How will the New Tax Law affect retirees?

The changes in the Tax Cuts and Jobs Act signed into law late in 2017 will be reflected in 2018 tax returns, which are filed this spring. The law is one of the most sweeping tax code reforms of the last three decades, and it is likely to affect all Americans who file tax returns. Many of its provisions are certain to affect retirees. Here’s a look at four of the most significant.

1. The standard deduction is nearly doubling.

Deductions are amounts subtracted from income, lowering the taxable income and thus reducing the total amount owed in tax.

Taxpayers must choose between two categories: the standard deduction and itemized deductions. If filers choose the standard deduction, they exclude a set amount from their income. If they choose to itemize, they subtract the dollar value of each deductible category.

The new tax law almost doubles the standard deduction, from $6,350 to $12,000 for single fliers, and from $12,700 to $24,000 for married people filing jointly.

On the face of it, the considerable hike in the standard deduction sounds significant. It may not be as far-reaching as it initially seems, though. In years past, filers using the standard deduction could include a personal exemption as well, as long as no one claimed them as a dependent. For 2017, for instance, single filers using the then standard deduction of $6,500 could also subtract $4,150 from their income for a personal exemption, making the total adjustment $10,650.

But the personal exemption was eliminated under the Tax Cuts and Jobs Act, so folks taking the standard deduction for 2018 won’t have access to also taking a personal exemption any longer.

The jump in the 2018 standard deduction thus represents more of a muted increase from the former standard deduction plus personal exemption level, rather than effectively doubling the past standard deduction. The gain is more than 12% for a single filer, for instance. That’s still a nice increase, and it more than makes up for the elimination of the personal exemption. But it’s just not as much as an initial comparison of amounts might lead you to believe.

The increase in the standard deduction has the resulting effect of making itemization necessary for fewer people, including retirees. In the past, itemizing as many deductions as possible was the smartest move, as long as the total exceeded the amount of the standard deduction plus the personal exemption. Common deductions included mortgage interest up to $1 million, a level that the Tax Cuts and Jobs Act has now reduced to $750,000.

The rise in the standard deduction might mean that retirees can achieve roughly the same overall deductible by taking the standard amount as they could by itemizing. Once you get an idea of what your itemized deductibles add up to, you can decide whether itemizing still makes sense. If not, taking the standard deduction can save time, effort, and tax-preparation expenses.

2. The deduction for state and local taxes has been capped.

There’s also a brand new cap on another widely used deduction: state and local taxes, including property tax (SALT). In the past, the total could be deducted, period. Your SALT total made no difference to its deductible status. But for 2018 and beyond, SALT deductions are restricted to a total of $10,000.

For retired filers whose SALT is less than $10,000, there is essentially no change stemming from the SALT cap, although they should consider the advisability of choosing itemization or the standard deduction.

But for many retirees, especially in high-tax states like California, New York, and New Jersey, the SALT cap could have significant repercussions, for three reasons.

First, if your SALT total is considerably more than $10,000, you are losing one of the financial incentives to own a house. You will no longer be able to deduct all your SALT, which may make owning a property less appealing.

Second, the SALT cap may make downsizing more desirable for homeowners in high-tax jurisdictions. Property taxes, for example, usually depend upon real estate size: A 700-square-foot condo is likely to be assessed considerably less in taxes than a 15,000-square-foot house. Retirees with high property taxes may end up taking a hard look at their property footprint.

Third, it may become less appealing to live in a state with high taxes. Many states have no state income taxes, after all, including Alaska, Florida, Nevada, South Dakota, Texas, and Washington. States also vary widely in the amount of property tax and sales tax assessed. Localities vary in the respective taxes levied. In the wake of the cap, all these levels may receive increased scrutiny as a factor in real estate desirability.

Many retirees think about moving to eliminate the maintenance costs for a large property or to live near grown children (or both), but then they don’t actually make the move. The SALT cap could be an impetus to make that thought a reality, especially if the state of your dreams has more-favorable taxes.

