Category Archives: Land use & development

Drip… Drip… Drip… Another Richmond Company Moves from the Burbs to Downtown

Bob Hilb

The Hilb Group, a fast-growing insurance brokerage with more than $125 million in revenue, has made the decision to move its headquarters from the suburban Stony Point office to the Riverfront Plaza in downtown Richmond.

CEO Bob Hilb told Richmond BizSense that he had been looking for a new location for a year in anticipation of the lease expiring on his 5,000-square feet office in 2017. “While it’s a great building, it has turned into very much a medical office space,” he said. “There’s nothing wrong with that; it just doesn’t fit our vibe.”

And what’s that vibe? It’s all about the Millennials.

The downtown office will have a more modern, open layout — “a little less wood and more glass,” said Hilb. The company will move only 17 of its 800 employees into the new 9,000-square-foot digs, but he expects the number to grow as the company continues to roll up smaller, independent insurance agencies around the country.

“A lot of a people in our business, you walk into their office and it’s like you’ve walked into a hunting lodge,” he said. “As we grow, there’s no question that being able to attract millennials and having a really nice progressive office makes a difference.”

Bacon’s bottom line: Technically, the Hilb Group’s relocation is a Richmond-to-Richmond move. But Stony Point, located on the far western edge of the City of Richmond, was developed as a classic suburban office park surrounded by parking lots and trees. Walking to the nearby “pedestrian” mall is impractical. The office park is accessible only by automobile. The Hilb Group’s new location in the Riverfront Plaza will be in the heart of downtown near the James River.

Meanwhile, the urbanization of the City of Richmond continues apace. Union Presbyterian Seminary is moving ahead with the development of a $50 million, 301-unit apartment complex in Ginter Park, a single-family neighborhood, despite stiff opposition by neighboring property owners.

And the city planning commission has signaled its intention to rezone Scott’s Addition, a light industrial area transitioning to mixed-use residential and commercial, under a new, more urban zoning classification. Local businesses, says the T-D, would see changes to parking regulations, square footage restrictions and the allowance of small-scale manufacturing.

Latest Apartment Amenity: Bicycle Storage

Rendering of proposed Main 2525 by Walter Parks Architects.

Developers Charles Macfarlane and Sam McDonald have applied for a special use permit to build a six-story apartment building on East Main Street east of downtown. Current zoning allows for only five-story buildings.

The Main 2525 proposal has many things to like, including 7,400 square feet of ground-floor commercial space, underground parking for 241 vehicles, and amenities such as a swimming pool, rooftop terrace and lounge with city skyline views. That’s standard mixed-use development, it’s what the market demands, and it’s what increasingly sets the city of Richmond apart from neighboring Henrico and Chesterfield Counties.

But here’s what caught my eye: The project will provide indoor bicycle storage.

The development would be located on the edge of Shockoe Bottom and about two miles from downtown Richmond, so it is within easy bicycling distance of tens of thousands of jobs. The number of cyclists on the road in the Richmond region seems to be increasing, but only slowly. Main 2525 would address one obstacle to greater bicycle usage — bicycle storage.

Think about it. If you’re paying $950 to $1,575 per month for an upscale apartment, the last thing you want is to stash your bicycle inside the apartment. But you don’t want to leave it outside where it would be exposed to the elements or might get stolen. Secure, indoor bicycle storage would be a meaningful amenity.

That feature may be commonplace in new apartment buildings these days, and I just haven’t noticed because I’m a suburban homeowner. Regardless, if I were young and looking for an apartment, the prospect of having bicycle storage would grab my attention.

Retrofitting Alexandria: Another Office-to-Residential Conversion

This Stovall Street property within Alexandria’s Hoffman Town Center is due for a makeover, says the Washington Business Journal.

Washington, D.C.-based Perseus Realty has contracted to acquire a six-acre site in Alexandria’s Hoffman Town Center with plans to convert an obsolete, 610,000-square-foot building into a residential-dominated mixed-use project. Reports the Washington Business Journal:

The effort, if approved, will entail the addition of 25,000 square feet of ground-floor retail, conversion of two lower floors into parking and the construction of upper floor additions that raise the building’s height from 150 to 200 feet. Perseus representatives were not immediately available for comment. It is unclear how many units the building might include when complete. …

The Perseus project comes as Alexandria considers whether, and how, to encourage additional office-to-residential conversions. In Eisenhower East, for example, a 2003 small area plan sought a 50-50 split between commercial and residential. But now, city staff and the Alexandria Economic Development Partnership are of the belief that for the community to thrive, it will need 2 to 3 times more residential than office.

