December 29, 2013

I t was a year when progress came fitfully. We added jobs, but they tended to be lower paying than in the past. New development sprouted, but mostly only around Metro stations. A big hotel company went public, but the hospitality sector took its lumps as the government cut back on travel and conferences. Local stocks went up as government spending fell down.

Green shoots, sure, in a region hoping for more.

Uneven job growth

Think fast: What sector created the most jobs in the Washington area in 2013? It wasn’t the region’s largest industry, professional services, which shed 200 jobs in the one-year period ending in November. And it wasn’t the health-care industry, which was the region’s biggest job creator in 2012.

In fact, our greatest job gains came from the leisure and hospitality sector, which added 16,200 positions. It’s a development that carries mixed signals about the health of the regional economy. It is an indication that consumers are confident enough in the economy that they’re willing to shell out their dollars at local restaurants, bars and theaters.

But jobs in this industry are typically lower-paying ones, especially when compared with the professional services jobs that have historically been a key source of employment growth here.

Stephen Fuller, the economist who directs the Center for Regional Analysis at George Mason University, has said this pattern could further reinforce the region’s widening income gap.

— Sarah Halzack

Metro real estate booms

The first leg of the Silver Line, once envisioned to begin operations late in 2013, isn’t likely to open until the spring, but developers in Tysons Corner and elsewhere in the region have already shown how valuable the rail line has become.

With millennials pouring into neighborhoods that offer public transit, walkable amenities and night life, the vast majority of construction begun in 2013 was within walking distance of Metro stations.

That includes the four stations in Tysons, where 3.7 million square feet are under construction already and a total of 45.3 million square feet is planned for coming decades.

Proximity matters. For properties near the five Rosslyn-Ballston stations, through which the Orange line runs, researchers found that offices within one-20th of a mile (264 feet) of Metro earn a more than 30 percent premium over those that are a quarter of a mile from a station.

The first high-rise apartments near Silver Line stations will test whether Tysons can replicate what Arlington has achieved along the Orange Line.

— Jonathan O’Connell

Tech comings and goings

The start-up community that technology enthusiasts and city officials have been eager to establish in the District had its share of wins and losses for the year.

The co-working space and community hub 1776 opened in the spring, thanks in part to a $200,000 grant from Mayor Vincent Gray’s economic development office. The venue has since played host to countless events, start-up launch parties and educational sessions. Its founders also established a global pitch competition that will conclude in March with start-ups from around the world convening in Washington.

But an exodus of District-based companies continued in 2013. Umba Box and Tech Cocktail moved to Las Vegas. Dating app Hinge announced it will soon head to the Big Apple.

What’s more, the creators behind Digital Capital Week announced the week-long technology festival will exist no longer, and start-up accelerator the Fort said it will no longer incubate fledging firms after getting underway two years ago.

— Steven Overly

Bank, credit union mergers pick up

Local community banks and credit unions embarked on a flurry of mergers and acquisitions, beginning in the first half of the year, as financial institutions looked for ways to expand during a slow economic recovery.

Three deals were completed in May alone, with Rockville-based Capital Bank’s purchase of Pisgah Community Bank in Asheville, N.C.; Old Line Bancshares’ acquisition of another Bowie-based bank, WSB Holdings; and Fairfax-based Apple Federal Credit Union’s merger with Springfield-based Vantria Federal Credit Union.

Two more acquisitions were announced later in the year: Cardinal Financial’s pending $51.7 million purchase of United Financial, and United Bank’s $490.6 million takeover of Arlington-based Virginia Commerce, which was approved by the Federal Reserve three weeks ago. Both purchases are expected to close in early 2014.

— Abha Bhattarai

First sequestration, then shutdown

Many government contractors were already seeing downturns this year as the government budget shrank in response to automatic spending cuts known as sequestration. But companies encountered another obstacle in October, when the federal government partially shut down for weeks. Though federal employees were ultimately reimbursed, many contractors were not able to make up missed work and billing. Lockheed Martin, for instance, said the shutdown cost it about $15 million to $20 million per week.

Sequestration took a greater toll on services business, which were less likely to have contracts booked well in advance than weapons manufacturers. Local government services powerhouses such as ManTech International and CACI International saw their profits fall in 2013.