3. Taxpayers may be able to deduct more for healthcare expenses.

For the last several years, filers could itemize and deduct healthcare expenses totaling more than 10% of adjusted gross income (AGI). Under the new tax law, healthcare costs are now deductible if they exceed 7.5% of your AGI. This increased deduction potential was made retroactive to 2017 taxes as well.

AGI is calculated by totaling all income for the year (wages, bonuses, dividends, and so forth) and subtracting allowed adjustments, such as qualified retirement account contributions and alimony. AGI, which can be found on the Internal Revenue Service’s 1040 form, is the amount from which deductions, whether they’re standard or itemized, are subtracted. Because many deductions depend on percentages or totals of the AGI, the amount is a significant one for tax purposes.

If your AGI was $65,000 in 2016, for example, you would have needed healthcare expenses of more than 10%, or $6,500, to utilize the healthcare deduction. If your AGI was $65,000 in 2018, though, you can itemize the deduction if they exceed 7.5%, or $4,875.

The increased potential to deduct is likely to affect retirees, who have high healthcare expenses. A couple needs an estimated $399,000 saved by age 65 to meet healthcare costs in retirement, according to the nonprofit Employee Benefit Research Institute, roughly $19,950 out of pocket per year over 20 years.

Note that health savings account (HSAs) can make any healthcare cost bite more palatable, by providing participants with a tax deduction in the year of contribution and tax-free withdrawals. HSA maximum contributions for 2018 are $3,450 for an individual (up $50 over the prior year) and $6,850 for a family (up $100). (For 2019, the maximum climbed again, to $3,500 for individuals and $7,000 for a family.) Contributors who are 55 or older are still allowed a $1,000 additional catch-up contribution.

4. Tax rates lowered in most brackets.

Tax rates were lowered almost across the board under the new tax law. As a result, many retirees will pay less in taxes.

While there are seven tax brackets for 2018, just as there were in 2017, the rates and income associated with most brackets have changed. Although the lowest tax bracket remains the same —-10% for those who make up to $19,050 — taxes for most others are falling.

Single filers who made between $19,050 and $77,400 during 2017 were in the 15% tax bracket for example. For 2018, people with incomes in the same range are in the 12% tax bracket. Single filers who made between $77,400 and $156,150 in 2017 were in the 25% tax bracket. For 2018, they will pay 22% in tax on income in the same range. It’s likely that some aspect of the new tax law affects you — maybe even to a great extent if you’re a retiree. Reviewing these four categories will help you plan your tax return for maximum benefit.

The $16,146 Social Security bonus most retirees completely overlook

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,146 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after.

Any questions, contact us at (202) 802-8200 or email to support@rezaiereport.com

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International buyers showing less interest in U.S. real estate

A combination of inventory shortages and rising prices means that international buyers are showing less interest in U.S. property than they have in the last few years.

The National Association of Realtors says international sales in the U.S. hit $121 billion during the period from April 2017 to March 2018. The data comes from the NAR’s 2018 Profile of International Transactions in U.S. Residential Real Estate.  This amounted to a 10 percent decrease compared to the same period one year before.

After a surge in 2017, the United States saw a decrease in foreign activity in the housing market in the latest year, bringing us closer to the levels seen in 2016.  Inventory shortages continue to drive up prices, and sustained job creation and historically low interest rates mean that foreign buyers are now competing with domestic residents for the same, limited supply of homes.

The NAR says foreign buyers usually purchase more expensive homes than the average U.S. buyer. The median price for foreigner-bought homes was $292,400 during the period, compared to the $249,300 median for all U.S. homes. Chinese buyers are the biggest spenders on U.S. property, with their average purchase price clocking in at $439,100.

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Just five countries account for almost half of all foreign real estate buyers in the U.S. – China, Canada, India, Mexico and the U.K., which comprised 49 percent of the dollar volume of such purchases. China is the largest single investor amount foreigner countries, spending $30.4 billion on U.S. real estate during the period, but that was four percent less than one year before.

The highest amount of foreign buying activity in the U.S. continues to be centered on three states: Florida (19 percent); California (14 percent); and Texas (9 percent).