Conversions have had a net positive fiscal impact for the city, generated significant private investment, and changed obsolete office buildings to a “higher and better use,” according to a report produced by AEDP, city staff and consultant TischlerBise. These projects take excess office space off the market and shield aging office buildings “from potential years of high vacancy, special servicing, or foreclosure.” …

There is a downside to conversions, in that residential requires far more city services than office. According to the study, for every dollar of tax revenue generated by an Alexandria multifamily project, 38 cents are needed to support that project with government services while 62 cents are available for general budget use. With office, only 12 cents on the dollar are needed for services and 88 cents are available to the general fund.

Bacon’s bottom line: It looks like office-to-residential conversions are the next big thing in real estate development. I’ve blogged about the trend in downtown Richmond and Norfolk, and it should be no surprise that it’s happening in Alexandria, too.

As the WBJ article pointed out, the conversions address two problems. First, they find a new use for aging and obsolete commercial structures with prime locations. Second, they create new housing stock for growing populations. While apartment buildings are not as “profitable” for localities as office buildings — they generate a smaller surplus of revenue over costs — they are hugely beneficial from a Northern Virginia regional perspective. The alternative would be to build more green-field housing on the metropolitan fringe, requiring investment in new roads, water, sewer, sidewalks, etc, as well as the transportation infrastructure to move workers from exurban bedroom communities to urban job centers.

Judging by the article, the City of Alexandria has made the calculation that office-to-apartment conversions pencil out profitably. The infrastructure is already in place. And tax revenues even cover the cost of education.

Every urban locality in Virginia has large tracts of land zoned decades ago for commercial and retail uses. The rise of Internet commerce is demolishing the retail sector, especially big boxes and department stores, and the demand for office space is shrinking as corporations rationalize the excessive use of office space. (Although I must note a possible counter-current in IBM’s recent announcement that it was calling thousands of work-at-home employees back into the office.)

Localities that figure out how to retrofit aging and obsolete retail strips and office parks into vibrant, mixed-use communities will prosper in the years ahead. Those who dither will be left behind.

What Virginia Can Learn from GE’s Relocation to Boston

My apologies if I sound like a broken record, but clearly there are people who still don’t get the message. So, here I go again… Today’s Wall Street Journal interviews GE’s chief financial officer, Jeffrey Bornstein, on how the move of the conglomerate’s headquarters from suburban Connecticut to Boston is working out.

I reproduce select quotes from Bornstein below. As you read them, keep in mind the chart to the left. Richmond ranks 6th among the top ten markets in the country with the highest concentrations of millennials as a percentage of the urban population. Think about where walkable, mixed-use urban development is occurring in the metropolitan region, and where it is not occurring. (Hint, almost all of it is occurring in the city of Richmond and almost none of it in Henrico, Chesterfield or Hanover counties.)

There were moments in the past when we really asked ourselves whether Connecticut made sense for the company. There wasn’t a huge ecosystem around the company. We lived on a very beautiful property in Fairfield, but very isolated. Attracting talent there was a bit of a challenge. For younger folks maybe not the most dynamic place in the world. …

There are upward of 500,000 kids who go to school—undergrad and graduate school, doctorate—every day here in greater Boston. …

There definitely is an innate culture and tactical depth and talent here. It lends itself to these kind of entrepreneurial endeavors. The universities here, whether it’s MIT, Northeastern, Harvard, you name it…the proximity allows us to build even deeper relationships with these institutions. …

If you saw where we were in Fairfield County, it was a morgue. Very little activity. I hated it. Even in our temporary space, the offices are open. There’s a lot more interaction. You aren’t calling people who are four offices away. You can get up and go, and physically grab the folks. We’re translating those experiences to the new facility. It will be very modern, green and open. …

Millennials, this is the kind of environment they want to work in. They don’t want to work in the environment that was paneled walls, and, based on your level in the company, you could count the ceiling tiles and that determined the size of your office. That’s the world of the ’70s, ’80s, maybe the early ’90s. Young talent today want to be in a vibrant, open, interactive, high-tech, fun kind of space. That’s how we thought about design in the new facility. …

From the get-go we knew we wanted to be in a place that was vibrant and entrepreneurial, where you could walk out your door enriched by your environment and your ecosystem. I can walk out my door and visit four startups. In Fairfield, I couldn’t even walk out my door and get a sandwich. We knew we wanted to be in a more urban environment where we could actually participate in the ecosystem and be smarter and more aware as a result.

