Could the St. Elizabeths project be cut?

By Jonathan O'Connell
Monday, February 7, 2011

The first phase of construction for a $3.4 billion consolidation of the Department of Homeland Security at St. Elizabeths hospital is underway, but local real estate professionals are watching to see whether Congress approves appropriations for the remainder of the project.

In June Obama ordered $8 billion in real estate cuts and he reiterated a commitment to shrinking real estate spending with his State of the Union address, in which he said his administration was "selling acres of federal office space that hasn't been used in years" and would "cut through red tape to get rid of more."

Some Washington real estate developers and analysts are wondering whether that will include the 4.5 million-square-foot consolidation at St Elizabeths. Although more than $1 billion has already been appropriated, the government could still derail the Southeast Washington project or delay its currently planned 2016 completion by withholding funding this year or next.

"It's a pretty easy place for Congress to say, 'There's a place we can save $4 billion,' " said Tim Jaroch, David Nassif Associates' managing general partner.

Nassif is one of the property owners that has already experienced the effects of the government's tightening purse strings. Last April, the Securities and Exchange Commission signed one of the biggest, priciest leases in area in years at the company's Constitution Center building in Southwest Washington. But now the agency's inspector general says he is investigating the deal and Rep. John L. Mica (R-Fla.), the new chairman of the Transportation and Infrastructure Committee, is considering action as well.

Art Turowski, a former GSA official who monitors federal leasing as a broker for Jones Lang LaSalle, said it would not surprise him to see Congress take a bite out of the St Elizabeths plans. Partly that's because, he said, the recession had led some officials to think that expensive consolidation of agencies "wasn't such a hot idea."

"That kind of thinking would certainly play into what heretofore had been plans for very large entities," he said.

Mica declined to comment about St Elizabeths funding.

Robert A. Peck, commissioner of the Public Buildings Service for the General Services Administration, said the administration was committed to completing the project "as fast as we can" but that he had spoken to DHS officials about moving more employees there than originally planned, in order to cut costs. Through desk-sharing, telecommuting and other measures, DHS might be able to reduce the total square footage it requires in the region.

"We're saying to them, 'I wonder if 15,000 people is all we can get there,' " Peck said.

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