International buyers say they buy U.S. property for numerous reasons, but the most frequent reason, at 52 percent, is for a primary residence, according to the report. However, Chinese buyers were most likely to purchase a home in the U.S. for student housing, while Canadian buyers were the most likely to purchase a property as a vacation home. Indian buyers were the most likely to purchase a U.S. property to serve as their primary residence.

Any questions, contact us at support@rezaiereport.com or call (202) 802-8200.  Follow Us on Social Media –

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5 Factors That Determine if You’ll Be Approved for a Mortgage

mortgage

If you want to buy a home, chances are good you’ll need a mortgage. Mortgages can come from banks, credit unions, or other financial institutions — but any lender is going to want to make sure you meet some basic qualifying criteria before they give you a bunch of money to buy a house.

There’s variation in specific requirements from one lender to another, and also variation based on the type of mortgage you get. For example, the Veterans’ Administration and the Federal Housing Administration (FHA) guarantee loans for eligible borrowers, which means the government insures the loan so a lender won’t face financial loss and is more willing to lend to risky borrowers.

In general, however, you’ll typically have to meet certain criteria for any lender before you can get approved for a loan. Here are some of the key factors that determine whether a lender will give you a mortgage.

1. Your credit score

Your credit score is determined based on your past payment history and borrowing behavior. When you apply for a mortgage, checking your credit score is one of the first things most lenders do. The higher your score , the more likely it is you’ll be approved for a mortgage and the better your interest rate will be.

With government-backed loans, such as an FHA or VA loan, credit score requirements are much more relaxed. For example, it’s possible to get an FHA loan with a score as low as 500 and with a VA loan, there’s no minimum credit score requirement at all.

For a conventional mortgage, however, you’ll usually need a credit score of at least 620 — although you’d pay a higher interest rate if your score is below the mid 700s.

Buying a home with a low credit score means you’ll pay more for your mortgage the entire time you have the loan. Try to raise your score as much as you can by paying down debt, making payments on time, and avoiding applying for new credit in the time leading up to getting your loan.

2. Your debt-to-income ratio

Your debt-to-income (DTI) ratio is the amount of debt you have relative to income — including your mortgage payments. If your housing costs, car loan, and student loan payments added up to $1,500 a month total and you had a $5,000 monthly income, your debt-to-income ratio would be $1,500/$5,000 or 30%.

To qualify for a conventional mortgage, your debt-to-income ratio is usually capped at around 43% maximum, although there are some exceptions. Smaller lenders may be more lax in allowing you to borrow a little bit more, while other lenders have stricter rules and cap your DTI ratio at 36%.

Unlike with credit scores, FHA and VA guidelines for DTI are pretty similar to the requirements for a conventional loan. For a VA loan the preferred maximum debt-to-income ratio is 41% while the FHA typically allows you to go up to 43%. However, it’s sometimes possible to qualify even with a higher DTI. The VA, for example, will still lend to you but when your ratio exceeds 41%, you have to provide more proof of your ability to pay.

If you owe too much, you’ll have to either buy a cheaper home with a smaller mortgage or work on getting your debt paid off before you try to borrow for a house.

3. Your down payment

Lenders typically want you to put money down on a home so you have some equity in the house. This protects the lender because the lender wants to recoup all the funds they’ve loaned you if you don’t pay. If you borrow 100% of what the home is worth and you default on the loan, the lender may not get their money back in full due to fees for selling the home and the potential for falling home prices.

Ideally, you’ll put down 20% of the cost of your home when you buy a house and will borrow 80%. However, many people put down far less. Most conventional lenders require a minimum 5% down payment but some permit you to put as little as 3% down if you’re a highly-qualified borrower.

FHA loans are available with a down payment as low as 3.5% if your credit score is at least 580, and VA loans don’t require any down payment at all unless the property is worth less than the price you’re paying for it.

If you put less than 20% down on a home with a conventional mortgage, you’ll have to pay private mortgage insurance (PMI). This typically costs around .5% to 1% of the loaned amount each year. You’d have to pay PMI until you owe less than 80% of what the home is worth.