(Hat tip: Chris Spencer.)

Should Historic Neighborhoods Be Allowed to Evolve?

Empty lot in Union Hill where a mixed-use, three-story building is now arising.

Empty lot in Union Hill where a mixed-use, three-story building is now arising.

Union Hill is a run-down neighborhood adjacent to its more famous neighbor, Church Hill, in the City of Richmond. Some of its working-class houses predate the Civil War, but the years have been unkind. For decades, the population was predominantly poor and African-American. Many of the lots are vacant, and many of the houses that remain are dilapidated. There is little commerce — not even retail — and jobs are far and few between.

But the gentrification wave that swept over Church Hill has spilled into Union Hill, and some of the old gentrifiers, drawn by the stock of inexpensive historic architecture, are unhappy with what some of the new gentrifiers are planning. In particular, residents are objecting to a building with four apartments and ground-level retail that is under construction on an empty lot. The building would… horrors!… be three stories tall, and totally out of character with the neighborhood of mostly two-story buildings.

The Richmond Times-Dispatch describes the “thorny issues” associated with revitalization, which, remarkably enough, does not appear to involve the poor, African-American residents who have long lived in the neighborhood. This debate does not pit hip, young urban gentry against the poor, powerless and displaced. Rather, the controversy poses a philosophical question of interest mainly to the affluent: Should a neighborhood be frozen in place architecturally in order to preserve its irreplaceable historic character, or should it be allowed to evolve in ways that provide more amenities to residents? Then throw in a question that goes unaddressed in the article, what right should neighbors have to obstruct a building that demonstrably does them no harm beyond offending their architectural sensibilities?

Developer Matt Jarreau is erecting a modern, three-story edifice on an empty, triangular lot on N. 23rd Street. He’s not tearing down an older structure. Nor is he building a structure that is wildly out of place for the neighborhood — a large, hulking church stands across the street. A rendering depicts a restaurant with outdoor seating, a valuable amenity for a neighborhood with precious little retail presence. But the rendering also pictures a building with flat brick walls, plain windows and minimal adornment that is neither attractive nor in keeping with the architectural character of the neighborhood. Jarreau is planning an even bigger, three-story building with 27 apartments on another vacant lot around the corner.

From the city’s point of view, Jarreau’s real estate investments surely are seen as a bonus. By building on vacant lots, he is creating taxable value. Union Hill is endowed with under-utilized streets, water, sewer and other infrastructure, so the incurs no additional cost. From a fiscal perspective, the two projects represent all gain, no pain. Even better, Jarreau is not displacing anyone — no structures are being torn down, no poor people are being evicted.

“We’re creating a little village. This is exactly how the community operated 100 years ago,” says Jarreau. It would have been cheaper and easier to go with two-story apartments and minimal commercial space. The community needs more services within walkable distances.”

Not everyone is buying that logic. Dixon Kerr, a Union Hill resident for 39 years, says the large buildings diminish neighborhood character because they do not suit the context of one- and two-story, 19th-century buildings, the Times-Dispatch reports.

As seen in other Richmond neighborhoods such as Church Hill and the Fan, historic neighborhoods that are stylistically and visually consistent are viewed in the marketplace as charming. Charm enhances real estate values. Conversely, disrupting neighborhood integrity by erecting buildings that are architecturally jarring or out of scale kills the charm and ruins property values.

Bacon’s bottom line: Both points of view are valid in their own way. I’m torn. I lived in Church Hill for many years and appreciated the historic-district guidelines that prevented people from doing idiosyncratic things like painting houses bright Wahoo orange and blue that would detract from neighbors’ property values. But, then, Church Hill had something worth preserving. Truly, the historic district was, and still is, an architectural gem.

