Some commercial real estate developers, a fiercely individualistic lot traditionally opposed to just about all forms of government regulation, are now saying zoning rules and restrictions may not be such a bad thing after all, according to several builders in the Washington area and other parts of the country.
Local government regulations "are very tough, and that does make it difficult" for developers, said Lawrence Burrows, director of development for the Oliver T. Carr Co.
"However, you have a sense of what is expected" by the jurisdiction, "and it does establish a level of quality of construction that to us, as quality builders, is important," he said, and ensures that all buildings erected in the area will be of equally high quality.
"It's difficult, it's time-consuming and it's expensive" to go through the process of obtaining all the permits and approvals needed in most communities before construction can begin, said Burrows. "But, usually, it makes for a better project and is better for the community."
To many of his fellow developers, Burrows' statements will be heresy. And they will astonish industry observers more accustomed to hearing builders denounce most forms of government control.
But other developers feel stringent government requirements help keep down overbuilding that results in a supply of office and industrial space that far outdistances the demand.
"I think most developers are comfortable with zoning regulations because they are going to assure him that what he builds will not end up in an area that's overbuilt," and where other structures are of comparable quality, said Susan J. Matlick, executive vice president of the Suburban Maryland Home Builders Association.
Even with a time-consuming, costly government approval process, however, there is an abundance of empty office space in Washington area buildings.
In mid-1984, vacancy rates in the suburbs ranged from a high of 16 percent in Alexandria and 14.7 percent in Prince George's County, to 8.5 percent in Montgomery and 5 percent in Fairfax. Arlington County had the lowest level -- a 3 percent vacancy rate. High as some are, though, the Washington suburbs compare favorably to the national average of 18.1 percent.
Many builders most opposed to regulation still have not become reconciled to what Burrows calls the "fundamental shift" in the relationship between developers and local governments. "It used to be, years ago, that all public improvements such as sewers, utilities and roads were provided by the governments," Burrows said. "The notion was that tax revenue paid for them." But now, the governments are "looking for the developer to pay some of the costs."
He said his company and local governments in Arlington, Alexandria and Montgomery, where most Carr projects are located, "are flexible in our trade-offs." For example, he said, Arlington County permits no above-ground parking facilities, but permitted an exception for a Shirlington shopping area project. Carr asked for above-ground parking because it is difficult to put retail customers in underground garages, Burrows said. In return, "we agreed to do off-site improvements" on roads and traffic systems.
Northern Virginia architect and developer Thomas G. Georgelas believes in zoning rules that protect neighborhoods but that are flexible enough "to change with the growth of an area." Fairfax County "has been progressive in responding to changing needs. They've made adjustments to the master plan where they've made sense," said Georgelas, who also believes regulations may help keep overbuilding in check and the quality of construction high.
He is sympathetic with residents who "ask, 'Where do we draw the line?' " on commercial development, and who fear "the peripheral outfall of traffic" generated by office and retail complexes and the view of tall buildings rising on their horizons. Georgelas continues to hold his benign view, although his company has had its troubles with Fairfax zoning regulations. The firm, John G. Georgelas & Sons, will start work next spring on three office buildings at Spring Hill Road and the Dulles toll road that will contain 200,000 fewer square feet of space than the developers asked for initially.
"What the citizen groups and the county wanted didn't make economic sense for us," said Georgelas. So, instead of paying out approximately $2 million, mainly for road work, to get county approval for the project, the Georgelas company scaled back the size of the project.
The softening of commercial developers' antipathy toward municipal land use regulations is showing up in many areas of the country, according to industry analyst Lewis Bolan, vice president of Real Estate Research Corp.
"Normally, we think of developers as a conservative, free enterprise" group, he said. "But between the lines, they are saying you can have too much of a good thing."
The developers, real estate agents and financiers interviewed for RERC's 1985 commercial development forecast were asked to name the cities they believed had the most and least potential for a healthy real estate market.
One of the reasons they gave for being bullish about cities was "tough government land use controls [a surprise, coming from people who usually speak out against such controls]," according to the forecast issued this month.
New York, Boston and San Francisco, three of the four cities cited as the most promising markets, "are notoriously difficult cities in which to build. Yet this very fact has kept supply in check. And the experts recognize this as a positive attribute for investors," said the report, written by Bolan and RERC president M. Leanne Lachman.
The downtown vacancy rates in the three cities are the lowest in the nation: 4.6 percent in Boston, 6.5 percent in New York and 8.6 percent in San Francisco. There is a negative side, though. These cities "have the highest rents in the country, and many firms are either moving out of those cities to the suburbs or splitting off back-office functions and relocating them in cheaper space," according to the RERC report.
Most developers were least enthusiastic about Houston and Denver, which Bolan called "wildly overbuilt," with vacancy rates of more than 20 percent. They are "two of the most pro-development cities in the country, which made high levels of construction easy when the boom mentality of the energy business was extended to real estate," said the RERC report.
"Some larger, more responsible real estate people, the large, high-quality, sophisticated developers are trying to distance themselves from less prestigious developers," Bolan said. The big developers have the expertise and financial resources to go through the "incredibly expensive" regulatory process in many cities, which they see as eliminating competition and lower-quality, lower-prestige builders, he said.
New York has "zoning clarity," believes Charles Shaw, who heads a large, Chicago-based company. "As long as the rules are clear and up front, we can decide whether we can live with them. What I can't live with is a regulatory climate that changes with political whims." He believes New York is "not a tough place to do business, but you have to be professional" and know what you're doing. "That's what breaks the men from the boys."
The benefits of municipal regulations -- a less overbuilt market, lower vacancy rates and sometimes higher quality buildings -- are real, but these results may be accidental, rather than the result of good planning by local governments, said Kenneth W. Hubbard, executive vice-president of Gerald D. Hines Interests, the giant, Houston-based development company. Cities make zoning rules in reaction to issues such as "density, height, shadow. Those are outgrowths of market judgments."
But while getting regulatory permits and approvals is a "a painful process," according to Hubbard, once a developer gets through it, he is likely to say, 'I realize some cities have less overbuilt markets, so maybe the process has benefits I didn't realize at the time.' "