With an FHA loan, you have to pay an upfront cost and monthly payments for mortgage insurance either for 11 years or the life of the loan, depending how much you initially borrowed. And a VA loan doesn’t require mortgage insurance even with no down payment, but you typically must pay an upfront funding fee.

4. Your work history

All lenders, whether for a conventional mortgage, VA loan, or FHA loan, require you to provide proof of employment.

Typically, lenders want to see that you’ve worked for at least two years and have steady income from an employer. If you don’t have an employer, you’ll need to provide proof of income from another source, such as disability benefits.

5. The value and condition of the home

Finally, lenders want to make sure the home you’re buying is in good condition and is worth what you’re paying for it. Typically, a home inspection and home appraisal are both required to ensure the lender isn’t giving you money to enter into a bad real estate deal.

If the home inspection reveals major problems, the issues may need to be fixed before the loan can close. And, the appraised value of the home determines how much the lender will allow you to borrow.

If you want to pay $150,000 for a house that appraises only for $100,000, the lender won’t lend to you based on the full amount. They’ll lend you a percentage of the $100,000 appraised value — and you’d need to come up with not only the down payment but also the extra $50,000 you agreed to pay.

If a home appraises for less than you’ve offered for it, you’ll usually want to negotiate the price down or walk away from the transaction as there’s no reason to overpay for real estate. Your purchase agreement should have a clause in it specifying that you can walk away from the transaction without penalty if you can’t secure financing.

Shop around among different lenders

While these factors are considered by all mortgage lenders, different lenders do have different rules for who exactly can qualify for financing.

Be sure to explore all of your options for different kinds of loans and to shop around mortgage lenders so you can find a loan you can qualify for at the best rate possible given your financial situation.

Any questions, contact us at (202) 802-8200 or support@rezaiereport.com

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Constitutional -Challenges to county inaction fail

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The district court correctly granted the motion for judgment on the pleadings filed by Montgomery County, Maryland, and the planning commission because the commercial developer had no constitutional property interest to develop its land.

Background

Pulte is a residential real estate developer. Between November 2004 and January 2006, Pulte purchased or contracted to purchase 540 acres of real property in Clarksburg, Maryland, which is located in Montgomery County.

Pulte submitted its water and sewer category change request application for review by the county and the Maryland-National Capital Park and Planning Commission in May 2009, along with a required filing fee. The county, however, has never acted on Pulte’s applicatio

In December 2012, Pulte submitted a Pre-Application Concept Plan to the commission as required by the County Subdivision Ordinance. The county and commission refused to meet with Pulte to discuss the plan and stopped responding to Pulte’s detailed letters and other communications.

In October 2013, the commission’s Montgomery County Planning Board submitted to the county a draft amendment that implemented a variety of regulatory changes which severely reduced the number of dwellings Pulte could build on its land and placed additional costly burdens on Pulte.

Following additional actions it perceived as an arbitrary and capricious targeting of its land, Pulte commenced a suit against the county and commission in state court in November 2014. The county removed the action to federal district court. After the parties had engaged in some discovery, but before any depositions had been taken or experts identified, the county and commission moved for entry of judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), and the district court granted their motion. Pulte now asks us to reverse.

Analysis

The district court held that Pulte could not prevail on its substantive or procedural due process claims because it had no constitutional property interest to develop its land under the 1994 master plan or to have its water and sewer category change request processed in light of the discretion reserved to the local authorities under the 1994 master plan. We agree.

We turn next to Pulte’s equal protection claim. Pulte has not alleged it was deprived of a fundamental right or subjected to discrimination based on a suspect classification. Therefore, we will uphold the distinctions drawn by the county and commission if they were “rationally related to a legitimate state interest.” Here, the county and commission provided rational reasons for treating Pulte’s land differently, and that is the end of our inquiry.