— Marjorie Censer

Hilton goes public

Hilton Worldwide returned to the stock market in December, raising $2.35 billion in the year’s second-largest initial public offering. Shares of the McLean-based hotel chain, priced at $20 a piece, made their debut on the New York Stock Exchange after six years of private equity ownership by Blackstone, which bought the ailing hotelier for $26 billion in 2007. Money from the IPO will go toward paying down some of the company’s debt.

Hilton’s success story comes during a year when many area hotels have struggled to overcome widespread government budget cuts and conference cancellations. The 16-day government shutdown in October further exasperated matters, leading to millions of dollars in lost revenue for local hotels.

— A.B.

The Washington Post is sold

The Washington Post experienced a changing of the guard for the first time in 80 years when the Graham family announced in August it would sell the newspaper and affiliated publications to Amazon.com founder Jeffrey P. Bezos for $250 million.

The deal transferred ownership from a family with a generations-deep connection to Washington to a relative outsider who amassed his multibillion-dollar fortune in Internet retail. Graham’s Washington Post Co., which includes the Kaplan education company, a cable television operator and other assets, was subsequently renamed Graham Holdings.

The Washington Post wasn’t the only local media outlet to sever family ties. Allbritton Communications announced in July it would sell eight television stations, including WJLA and News Channel 8, to Sinclair Broadcast Group for $985 million, so the company could focus on Politico and its digital offerings.

— S.O

A lobbying giant cuts back

Patton Boggs, the District’s largest lobby shop by revenue, dismissed 40 lawyers and 70 staffers to save about $20.2 million as business slowed. The firm also asked a number of unproductive partners to leave, and plans to reduce the number of its equity partners even further. In November, firm leaders shared details of what they called a “long-term strategic plan” intended to get the firm back on track. The plan includes the creation of a new management committee. But perhaps most notably, the firm is changing the way it pays its equity partners to become more in line with that of most large law firms, moving away from a rigid formula that relies heavily on hours and origination credit to one that considers more subjective factors.

The changes signified that even powerhouses such as Patton Boggs are not immune to the economic pressures plaguing big law firms, which have been struggling to grow revenue since the recession hit. Other lobby firms responded to the crunch in different ways — Cassidy & Associates and McBee Strategic, for example, began branching out to digital branding and public relations to bring in additional revenue.

— Catherine Ho

Wal-Mart comes to D.C.

It was a long march, but on Dec. 4 Wal-Mart opened its first two D.C. stores, on Georgia Avenue NW and H Street NW. Shoppers flocked to the new stores, sometimes while activists protested the chain’s employment practices.

But the anti-Wal-Mart crowd, which often includes advocates for low- and moderate-income workers, won their own victories as the world’s largest retailer entered the nation’s capital.

Montgomery and Prince George’s counties both passed minimum wage increases following Wal-Mart’s arrival in the District, and D.C. is poised to do the same, part of a wave of local and municipal minimum wage proposals emerging around the country.

In the District, Wal-Mart has a third store under construction and two others in planning stages. It would like to build a sixth on New York Avenue NE, and if the retailer’s expansion in Chicago is any indication, the chain could begin adding smaller format and grocery-oriented stores in some of the District’s wealthier neighborhoods as well.

— J.O.

Snowden, contractors draw scrutiny

Contractors and their security clearances were the focus of the media, the public and Congress multiple times this year. Edward Snowden, an employee of McLean-based contracting giant Booz Allen Hamilton at the time, gained notoriety by leaking government secrets he had gathered while working at the National Security Agency. Later in the year, the role of contractors again came under scrutiny when Aaron Alexis, who worked for a small company called the Experts that acted as a subcontractor to Hewlett-Packard, killed 12 people at the Navy Yard.

In the fall, CGI Federal, a Fairfax-based contractor, found itself the subject of criticism following the rocky roll-out of the new health care enrollment Web site.

— M.C.

Trumps ink deal

Donald and daughter Ivanka Trump came to terms with the General Services Administration on a 60-year lease of the Old Post Office Pavilion in June, a deal that will pave the way for their company to turn the building into a 275-room luxury hotel expected to open in late 2015 or early 2016.

It was a high wattage deal for the GSA. The $200 million project means one of the city’s most revered, historic and tallest buildings will become a new standard for luxury — and priceyness — in the city.

Otherwise, however, the federal agency responsible for managing and leasing federal real estate is still trying to find enough wiggle room to operate under new levels of congressional austerity, and landlords across the region are waiting.

