving away prospective life-sci employers.
"The vision shared by JHU and Percontee to create internationally renowned epicenters for the advancement of the life sciences and applied technologies in the 21st Century and beyond — and the valuable opportunities they represent to Montgomery County and the state of Maryland — will likely not be realized if Montgomery County were to elect to treat these unique life sciences, mixed use communities in the same fashion as other, more conventional, mixed use developments," the report said.
Percontee, a Silver Spring, Md., developer, wants to develop more than 2 million square feet of life-sci space as part of a mixed-use project for its 185-acre property near the US Food and Drug Administration campus in White Oak. The project would also include 2,000 condominiums and townhouses, 200,000 square feet of retail space, and 50 acres of undeveloped open space.
JHU has even more ambitious plans for its 107-acre Belward Farm, a former farm deeded to the university for academic purposes. The university seeks to transform the property into a research campus with 6.5 million square feet of new R&D space — a development density it hopes will create enough critical mass to draw federal health and scientific research agencies.
However, the draft Gaithersburg West master plan being reviewed by the planning board would scale down JHU's project to a maximum of 4.5 million square feet located in buildings whose height would be capped at 143 feet. The board last month split the difference between JHU's proposal and a request by the civic group Reasonable Development, which sought to limit the Belward space to 2 million square feet [BRN, May 29].
At the work session Thursday, which was webcast on the board's web site, Planning Board Chairman Royce Hanson and board member John Robinson said they were yet to be convinced that the county would generate enough new revenue from development to justify any potential rollback in exactions.
"I don't really expect the state to roll up with an armored truck and dump a lot of money in front of the county office building," Hanson said. "The question is, 'What is our return on investment if we make it?'"
At issue are plans by the county to require developers of life-sci space, as well as "general" office and retail space, to either pay into the county's Agricultural Land Preservation Fund or buy 12.5 percent of the floor area they wish to build above a 0.5 FAR, defined as the amount of square footage within a building divided by the square footage of the lot on which that building stands.
Hanson said the developers can reach the 0.5 FAR figure by "building lot termination" easements at one lot per 7,500 square feet of non-residential space, which he calculated would eliminate one building lot per 60,000 square feet of space above FAR 0.5.
The BLT exaction would cost $1.77 per square foot of space built to a floor-area ratio of 1.0, and $2.36 per square foot for denser developments built to a 1.5 FAR.
That would add between approximately 19 percent and 25 percent to the current $9.50 square-foot cost of current exactions required of lab/R&D developers, which include fees toward public transportation, public open space, and sustainability, with the denser development exacting the higher cost.
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While the RCLCO analysis pegged the cost of BLTs at $212,500 per building lot easement of 7,500 square feet, an analysis of that report by county planning department staffer Jacob Sesker said the approximate cost of the BLT per easement was between $200,000 and $250,000.
What Price Shelter?
In addition, Montgomery County wants developers of new residential projects with densities of 20 or more units per acre, or with 100 or more units of any density, to pay toward a county fund designed to create "moderately priced dwelling units" for people making between 60 and 120 percent of the county's area median income.
That exaction would range from 33 cents per square foot for condo projects with a 0.5 FAR to $3.54 per square foot for condo projects built at a 1.5 FAR. Apartment developers would also be charged $1.02 per square foot for projects at 1.5 FAR.
The US Department of Housing and Urban Development said Montgomery's AMI stood at $99,000 last year. Meantime, the median price of a single-family home in the county was $358,117 in May, down nearly 13 percent from a year ago, according to the Maryland Association of realtors, but still the highest median cost of any county in the state.
Robinson defended the new exactions: "The BLT is like the sales tax, like the income tax. It's what everybody pays for quality of life."
He said he would be more willing to consider the arguments of life-sci developers if they focused more narrowly on seeking county help in reducing the steepest costs, such as infrastructure. However, he said JHU and Percontee would have to furnish more data on the projected development costs and benefits of their projects, rather than stick with their current analysis of the costs wrought by proposed as well as current exactions.