At the risk of sounding like a snob, I have to say that Union Hill is no Church Hill. Some of its buildings may be old, but they are architecturally undistinguished. Moreover, so many have been torn down that restoring the neighborhood to its 19th-century prime is impossible. If people want to preserve the old buildings that remain, that’s fine. But that desire should not discourage others from investing in the neighborhood, creating new housing options, building new amenities and bolstering the city tax base.

Oyster Wars, Viewsheds and Property Rights

An oysterman at work in Virginia Beach’s Lynnhaven River. Photo credit: Associated Press

One might think all Virginians would be delighted by the resurgence of the oyster population in the Chesapeake Bay. But more oysters means more oystermen, and more oystermen means more strange men trudging around the shallows and dragging around ugly cages within the sight of wealthy waterfront property owners.

The resurgence has led to resistance from coastal homeowners who want to maintain picturesque views and has fueled a debate over access to public waterways, reports the Associated Press.

Homeowners say the growing number of oystermen — dressed in waders and often tending cages of shellfish — spoil their views and invade their privacy. Residents also worry about less access to the water and the safety of boaters and swimmers.

Low tides often expose oyster cages, usually accompanied by markers or warning signs that protrude from the surface. In some places, cages float.

“All of sudden you have people working in your backyard like it was some industrial area,” said John Korte, a retired NASA aerospace engineer. “They may be a hundred feet away from someone’s yard.”

In a 2012 lawsuit in York County focused on the right of two oystermen to use property in a residential neighborhood for industrial-scale harvesting and cleaning operations. The new trend goes much further. In Virginia, Maryland and Delaware, homeowners are seeking greater restrictions against oystermen activities that offend their sensibilities. But the oystermen aren’t rolling over.

“Oftentimes, affluent and new members of the community have the point of view that they own the water in front of them, which is really not true,” said Bob Rheault, executive director of the East Coast Shellfish Growers Association. “We need to win back our social license to farm.”

Bacon’s bottom line: The fate of oysters, which are making a comeback in large part to the efforts of oystermen who have an economic incentive to create oyster reefs. Oysters are a keystone species in the Chesapeake Bay. As a matter of public policy, this socially beneficial activity should be encouraged, not discouraged.

But recovery of the oyster population is being stymied, in part, by a massive redefinition of property rights — in the popular culture, if not yet in the law. Owners of waterfront property are effectively trying to extend their property rights into public waterways. They are asserting a right to an undefiled viewshed. When they purchased their property, they paid a premium for pristine water views. When oyster populations revived and oystermen began working shallows in public waters that their forebears had abandoned decades ago, property owners perceived them as interlopers.

This is similar to a trend in other places, most notably in rural areas with gorgeous views of mountains, hills, woodlands, farms, rivers and streams. Once upon a time, Virginians purchased rural property for their productive value as farms or timberland. Over the years, people began buying property for the scenery. They paid a premium price for their views, and they objected to anything — be it a cell tower, transmission line, gas pipeline, or industrial facility — that diminished those views.

Here is a photo of the view I observed last month while dining on the porch of the Pippin Hill Farm winery. The owners had built the winery to take full advantage of the beautiful view. Gauging by the large number of people who visited that Saturday to enjoy meals and indulge in wine tastings, the enterprise is highly successful. Now, imagine someone proposing to disrupt that image. I can guarantee that the winery owners would rise up in opposition — not merely for aesthetic reasons but because their livelihood would be threatened.

I’m not taking sides in the dispute between landowners and energy companies, or property owners and oystermen. I am not even drawing a moral equivalence. Oystermen are working in public waters, while inland landowners object to energy companies using eminent domain to cross their land. I am saying that the rise of viewsheds as a determinant of property value is fueling conflict that did not previously occur. I’m not sure that our system of laws and regulations has caught up.

The East-West Divide in Loudoun Broadband

Western Loudoun trade-off: views like this for quality broadband.

From an article in today’s Loudoun Times-Mirror: 70% of the world’s Internet traffic reputedly passes through eastern Loudoun County, which has emerged as a world-class hub of fiber-optic trunk lines and data centers. Yet less than 20 miles away, 30,000 inhabitants of western Loudoun have lousy Internet access.