The GSA continues to push federal agencies to use less space. This year, it agreed to relocate and consolidate some agencies, including the National Science Foundation and the Fish & Wildlife Service, from the region’s pricier inner suburbs to southern Alexandria and Falls Church, respectively. At the same time, it is trying to determine what to do with large consolidations that were approved in more flush times, for agencies like the Department of Homeland Security and the Nuclear Regulatory Commission, that have fallen out of favor with Congress.

— J.O.

SAIC splits in two

McLean-based Science Applications International Corp., one of region’s largest contractors, split itself into two public companies in 2013. The company retained the name SAIC for the smaller, $4 billion government-services company and dubbed the other half, a $6 billion business focused on technology, Leidos, clipped from the word kaleidoscope.

The contractor announced the sale of its prominent 18-acre Tysons Corner campus, including four office buildings, to Bethesda-based real estate firm the Meridian Group. The SAIC unit, which is now led by long-time SAIC executive Tony Moraco, opted to lease back space on the Tysons campus, while Leidos, headed by John Jumper, SAIC’s CEO, moved to Reston.

The two new businesses got off to a rocky start in their first quarters; Leidos reported a loss for the three-month period, while SAIC saw profit decline by about 50 percent.

— M.C.

Rollout of HealthCare.gov Web site didn’t go as planned

Individuals struggled to sign up for health insurance as the Affordable Care Act took effect, and deadlines were delayed by a raft of technical problems. Meanwhile corporate lawyers and health care specialists tried to parse the wave of new regulations governing the mandate. A number of large employers including Walgreens and Sears Holding sent workers to the private exchanges, while others took a wait-and-see approach for 2014.

—C.H

Prince George’s becomes a player

Prince George’s County has long been considered an afterthought for regional developers, whether one was looking to build high-end housing or office space. But recently, under County Executive Rushern L. Baker III, Prince George’s is forcing people to take notice.

Maryland’s newest casino will be in Prince George’s County, following a highly competitive battle among three casino-resort teams to win a state license.

Baker and state leaders assembled a deal that will lead to the construction of a $645 million regional hospital campus beside the Boulevard at the Capital Centre in Largo.

And tens of thousands of shoppers appeared on the opening day for 80 shops at Tanger Outlets at National Harbor in November, putting the county on the map for the holiday shopping season.

By all indications, Baker and Prince George’s have positioned themselves as viable competitors for a future FBI headquarters campus, submitting an 82-acre Metro-owned site in Greenbelt for the government to consider. That would bring Prince George’s some 11,000 employees and a new level of respect.

— J.O.

Steve Case steps up

One D.C. entrepreneur-turned-investor continued to make his voice heard on policy issues related to technology companies this year: Steve Case.

The former AOL chairman championed the Jumpstart Our Business Startups Act that President Obama signed into law last year. Some of the provisions in that law, including the introduction of equity-based crowdfunding and changes to IPO regulations, began to take effect in 2013.

Case has also been an advocate for immigration reform that allows foreign-born individuals with advanced degrees in science, technology, engineering and math to stay in the United States more easily. Those efforts have failed, despite bipartisan support.

Earlier this year, an organization Case helped create to foster entre­pre­neur­ship across the country, the Startup America Partnership, merged with another advocacy group called Startup Weekend to form Up Global. Case serves as chairman of the joint venture.

His day job as chairman and chief executive of venture capital firm Revolution was marked by big investments in 2013. Among the local companies that received cash from the venture capital firm are Optoro, CustomInk and SweetGreen.

— S.O.

Still dealing

LivingSocial spent much of 2013 trying to regain its footing after writing down the value of its foreign operations and laying off workers at the end of 2012. Though the firm has narrowed its quarterly losses, profitability remains elusive.

The District-based company was dealt two technical blows this year: a cybersecurity breach in April and a multi-day Web site outage in November. It also sold its largest overseas business, South Korea-based Ticket Monster, to competitor Groupon for $260 million.

In September, LivingSocial said it would shift its business model away from daily deals toward discounts and coupons that stay on its site for longer stretches of time. Whether that business model will prove lucrative and durable remains to be seen.

— S.O.

D.C. United scores a stadium

D.C. Mayor Vincent C. Gray and executives for the D.C. United soccer team reached a tentative $300 million deal to build a 20,000-seat stadium for the team, one of the most high profile economic development projects launched in the region this year.