"The focus of [the RCLCO] analysis is, shall I say, questionable," Robinson said.
Sesker's review and the RCLCO analysis can be seen here along with a 38-page economic report prepared by a Washington, DC, consultant it hired, Partners for Economic Solutions, which defended the planning department's strategy of promoting life-sci growth by encouraging several mixed-use, higher-density projects near current and planned public transportation stations.
"The vision for Gaithersburg West as a higher density village could be quite effective in helping the county attract and retain knowledge workers — the key to long-term prosperity in the evolving knowledge economy," PES concluded in its report.
PES projected the county's life-sci workforce will increase by 4,200 jobs to 16,200 by 2025, due in part to the proximity of the FDA and the National Institutes of Heath and to the expectation that companies will continue to seek to be near both. This increase, however, amounts to annual job growth rates of 2 percent or less each of the next 16 years.
According to the PES report, Montgomery County currently is home to 223 "bioscience" businesses and 6.65 million square feet of life-science space. Of that, 49 percent is flex space, 45 percent office space, and the remaining 6 percent industrial space.
The nine-page review of the RCLCO study by Sesker, a planner-coordinator in the planning department's vision division, defended the county's plan to add to developers' exaction costs by arguing that a rollback, even if it lowers rent for the life-sci tenants the developers hope to attract — smaller early-stage shops — would not benefit those tenants as much as other forms of economic incentives could.
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"Relief from exactions is a clumsy form of economic incentive, insofar as the benefit to tenants is often indirect," Sesker wrote in his review. "Early-stage research entities can often benefit more from infusions of cash than from modestly lower rents."
Sesker also suggested that developers should look beyond the traditional approach of building more space if they want to create projects whose revenues more than exceed construction costs. "In certain situations, mix of uses can overcome the costs of building additional density."
But that is not necessarily the case for life-sciences projects like the one JHU has in mind for Belward, David McDonough, senior director of development oversight for Johns Hopkins Real Estate, told BRN this week.
"In many cases, over time, well-executed mixed-use environments can achieve market premiums that can justify their higher construction costs; however, in a life-sciences village, these uses are ancillary and limited in relationship with the proposed life-sciences and research uses," McDonough said via e-mail. "The plan supports increased lab and research space and limits the ancillary uses."
McDonough said exactions aren't the only reason why Montgomery County's building costs are already higher than those of most neighboring areas — and why they may be pushed even higher by the time JHU is able to develop Belward.
Although its land values are higher than other Maryland locations, Montgomery County has historically been able to compete with Baltimore and other counties in the region because of its desired location adjacent to the District of Columbia and federal agencies.
"The high cost of structured parking in this currently suburban location — when coupled with more exaction — increases development costs well beyond those of nearby competitors," McDonough said.
He cited Sesker's analysis, which concluded in part: "Other incentives, such as publicly financed structured parking, might be more effective as a means to achieve the vision in the Draft [Gaithersburg West Master] Plan."
From Percontee's perspective, the exactions would hinder its development plans and signal that the county was not friendly to life-sci development, Jonathan Genn, the firm's executive vice president and general counsel, told the planning board.
Genn's comments came a few weeks after Maryland Gov. Martin O'Malley insisted, during the BIO 2009 International Convention in Atlanta, that the state's budget woes would not stop it from spending $1.3 billion on initiatives designed to grow its workforce by 2020 [BRN, May 21].
"If Montgomery County sends out a message [that] we're going to be a little hostile to [life sciences development] because we think Montgomery County is so strong people will come here without making any additional effort, then the state is going to say [that] state money that could be used to incentivize the life sciences is going to be much better [and] economical to give it to Frederick County, Howard County, Anne Arundel County, and Baltimore City," Genn said.
"If we are not incentivizing the life sciences, than we increase our chances that … " Genn continued, before Hansen interrupted: "I don't think anybody is talking about not incentivizing or not wanting life sciences.
