Construction by the federal government drove Washington out of economic turmoil, but now it may be driving it back in.
Last week Martha N. Johnson, administrator of the General Services Administration, said her agency was stopping new construction projects this year, after the House set aside no construction money and the Senate proposed just $56 million in the federal budget. The White House had requested $840 million.
“We the government are having our stomach stapled,” Johnson said at a recent conference, according to the Federal Times.
For commercial real estate developers and investors who were teeing up properties aimed at landing GSA agencies, Johnson’s words equate to the last lights going off in the room. “Congress and the federal government are really just killing the local real estate industry right now,” said Darian A. LeBlanc, a senior vice president at the real estate services firm Cassidy Turley.
In 2010, 65 percent of new net leasing growth nationwide came from the federal government, according to Jones Lang LaSalle.
“Agencies are going to make the easy cuts,” said John Sikaitis, director of research at Jones Lang. “And the easy cuts are move costs.”
The GSA has gone so far as to halt the renovations of its own headquarters at 1800 F St. NW. GSA moved most of its employees temporarily to another building while it began the first phase of a $105 million renovation and expansion of its existing headquarters. Now the agency will stop work after the first phase.
Which developers and landowners could be left in the cold as GSA goes into hibernation? Here are five places to watch.
Prudential Real Estate Investors:
Victory Center, 5001 Eisenhower
Victory Center is an empty 600,000-square-foot office building with easy access to Metro. The 16-acre site has the potential for another 1 million square feet of space. It was in the mix for a number of major GSA deals before the government spigot closed.
Akridge: Buzzard Point,
100 V St. SW
District-based Akridge purchased Buzzard Point, the former home to a Pepco plant, for $75 million in 2005, and has positioned it as a place to develop a highly secure campus.
“I still think that there is a need for a big block of space that could be made available for GSA or an educational institution,” said Akridge’s P. Brian Connolly . Or perhaps a soccer stadium for D.C. United.
StonebridgeCarras: Constitution Square, 199 N St. NE
The second office building StonebridgeCarras built in NoMa is the temporary home for the GSA, but the agency now is expected to leave in 2013. Around the same time that the GSA leaves, Stonebridge is scheduled to complete construction of a third building, a 345,000-square-foot project it began last month with no tenants lined up.
Doug Firstenberg, Stonebridge principal, expects the logjam to ease after the 2012 elections. “The government may be shrinking, but the government is not going out of business,” he said.
Vornado: Skyline Technology Center, 5275 Leesburg Pike, Bailey’s Crossroads
Formerly known as Skyline 7, this 426,000-square-foot building recently lost the Defense Information Systems Agency to the government’s base realignment and closure process and now sits empty. Mitchell N. Schear, Vornado/Charles E. Smith president, said the building was in top shape and could quickly accommodate a new tenant. “It was built for DISA, so it was built with a lot of security requirements,” he said.
Multiple developers: Metro-accessible sites, Prince George’s County
Developers in New Carrollton, Largo, Hyattsville, Greenbelt and Temple Hills vied for GSA deals, in particular major leases for the departments of Health and Human Services and Homeland Security. But HHS remained in Rockville and the DHS lease was cancelled. Projects like University Town Center, which went to foreclosure auction, have begun bearing the effects.