“We just can’t get high-speed Internet,” said Loudoun resident Erin Weaver. “We have Wildblue for our Internet. Due to the fact that our Internet comes from a satellite, when it rains heavily or snows heavily we can easily lose our service.”

Loudoun may be the wealthiest county in Virginia, and one of the wealthiest in the country, but the laws of economics still prevail. The county has enacted severe density restrictions in western Loudoun to protect it against the suburban blob emanating from neighboring Fairfax County. But low-density settlement patterns are unprofitable for telecommunications companies to wire. The revenue stream is too thin to cover the cost of running cable.

I can understand the frustration of western Loudoun residents. But, you makes  your choices, and you lives with ’em. Enjoy your bucolic countryside. But don’t ask anyone to subsidize your Internet connections.

Key Fiscal Concept: the Private-to-Public Investment Ratio

It’s not “density” that makes the Ballston area of Arlington County such a fiscal success but the ratio of private-to-public investment.

Charles Marohn, founder of the Strong Towns movement, is frequently queried if there is an ideal density for communities of a particular population and size. In “The Density Question,” he uses the question as a springboard to address a topic that really matters, the long-term fiscal sustainability of counties, towns and cities.

Marohn’s answer: Density is a useless metric. Forget about it. “Density is not our problem or our solution. Insolvency is our problem. Productive places are the solution.”

Say you own a $200,000 house. How much would you be willing to pay for all the communal infrastructure — the streets, sidewalks, arterials, interchanges, pipes, treatment plants, traffic signals, water towers, and so on — that adds to its value?

What if I said your total bill was $200,000? Would you pay it? I’ve been asking people this exact question for the past two weeks and have yet to have anyone who didn’t immediately say “no, there is no way.” And, of course, nobody would pay this. If the house is worth $200,000 and my additional cost of maintaining the infrastructure to allow me to live in that house is an additional $200,000, then that’s a really bad investment.

What if the total bill was $100,000? $20,000? Only when the number gets down to $10,000 and below, writes Marohn, are people unanimous in their willingness to pay for supporting infrastructure.

I think this is a reasonable thought process and it points to a powerful conclusion. At a property value to infrastructure investment ratio of 1:1, everybody walks. Nobody sensible is going to invest $200,000 in infrastructure in a property and have it end up being valued at only $200,000. What’s the point? …

If your city has $40 billion of total value when you add up all private investments, sustaining public investments of $1 billion (40:1) is a doable proposition. Public investments totaling $2 billion (20:1) starts to be risky with outside forces of inflation, interest rates and other factors beyond your control starting to impact your potential solvency. …

At the end of the day, we’re talking about building cities that make financial sense. … Let me deliver the tragic news that demonstrates why discussions of zoning, new highways, high speed rail across America, recreational trails, decorative lights and every other fetish of the modern planner/zoner is a sad distraction from our urgent problems. I’ve now done this analysis in two cities – one big and one small – and for a $200,000 house in either of these cities, the once-a-generation bill for your share of the infrastructure would be between $350,000 and $400,000. …

When private investment is exceeded in value by the public investment that supports it, wealth is not being created, it’s being destroyed. The wealth destruction is rarely evident because there are so many subsidies and cross subsidies between federal, state and local government, and so much maintenance is deferred into the indefinite future, that nothing is transparent. But the system is not sustainable.

“Our cities are going to contract in ways that are foreseeable, but not specifically predictable,” says Marohn. “Yet most are still obsessed with growth and the ‘progressive’ among us, with issues of density.”

Bacon’s bottom line: Density is relevant insofar as it shapes the private vs. private investment ratio. As a rule, higher density development requires less infrastructure per unit of housing or business than lower density development. But Marohn is quite right to say that we shouldn’t fixate on density — it’s a means to an end, which is evolving toward a more favorable ratio of private to public investment.

Until we get this basic accounting right, I don’t see how there’s much chance of achieving long-term fiscal sustainability.

What the Obama Giveth, the Trump Taketh Away

Slash and burn

The federal budget sequestration may have kept a lid on escalating federal budget deficits, a good thing, but it was a disaster for Virginia’s economy. The cap on federal spending hammered a Northern Virginia economy built largely around the Pentagon. The ascension of Donald Trump to the presidency signaled a possible return to the region’s glory days as the new president promised to increase defense spending by $50 billion.