"Given the character of our population, given the character of life sciences activity that is already here, it's a natural kind of industry that we want to grow," Hansen said. "The sole question we are trying to deal with here is, 'How much should it be expected to stand on its own, and how much subsidy does the rest of the county [have] to give it for whatever it generates?'"
The work session was one in a series scheduled for board members to discuss density limits and other parameters of life-sci development called for under a draft master plan now in late stages of review for Gaithersburg West, the section of Montgomery County along the Interstate 270 corridor.
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The draft master plan concludes that Montgomery County should transform Rockville's 900-acre Shady Grove Life Sciences Center campus into a live-work research hub with 20 million square feet of laboratory, office, and commercial space capable of supporting 60,000 jobs over the next 30 to 40 years. That's 55 percent above the 12.9 million square feet of new development now allowed within Gaithersburg West.
Within that total is the 1.1 million to 1.5 million square feet estimated as the total demand for space among life-sciences companies through 2025, according to an economic study conducted for the county Department of Planning by Washington, DC, consulting firm Partners for Economic Solutions. PES derived its space estimate from a projection that each year up until then, life-sci companies will seek between 70,000 and 105,000 square feet of space.
That would boost, by up to 53 percent, Montgomery County's current lab space inventory of 2.79 million square feet, according to the real estate market tracker CoStar. Since 2000, that inventory has grown by 11 percent, or 310,000 square feet, while average asking rents sought by brokers rose 53 percent to $24.03 per square foot from $15.24, triple-net.
But in a reflection of today's economy, the county's occupancy rate for lab space has slid to 80.5 percent during the first quarter of 2009 from 80.9 percent for all of 2008, and a high for the decade of 88.6 percent in 2005.
The draft master plan also calls for a shift in the land use envisioned by the county's "Life Sciences Zoning" category — from projects that develop labs, offices, office-industrial "flex" space, and educational space within separate buildings, to mixed-use projects that blend all four while also allowing for residential and retail space.
Among such projects is JHU's plan to redevelop the 107-acre Belward Farm. JHU seeks to develop there up to 6.5 million square feet of development toward a research campus with enough critical mass to draw federal health and scientific research agencies.
Last month, the planning board rejected that development concept in favor of a scaled-down "Science City" of up to 4.5 million square feet of buildings up to 143 feet high. The planning board also rejected a request by the civic group Reasonable Development that sought to limit the new construction at 2 million square feet.
"The recommended density of Belward at 1.0 FAR is not a deal breaker, it simply makes the plan marginally less competitive — but it is still competitive. The intensity and mix of uses is essential to establishing a transit-oriented life sciences center that is nationally and internationally competitive," McDonough told BRN.
At least one critic of the JHU plan said density should be less a concern for the board than the proximity of the project to an existing mass transit system, and ensuring that the mix of uses resembles a traditional city, rather than a more suburban project that would worsen area traffic because employees would commute from areas cheaper to live in than Montgomery.
Since this proposal is so far away from the core of the region, its employees could easily move farther out like many already have who commute to Tysons (Corners). If the place is suburban and car-dependent, why would they pay all that money to live there when Frederick County is also mostly car-dependent and a lot less expensive?" Cavan Wilk, a Montgomery County activist for walkable communities and mass transit, told BRN via e-mail.
"Basically, the problem is that the "Science City" is not looking like a city at all. It's looking more and more like car-dependent sprawl," Wilk said. "If the development was to be a true town, it would provide the amenities that make a town attractive like proximity, safe pedestrian environment, and a vibrant social atmosphere. A car-dependent office park with lots of parking, as the latest plans show, would provide none of those amenities. On top of that, housing prices in that area aren't exactly cheap. People pay to live there so they can commute to DC, Bethesda, and Silver Spring.
"I would be happy to advocate for the proposal if it hooked up to an existing transit connection and was planned to be a real town. As it is, I think it needs to be opposed," Wilk added.
