The News-Press has been consistent in this space over the years on the matters of “market forces” and “market reality.” They have to be accounted for, we’ve pontificated repeatedly, often frustrated by a municipal government that, for a long time, didn’t seem to “get it” at all. Things are better now. When Atlantic Realty came to a work session of the Falls Church City Council this week to request action permitting them to switch 230 residential units in their Pearson Square project under construction on S. Maple St. from condos to rentals, the Council understood the problem. The condo market has tanked, while the rental market is booming. How long this will remain the case in this region is anyone’s guess. Atlantic has already sold the residential portion of Pearson Square to Carr Homes for the condos’ development. But now Carr feels the condo market downturn is sufficiently serious and potentially long-term enough that it has cut a preliminary deal to sell off their condos at a considerable loss to Trans-Western, on the condition that they will be converted to luxury rental units.
Since Atlantic won the original special exception from the Council, including with the proffers involved, it remains responsible to appeal for the revision, especially since it wants City Council approval for its massive City Center redevelopment project that it recently unveiled.
So far so good. We understand these market forces, and sympathize. Better to have full-up rentals than unsold, empty condos. It’s better for the developer and better for the City. We agree that a switch-over is apropos, even if it concedes an ominous portend of coming economic and market trends (namely, that the current housing market decline isn’t going to blow over soon and may deepen further).
But whoa! We couldn’t believe our editorial ears Monday night when City staff asserted that this whole switch-over would be “revenue neutral.” This was claimed by an amazing “smoke and mirrors” exercise of setting 2004 economic expectations of the project against 2007 economic realities. Obviously, the revenue impact of the switch over needs to be calculated by measuring 2007 revenue expectations from 230 completed condo units, including their taxable assessed values, against 2007 revenue expectations of 230 rental units.
The economic realities of this switch include these: 1. without an ability to switch to rentals, Carr stands to lose millions annually on unoccupied condos and, 2. with the switch to rentals the City stands to lose hundreds of thousands, annually, in tax revenues.
There is nothing “revenue neutral” about this, and if the City Council agrees to permit the switch, it should extract some significant new proffers from the developer to offset its losses, including a free deeding over of the 3,000 square feet of space set aside for a small civic theatre and arts center and a full build out of its interior.