But the president has created massive uncertainty with a vow to slash discretionary spending in civilian programs and bureaucracies. The Washington Post is all in a dither:

The cuts Trump plans to propose this week are also expected to lead to layoffs among federal workers, changes that would be felt sharply in the Washington area. According to an economic analysis by Mark Zandi, chief economist for Moody’s Analytics, the reductions outlined so far by Trump’s advisers would reduce employment in the region by 1.8 percent and personal income by 3.5 percent, and lower home prices by 1.9 percent. …

Trump’s emphasis on defense spending might provide a buffer for Northern Virginia, although, as noted previously on this blog, there are some within his administration who believe that the Pentagon civilian bureaucracy needs to be whacked down to size in order to free more resources for fighting forces. Under a serious effort to rebuild the U.S. Navy, Hampton Roads’ military bases and shipbuilders could be big beneficiaries.

We can’t say anything with certainty until Trump releases the details of his plans later this week. But at this moment in time, it looks like the new budgetary policies could be a mild plus for Virginia with boosts in defense spending offsetting cuts in other areas. Conversely, Maryland and Washington, D.C., with their large non-military exposure, could be in for a world of hurt

Adding to Washington’s woes…. The metro area’s job performance in 2016 has been revised downward. Reports the Washington Business Journal: “The D.C. region added 55,600 jobs in 2016, according to final data released Tuesday by the Bureau of Labor Statistics — about 16,800 fewer than the agency had initially counted.”

“We are talking slashing and burning several different agencies on the discretionary, non-defense side. That could have a pretty chilling effect for the local economy,” said Clifford Rossi, a professor of the practice at the Robert H. Smith School of Business at the University of Maryland-College Park.

Rossi agreed that the revised job growth numbers reveal an economy that was weaker than it originally appeared, and that the federal spending cuts proposed by Trump could have a compound effect on the regional economy.

Bacon’s bottom line: Actually, the loss of 1.8% employment and 3.5% income is no worse than what dozens of other metros experienced in the last recession. But have compassion! Washington has never been through anything like this before.

(Hat tip: Rob Whitfield)

Twilight of an Era in Alexandria

Eric Terran, a 39-year-old architect, is doing something that almost no one in the City of Alexandria is doing anymore: building a detached, single-family residence. Last year he purchased a lot zoned for single-family residential for $230,000, and now he’s erecting a 3,300-square-foot house on it, reports Michael Neibauer with the Washington Business Journal.

Construction of detached, single-family dwellings has almost come to an end in Alexandria, where the inventory of lots is fast disappearing. As Neibauer notes:

Alexandria ended fiscal  2016 with 9,131 single-family detached homes, the exact number it counted at the close of fiscal 2015. In fact, only 12 new homes — not including tear-downs, which do not add to the city’s inventory — have been built since 2010. Save for infill and tear downs, Alexandria is largely built out.

I have no doubt that Neibauer has done his reporting and knows what he’s talking about, but his numbers don’t quite jive with Alexandria’s building permit data, seen above, which I took from the Homefacts.com website. According to that data set, permits issued for single-family housing since 2010 numbered in the hundreds. Admittedly, the overwhelming majority of permits was for 5+ unit, multi-family dwellings, which is broadly consistent with what Neibauer is saying.

Rather than get hung up on explaining the statistical discrepancy, however, I want to focus on the larger truth, which is the transformation of development patterns in Alexandria. The overwhelming preponderance of new housing construction in the city consists of multi-family housing — apartments and condominiums. Indeed, 2013 and 2014 showed new housing construction running at a torrid pace — faster than at any time since 2001.

I’m not intimately familiar with Alexandria, but I did visit downtown several months ago and observed a lot of recent mixed-use development. My superficial impression is that Alexandria is allowing developers to build a lot of the right stuff. The new development is preserving the walkability that made Old Town Alexandria and environs such a special place.

In 2010, the city achieved an all-time population high of 140,000, and has added population since then. As the city continues to grow, new houses like Eric Terran’s will become an endangered species. Newcomers will be living in apartments and condos.

Update: Michael Neibauer contacted me to explain the discrepancy I alluded to. Eric Terran is building a detached single-family dwelling. Although there are many “single-family dwellings” being built in Alexandria, they are row houses — not detached single-family dwellings.