The district court also concluded that Pulte could not demonstrate that the actions of the County and Commission amounted to a compensable regulatory taking of Pulte’s property under the Fifth Amendment to the United States Constitution. The district court properly applied the applicable factors and concluded, in accord with past decisions of this court, that Pulte was unable to establish that the regulatory actions of the County and Commission amounted to a taking of Pulte’s property under the Fifth Amendment. We agree with the district court’s analysis and will affirm its ruling.

Finally, Pulte complains that the lower court erred in dismissing its claim under Article 19 of the Declaration of Rights of the Maryland Constitution. Pulte has alleged that the County and Commission violated Article 19 by actively preventing Pulte’s rights from vesting, thereby thwarting its due process claims. By delaying to act on Pulte’s water and sewer change application, Pulte argues that the appellees essentially immunized themselves from suit. Pulte contends that Article 19 is broader than the Due Process Clause, and that the lack of a constitutional property interest is irrelevant to an Article 19 claim. We can find no support for Pulte’s claim in Maryland jurisprudence. The district court correctly dismissed Pulte’s Article 19 claim.

Affirmed.

Pulte Home Corporation v. Montgomery County, Maryland (Lawyers Weekly No. 001-172-18, 21 pp.) (James Jones, J.) Case No. 17-2112. Nov. 29, 2018. From D.Md. (Hazel, J.) Deborah Jean Israel for Appellants, Howard Ross Feldman for Appellees.

The Long & Foster | Christie’s Experience

Long & Foster is the exclusive affiliate of Christie’s International Real Estate in virtually all our luxury estate markets, from Hampton Roads, Virginia, to Washington, DC, to the New Jersey shore. Not only does the relationship set our listings apart, but also it brings authorities on fine art, jewelry, design and more into our expert network.  Together, Long & Foster and Christie’s offer exclusive real estate services to luxury home buyers and sellers worldwide.  Whether you’re acquiring art to complement a new home, curating your personal collection or moving into a high-value estate, Long & Foster | Christie’s will guide you there.  Want to know more about selling your property with Long & Foster?

Contact with your Luxury Agent- Alan A. Rezaie at (202) 802-8200 or email to support@rezaieco.com

 

Retrofitting Tysons: From Edge City to Walkable Urban Place

The Largest and Best-Known “Edge City” in the U.S. is Being Transformed Into a More Walkable Urban Center-

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In 1991,  “Edge City” was discussed as the explosion of “drivable sub-urban” development and described “the most radical change in a century in how we build our world.” Edge cities are typically freeway-hugging agglomerations of regional malls, business parks, hotels and the occasional rental apartment complex. They are dependent on cars and trucks as their primary or only transportation option. And they are where the vast majority of economic growth and substantial real estate development occurred in the late 20th century U.S.

At the time, the “Model Edge City” was Tysons Corner in Northern Virginia, an area set near the intersection of two major limited access highways, the Capital Beltway (Interstate 495) and the Dulles Access Road (Route 267). Later renamed simply “Tysons”, it was characterized by mid- and high-rise office buildings and two regional malls, surrounded by acres of surface parking lots.

Metro Rail Construction at Tyson's Corner Route 123

Tysons

The Dulles Access Highway (Route 267) is in the upper right corner and the Capital Beltway (I-495) is in the foreground. The Tysons Corner Center shopping mall is on the left; the then-new Tysons Galleria is at the center.

Tysons has been the largest edge city in the U.S. since the 1980s. In that decade it added on average 1.3 million square feet of new office space per year, as well as retail space, luxury hotels and apartments.  Coming out of the Great Recession in 2010, Tysons had a total of 27 million square feet of office space as well as 20 million square feet of retail, hotel and residential space spread over 2,400 acres.  That year, Tysons was the 13th largest “downtown” in the country, in terms of office space.  With as much office space as the downtowns of Denver and Pittsburgh, Tysons housed nearly 100,000 jobs and a population of 17,000. It was larger than Perimeter Center in metro Atlanta, Chicago’s Schaumburg, Houston’s Galleria/Post Oak, Los Angeles’ Costa Mesa and Seattle’s Bellevue.