Local sports stadiums and arenas continued to make waves. Popular though often controversial projects included a proposed minor league baseball park in Loudoun County and a practice facility for the Washington Wizards and Washington Mystics proposed recently by Ted Leonsis, majority owner of the teams. The soccer stadium is pegged for Buzzard Point, on property owned by the District, developer Akridge and others, but it relies on a complex series of land swaps that require approval of the D.C. Council.

— J.O

Bye-bye cubicle

The cubicle farm is being put out to pasture as many Washington area employers ditched the office set-up in favor of open and flexible work space.

Perhaps the most prominent example is the General Services Administration, which opened a revamped headquarters on F Street NW in July. In a model known as “hoteling,” staffers don’t have assigned desks, they simply reserve one for the hours that they need it.

The move to adaptable work spaces is often tied to a desire to cut costs: It provides a way for companies to reduce their real estate footprints and save money on utility bills.

Nixon Peabody, for example, signed a 15-year lease on a new office at the corner of Ninth and H Street NW that is to be 30 percent smaller than the law firm’s current digs.

Many employers also say their shift to flexible work spaces is part of an effort to make for a more collaborative work environment, and employers and talent experts say flexible offices are important to attracting and retaining Millennial generation workers.

Some local firms, including CoStar, Gensler and StreetSense, have shaken up their work spaces by moving them to the street level to give passersby a glimpse at what they do. Its a move the companies hope will help boost their brand and deepen their connection to the surrounding community.

— S.H.

Barbara Lang exits

As the longtime head of the D.C. Chamber of Commerce, Barbara Lang was among the most vocal opponents of a bill that would have imposed a “super-minimum wage” on some big-box retailers in the District. In September, just two days after the bill was defeated, Lang announced she planned to step down from the organization, saying, “for me, the time to leave is when things are going really well.”

During Lang’s tenure, chamber membership grew dramatically. Where the organization once counted mostly small businesses as members, today it includes more large companies.

She has not yet announced where she’s headed next.

— S.H.

Law firms pivot

Several of the nation’s largest law firms, including many based in Washington, continued to grasp at new ways to grow revenue amid a largely flat market for legal services. Some, such as Williams Mullen, Covington & Burling and Greenberg Traurig, created or expanded practice groups to chase business in Africa, which they see as the new frontier for U.S. companies to invest because of a growing middle class there. Others, such as Kelley Drye & Warren, turned to professional athletes as a new kind of executive client, and thus a new source of business. The industry as a whole started showing renewed interest in mergers — law firms announced 41 percent more mergers during the first nine months of the year compared to the same period in 2012 — indicating firms are increasingly struggling to grow organically and turning to consolidation in hopes of grabbing new business.

Meanwhile, the struggle to maintain and grow business trickled down to the pipeline of young people looking to join the legal profession. The number of people applying to U.S. law schools dropped for the third year in a row, and Washington’s top law programs started enrolling fewer first-year students and admitting students with lower grade-point averages and test scores than in years past.

— C.H.

CEO turnover

At the start of the year, women executives took over some of the largest contractors. Marillyn A. Hewson became chief executive at Bethesda-based contracting giant Lockheed Martin, while Phebe Novakovic took the reins at General Dynamics in Falls Church.

Several contractors made quick shake-ups in their leadership this year. At Herndon-based Sotera Defense Solutions, John Hillen abruptly stepped down as chief executive as Deborah Alderson took over, while Arlington-based CACI International subbed Kenneth Asbury in for Daniel D. Allen. John P. Hynes Jr. took over for David Langstaff at Chantilly-based Tasc.

Industry observers should expect more change in 2014, as the Arlington-based U.S. unit of BAE Systems is expected to name a replacement for Linda Hudson early in the year.

— M.C.

Stock market surges

The stock market hit record-highs this year, lifting shares of most Washington-area companies along with it. Many attributed investor bullishness to the Federal Reserve’s decision to continue to funnel money into the economy through its bond-buying program.

But even as share prices soar, area executives say they are waiting for the broader outlook to improve before they beef up hiring or invest in new ventures.

The local economic recovery has been choppy, at best. While the region continued to see modest job growth, the automatic budget cuts known as sequestration appeared to finally take a toll on the local labor market in July. Year-over-year job losses in the federal government sector were the largest in at least a decade, and the increase in jobs in the professional services sector was a paltry one.

— A.B. and S.H.

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