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McDonough also said Belward would complement, rather than struggle to compete with, two emerging urban-scale life-sci campuses on opposite sides of the city of Baltimore, about an hour's drive northeast of Montgomery County.
The Science+Technology Group of Cleveland developer Forest City Enterprises is set to build 1.1 million square feet of life-sci space as part of a planned multi-billion-dollar, mixed-use redevelopment of East Baltimore with Presidential Partners, a minority-business consortium of Baltimore-based developers.
One building was completed last year — the $54 million, 278,000-square-foot John G. Rangos Sr. Building, also called 855 North Wolfe St. [BRN, April 14, 2008] — but the national economic upheaval has pushed the project behind schedule more recently [BRN, May 1].
In West Baltimore, the University of Maryland, Baltimore, is developing BioPark, a 10-acre, 1.8-million-square-foot site comprising lab and office space set among 12 buildings. To date a pair of multi-tenant buildings totaling 360,000 square feet have been completed by Baltimore-based Wexford Science + Technology.
Unlike the Baltimore campuses, JHU's McDonough said, Belward will be closer to NIH and FDA.
"With over 60 percent of the State’s biotech companies in Montgomery County, the proposed Gaithersburg West Life Sciences Vision is directed toward collaboration and applied science — converting discoveries into products, and getting these products into the market place through the FDA," he said. "Baltimore’s historic focus has been more toward basic research leading to discoveries and advances in education and health care.
"We feel these Baltimore based and Montgomery County based bioresearch clusters, all three of which include Hopkins and the University of Maryland, working collaboratively through Research Parks Maryland, result in a highly complementary regional bioscience cluster," he added.
Belward would be one of five Life Sciences Center zoning districts contemplated by the Gaithersburg West Master plan. The others are:
• LSC North, which has easy access to I-270 from Shady Grove Road and Interstate 370, also called the Sam Eig Highway.
• LSC Central, home to the J. Craig Venter Institute and Shady Grove Adventist Hospital.
• LSC South, anchored by the Universities at Shady Grove and the headquarters of Human Genome Sciences
• LSC West, anchored by the 60,000-square-foot Shady Grove Innovation Center, and the 52-acre county-owned Public Service Training Academy. The county government wants to sell or lease the PTSA property, located within the Shady Grove Life Sciences Center campus in Rockville, Md., to a developer willing to include life-sci space among a mix of uses, and who wants to relocate the academy [BRN, Aug. 11, 2008].
The master plan would allow increased development of new life-sci and all other development in stages. The stages would be pegged not to a specific timetable, but to milestones that include the completion of previous stages, redevelopment of the PTSA property, and the development of a new 13.5 mile mass-transit system known as the Corridor Cities Transitway, now being studied by the Maryland Transit Administration:
• Stage 1 — 400,000 new square feet of new non-residential development in LSC North, Center, and Belward districts. The three districts have a combined 5.5 million square feet of existing development, with another 2.7 million square feet of future development approved.
• Stage 2 — 2.8 million square feet of new commercial development in all LSC districts, in addition to the 8.6 million total square feet of development allowed under stage 1.
• Stage 3 — 1.8 million square feet of new commercial development in all LSC districts, in addition to the 11.4 million square feet allowed in stages 1 and 2.
• Stage 4 — 4.5 million square feet of new commercial development in all LSC districts, in addition to the 13.2 million square feet allowed in stages 1, 2, and 3.
The planning board at its work session exempted Shady Grove Adventist Hospital and other providers of healthcare services from the 400,000-square-foot limit of stage 1, after its lawyer, Robby Brewer of the law firm Lerch, Early & Brewer, argued that the limit could delay future expansion of the facility. The hospital is completing a four-year, $100 million expansion-renovation project that included the opening last month of a new 3,400-square-foot pediatric emergency department.
Even without the development limits contemplated in the master plan, RCLCO acknowledged in its report, neither Percontee's project, nor JHU's, are expected to get built any time soon: "The current distressed state of the economy would likely forestall development on either property in the near future."