Yet Tysons also had some of the nation’s worst traffic jams, was hostile to pedestrians and had limited cultural offerings.  It was approaching full buildout under existing zoning. By the early 21st century, it also had competition from a place that offered something it fundamentally did not have: walkable urban vitality.

The Rosslyn-Ballston (R-B) Corridor in nearby Arlington, Virginia, immediately across the Potomac River from Washington, D.C., had been a competitor to Tysons.  During the go-go days of the 1980s, Tysons was absorbing over twice as much office space annually as the R-B Corridor. However, the R-B Corridor was then at the start of a transformation into the national model of the urbanizing suburb.  Starting in the 1970s, Arlington County had based its urban plan for the R-B Corridor around five then new Metrorail stations and encouraged high-density, mixed-use zoning in urban clusters within walking distance of each station.

In sharp contrast to Tysons’ drivable sub-urbanism, the R-B Corridor offered walkable urbanism. This development model is five to 30 times denser than traditional suburban development. It offers multiple transportation options, including transit, bikes and walking, in addition to cars and trucks. And it features a mix of product types – typically office, retail and residential – as well as parks and other public spaces, plus 24/7 place management, all within about a 3,000-foot (half-mile) radius.

During the 1990s and the 2000-2006 real estate cycles, Tysons and the R-B Corridor grew at exactly the same rate of office absorption annually and had comparable office rents, about $25 per square foot. There was a standoff between drivable sub-urban Tysons and walkable urban R-B Corridor during those cycles.

Tysons Loses Market Share
During the current real estate cycle (from 2010 to the present), however, Tysons grew at only half the rate of the R-B Corridor in terms of new office space delivered. Its net office absorption was even worse; Tysons was losing 100,000 square feet annually. The R-B Corridor achieved an average office rent of $41 per square foot, compared to $31 in Tysons, a 32 percent premium.

 

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Conceptual Lane Use Map
Fairfax County’s Tysons conceptual land use map focuses on accommodating mixed-use development near the area’s four Metrorail stations. Fairfax County Department of Planning and Zoning

The valuation premium was even higher, since drivable sub-urban cap rates are in the range of 5 to 7 percent versus 4 to 5 percent for walkable urban office product, adding an additional 30 to 40 percent valuation per square foot premium. The relative loss of market share and value was naturally troubling for Tysons’ property owners and developers.

In addition, Tysons was not well positioned for the major new development product of the post-Great Recession market: rental housing. Most 21st century renters did not want to live in a sterile, drivable sub-urban location like Tysons; they wanted a hip, walkable urban place like the R-B Corridor. The R-B Corridor added 1,200 apartment units per year from 2010 to 2014, versus about 370 units per year in Tysons.

These lagging office and residential rental absorption trends for Tysons came as most developers and investors in metropolitan Washington real estate were beginning to realize that the late 20th century approach to development was losing favor. Walkable urban places were rapidly becoming more popular and more financially successful in response to pent-up demand.

Back to the Future
The market was shifting “back to the future.” Developers were once again building walkable urban places, something they had not done in a century. And the focus of that development was confined to much smaller areas. Since walking distance has been fixed for thousands of years at about a half mile, this limits the size of a walkable urban place to between 100 and 400 acres. The R-B Corridor has five walkable urban places totaling 1,100 acres, or an average of 220 acres each.

“Core Values: Why American Companies Are Moving Downtown,” a 2016 report published by Smart Growth America in partnership with Cushman & Wakefield and The George Washington University, demonstrated office tenants’ growing demand for walkable urban places. Researchers surveyed over 500 corporations that had moved to these places and learned that the No. 1 reason they had done so was to attract talented young millennial workers. To be a 21st century knowledge-based, creative class company requires being located in a walkable urban place.

The growing demand for walkable urbanism, among other factors, lead the Fairfax County Board of Supervisors to establish the Tysons Land Use Task Force in 2005. Another major catalyst for the establishment of the task force was the planned construction of Metrorail’s new Silver Line, which was to add four new stations in Tysons. Comprised of citizens, planners, landowners and businesses in and around Tysons, the task force’s mission was to:

1) Promote more mixed-use
development.

