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In D.C., Bailout Means Business
Federal Spending Could Boost Downtown, Report Says

By Paul Schwartzman
Washington Post Staff Writer
Wednesday, December 24, 2008

The recession may be costing Americans jobs and depleting stock portfolios, but the pain represents economic opportunities for the District, a downtown advocacy group contends in a new report.

The government's bailout of the banking and automobile industries is likely to expand the federal bureaucracy, creating jobs that could fill vacancies in office buildings, according to the report by the Downtown D.C. Business Improvement District.

"In a down cycle, the federal government becomes the investor of last resort," said Richard Bradley, executive director of the BID, which represents downtown property owners. "Someone has to spend it, someone has to oversee it, someone has to direct it. That's what we do here in Washington."

In the report, the group asserts that the city's once-formidable commercial real estate market "is now caught up in the turbulent waves of national and international forces that are having an impact on values as well as liquidity."

"This could have a dramatic impact on the city's fiscal condition," the report said. "In the short run, normal business and development growth will be deferred and the city will suffer significant fiscal consequences."

Natwar M. Gandhi, the District's chief financial officer, announced last week that the city has a $127 million budget gap, largely because of a decline in the value of commercial real estate. He also predicted that the city's unemployment rate could reach nearly 10 percent by 2010.

The downtown BID recommends a number of concrete steps to "minimize" the recession's impact, one of which is to make federal officials aware of "the many excellent locations in D.C. and throughout the region for new employees."

"We need to be ready to provide commercial buildings and creative human capital to help the federal government in this crucial endeavor," the report states.

Delta Associates, a Virginia-based real estate analyst, estimates in a separate report this month that the bailout could create demand for 2 million to 4 million square feet of office space over the next two to three years. A typical 10-story office building can be about 100,000 square feet.

"Even 1 million of square feet per year would be a material gain," Delta said.

The downtown BID also recommends that the District initiate public works projects to create jobs and keep contractors working. It suggests a review of the commercial property tax rate, even though a reduction "might seem counterintuitive at a time of financial crisis."

"Our tax rates do not make us competitive in the region. We have to be mindful of that," Bradley said.

The BID also recommends that the city ease the financial burdens on developers by reducing the tax on vacant commercial properties, a tax intended to pressure builders to use parcels instead of warehousing them.

But with credit markets all but frozen, developers cannot finance construction on those sites.

"They should probably eliminate the tax or bring it down, cut it in half," Bradley said. "As much as they'd like to develop their properties, the capital markets won't give them the funds."

Neil O. Albert, deputy mayor for planning and economic development, said the administration is exploring a range of ways to assist commercial property owners and developers, including a reduction in the tax rate on commercial property.

"We've got to do something to keep commercial investment in the city," he said.

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