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Marriott to move headquarters to downtown Bethesda with $62 million in incentives

Signage for the New York Marriott Marquis is seen in Manhattan, New York, November 16, 2015. (REUTERS/Andrew Kelly/File Photo)
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Marriott International announced plans to move its headquarters to downtown Bethesda Tuesday, opting to remain in Montgomery County after getting a commitment for up to $62 million in taxpayer-funded subsidies.

For Marriott, now the largest hotel company in the world, the deal marks the second publicly funded incentive package the $17.3 billion firm has received from the state and county in less than 20 years, likely reigniting a debate over how far elected leaders ought to go to chase corporate employers.

The company’s plan to move 3,500 employees to a new complex near the Bethesda Metro station by 2022 follows the lead of other corporate moves out of sprawling office parks to more urban locations, but it could put new strains on public infrastructure such as Metro’s troubled Red Line.

Gov. Larry Hogan (R) and Montgomery County Executive Isiah Leggett (D) touted a deal that effectively provides Marriott up to $17,700 per employee to move about five miles.

In a statement, Hogan called Marriott “a world-class company with deep roots in our state” and said that “their decision to continue growing their business right here in Maryland is tremendous news.”

Leggett said he expected Marriott to produce $1.8 billion in economic activity over 20 years.

“This was not a kind of corporate entity that I was prepared to lose, and the county could afford to lose, because this is an international brand that is irreplaceable in terms of what it does for jobs, and for the reputation and the prestige of the county,” he said in an interview.

Twenty years ago, the company’s current location, near the intersection of Interstate 270 and the Capital Beltway, was considered a gem. In 1999 the state and county offered up about $43 million to Marriott and fast-tracked road improvements in exchange for Marriott’s commitment to stay put at its current location and add 700 jobs.

The jobs never arrived. Following the Sept. 11 attacks, the company cut back and only added 100 headquarters positions, according to state documents.

Today, Marriott has roughly the same number of headquarters jobs as it did then, despite keeping a majority of the incentives..

Nonetheless, chief executive Arne M. Sorenson returned to the table last year to press Hogan — who campaigned on a promise to make the state more business-friendly — for another round of incentives.

Around the same time, Sorenson also sent administration officials scrambling when he sharply criticized Hogan for not signing legislation to tax online competitors, according to documents obtained through a Freedom of Information Act request.

After Hogan vetoed a bill requiring online booking companies such as Expedia to collect sales tax last in May of last year, Sorenson wrote to Hogan’s secretary of commerce and former campaign manager that he was “so deeply disappointed” in the decision that Sorenson — a Midwesterner praised for his cool demeanor — delayed writing because: “I worried my remarks would be too intemperate without a cooling down period.”

“That decision is, in our view, bad policy, contrary to what we understood to be the Governor’s position and only superficially explained,” he wrote.
Hogan stood firm on the tax issue (though the legislature overrode his veto), and a few months later another Marriott representative, Jim Young, emailed Maryland Secretary of Commerce Mike Gill, asking for examples of headquarters incentives he could use in a presentation to the company’s executive chairman J.W. “Bill” Marriott Jr.

“We [are] just trying to establish a benchmark or expectation that we can plug into early cost calculations,” Young wrote.

Marriott was considered a plum, especially after its acquisition last month of Starwood International, raising the prospect it might bring jobs from Starwood’s Connecticut headquarters. The deal combines the Marriott, Courtyard and Ritz Carlton brands with Starwood’s Sheraton, Westin, W and St. Regis lines.

Officials in D.C. and Virginia discussed a pursuit of Marriott, but it’s unclear how aggressively they pushed. Leaders in both jurisdictions remained wary about chasing a company they viewed as likely to remain in Maryland, according to officials familiar with the process were not authorized to discuss it.

After all, many of the company’s employees live in Maryland and Sorenson, the first non-Marriott family chief executive, has lived in the Somerset neighborhood of Chevy Chase for almost 30 years.

Greg LeRoy, executive director of Good Jobs First, an advocacy group, said Marriott’s threat to move to Virginia in 1999 was likely a bluff and officials should be worried they were falling for the same thing again.

“Maryland and Montgomery County officials should review Marriott’s behavior when it last threatened to relocate and then ask lots of impertinent questions before considering any more subsidies,” he said.

Economic researchers increasingly advise against elected leaders poaching jobs from one another, which creates little overall economic growth for the region. A Brookings Institution report on the Washington economy last year showed that regional growth has slowed in part due to an overemphasis on competition for existing jobs.

But Maryland and particularly Montgomery County political leaders have been often criticized in the past for not being aggressive enough in pursuing such deals. The county just passed its biggest tax hike in seven years and is reeling from a persistent slowdown in commercial development that has afflicted other suburban areas plagued by traffic and poor public transit options.

The $62 million incentive package Maryland leaders eventually offered includes $44 million in grants to be divided by the state and county plus $18 million in tax benefits, two-thirds of which would come from the county. Some of the tax benefits stem from pre-existing legislation aimed at spurring economic development.

The state’s money is contingent on Marriott building a new headquarters and maintaining 3,500 jobs, and most of it requires the legislature’s approval. The county council must approve Montgomery’s portion.

Marriott follows McDonald’s, General Electric and other corporations in departing office parks, a shift that requires local officials to consider how to both accommodate the influx to urban areas and the abandonment of others.

Marriott’s decision sounds the gun for the competition among some of the region’s top developers — including Carr Properties and Boston Properties — who have pitched plans to tear down dated office and retail plazas with immediate access to the Bethesda Metro, according to executives who were not authorized to discuss the plans publicly. Any of the locations would likely bring thousands of new riders to the Bethesda Metro, which could relieve some of the county’s congested roads but further strain an already faltering Red Line, the oldest in the system.

When Sorenson said last year that he would move the company from the Rock Spring Center office park off the Beltway and that it was “essential we be accessible to Metro.”

Sorenson said in a statement Tuesday that his goal with the move was to “provide a cutting-edge work space for our associates that offers state-of-the-art technology, modern amenities, and access to a range of transportation options.”

When Marriott departs its current offices the county will be saddled with a complex that — despite the millions in improvements it received for Marriott in 1999 — has become a poster child for increasingly vacant suburban office parks. The Rock Spring center’s prospects are so bleak that county planners recently proposed ideas for preventing it from becoming a ghost town, further draining the county tax coffers.

Leggett said that after meeting with county council members Tuesday he was confident they would back his plan. Council member Roger Berliner (D-Potomac-Bethesda) said he was glad the county “played to win.”

“They are going to have built a 700,000-square-foot building, which means 3,000 construction jobs. They are going to make Bethesda one of the leading commercial centers in the entire region. And we get a return on our investment,” Berliner said.

Follow Jonathan O’Connell on Twitter: @oconnellpostbiz