2) Better facilitate transit-oriented development (TOD).

3) Enhance pedestrian connections throughout Tysons.

4) Increase the residential component of the density mix.

5) Improve Tysons’ functionality.

6) Provide for amenities and aesthetics, such as public spaces, public art and parks.

The head of the task force was Clark Tyler, a neighborhood leader who had lived near Tysons for 50 years. A longtime observer of Tysons, he saw it as “the blob that ate Northern Virginia.” Yet he felt there was a model Tysons could follow nearby: the R-B Corridor.

Tyler and the task force studied how the R-B Corridor had evolved, following smart growth principles of high-density, walkable urban development clustered around its five Metrorail stations. Two things stood out:

1) In the late 1980s, 11 percent of Arlington County’s land mass consisted of land zoned for walkable urban development, and that land generated 20 percent of its tax revenues. By 2010, more than 50 percent of the county’s tax revenues came from this up-zoned and redeveloped land.

2) The main arterials serving the corridor’s five walkable urban places, which experienced a tripling of square footage since the 1980s, actually saw their traffic counts decline in absolute terms. All of the growth was accommodated by increased transit, biking and walking.

Tyler and the task force also discovered from the R-B Corridor that high-density mixed-use development within walking distance of single-family housing improved the quality of life in the surrounding neighborhoods. Allowing Tysons to evolve into a much denser, more walkable urban place, as the county’s comprehensive plan envisioned, could offer residents of surrounding neighborhoods the best of both worlds: a suburban lifestyle within walking distance of restaurants, transit, jobs and urban vitality.

Plan Approved
After an extensive community engagement process, including 300 meetings, economic and fiscal impact analyses, land use planning, and review and approval by both the task force and the Fairfax County Planning Commission, the Fairfax County Board of Supervisors approved the Tysons rezoning and urban plan amendment to the county’s comprehensive plan on June 22, 2010. The plan update calls for 75 percent of all new development in Tysons to be located within a half-mile walk of a Metrorail station.

Tysons 3

Plan Highlights Text Box
By 2050, Tysons is projected to have twice as many jobs (200,000) and five times as many residents (100,000) as it did in 2010, resulting in a jobs/housing balance of two jobs for every resident, as opposed to a 6:1 ratio in 2010. Tysons will also be more environmentally sustainable, with restored streams; a green network of public parks, open spaces and trails; and green buildings.

A redesigned transportation system will include circulator routes, community shuttles, feeder bus service and vastly improved pedestrian and bicycle routes and connections. The new comprehensive plan also called for the establishment of the Tysons Partnership, a nonprofit organization of property owners originally empowered to engage in transportation management, which has broadened its responsibilities tremendously, as discussed below.

All of this required substantial up-zoning. The new comprehensive plan allows for a tripling of the square footage existing in 2010, with up to 150 million square feet estimated to be on the ground around 2050. It assumed that much of this new development would be spurred by the four Metrorail stations, which opened in 2014. The plan and the Metrorail opening did indeed spark an explosion of rental housing deliveries. In the two years after the Silver Line opened, 840 new rental apartments came on the market annually, more than double the 371 units that came on line in the previous four years.

Funding
The $2.9 billion Metrorail extension was paid for by increased tolls on the Dulles Access Road as well as state and federal funds.  However, an additional estimated $2.8 billion in other transportation infrastructure was needed to support the increased density and transform Tysons into a walkable urban place.  Where would this funding come from?
Tysons property owners now contribute to both a Tysons-wide Road Fund and a Tysons Grid of Streets Fund to increase walkability and put in new streets to break up the super-blocks that have long dominated the area.  As the county’s 2017 Tysons Progress Report says, “All new or reconstructed road improvements will include pedestrian facilities and many will include bicycle facilities.” The county’s board of supervisors recently increased the 2018 contribution rate for these two funds to a combined total of $13.21 per floor-area ratio (FAR) square foot for commercial property.

A third transportation fund, The Tysons Road Fund, which has been in existence since before the 2010 comprehensive plan was approved, requires an assessment of $4.46 per FAR square foot.  A developer’s minimum assessment, payable upon obtaining a building permit, is now $17.35 per FAR square foot.

This contribution, however, reflects the base transportation fees, and generally does not represent the full upfront cost of transportation improvements associated with a specific new or redeveloped project.  Additional fees fund unique on-site road improvements, nearby road and intersection improvements, traffic demand management studies and programs, traffic signals, etc.  Total transportation fees therefore typically range from $25 to $29 per FAR square foot.  These fees alone mean that Tysons has some of the highest-priced suburban land values in the country.

To put these fees in context, annual asking rents for Class A office space in Tysons now average about $40 per square foot; the one-time transportation fees for the three funds and unique assessments therefore represent 62.5 to 72.5 percent of annual rents. Compare this to New York’s Park Avenue Manhattan submarket, where Class A asking rents are about $90 per square foot, according to Cushman & Wakefield, among the highest in the country.  Transportation fees there are about $62 per FAR foot, according to the New York Times, 69 percent of annual rents.  In other words, Tysons transportation charges are about the same, relative to rents, as those in one of the most expensive office submarkets in the country.

These substantial transportation fees reflect both the high cost of infrastructure improvements for walkable urban development as well as the market’s ability to pay for the improvements, given pent-up demand and higher rents.

The Tysons Partnership

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Tysons overview
The comprehensive plan foresaw much increased cooperation among landowners regarding transportation management, human-scale infrastructure improvements and even consolidation and/or coordinated development plans.  To date, that cooperation has primarily been through the Tysons Partnership.

The Tysons Partnership was officially designated by Fairfax County as the transportation management association (TMA) for Tysons.  It has been responsible for carpooling and circulator management as well as the introduction of the metro area’s Capital Bikeshare network to Tysons.

The partnership, which describes itself as “a dynamic collaborative of Tysons stakeholders working together to accelerate the transformation of Tysons into a great American city,” has been taking the lead in ensuring “that the overarching goals and objectives of the Comprehensive Plan for Tysons are achieved.”  Its work has involved wayfinding, entrance signage and street banners; organizing pop-up parks, murals, festivals and other events like bike races and farmers markets; and installing public art. The partnership also represents property owners in their interactions with the county, the local jurisdiction implementing the comprehensive plan.

The partnership is not, however, taking an in-depth role in placemaking and place management. These functions will be filled by private developers and property owners.

The major responsibilities for implementation of the comprehensive plan are now in the hands of the private sector, which is taking advantage of the Metrorail and other infrastructure improvements and the substantial increase in zoning density to transform Tysons into a denser, more urban place. Many developers and property owners are in the process of creating walkable urban places through new development, placemaking and place management. (See “The Boro” for more on the new development now underway.)

The Coming “Breakup”

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Tysons street grid
The existing street grid for Tysons (top) limits connectivity for automobiles and pedestrians throughout the area. A more urban grid (bottom) will enhance connectivity for all modes of transportation.  Fairfax County Department of Planning and Zoning

At 2,400 acres, Tysons is far too large to be just one walkable urban place. Recognizing this, the comprehensive plan divided Tysons into eight different zones, anticipating that each would evolve independently.  However, it now appears that the bulk of new walkable urban development will cluster around Tysons’ four Metro stations, as specified by the new zoning.

Over the next generation, five walkable urban places of about 300 acres each are expected to emerge: one each around the McLean, Greensboro and Spring Hill stations, and two at the Tysons Corner station – one on either side, anchored by the area’s two regional malls, both of which are already surrounded by substantial office and residential development. Each of these five places will have its own character, economic role, tenant submarkets, etc.

This means that only about 1,500 of Tyson’s 2,400 acres will become walkable urban places. The rest of the area will stay pretty much as it is today for the foreseeable future.

Future Challenges And Lessons Learned
The entire country and much of the world is watching the transformation of drivable sub-urban Tysons into a collection of walkable urban places. This process already offers the following five lessons:

1) Massive investment in transportation and parks must be made upfront, by both the public sector and private property owners. Given unlikely future federal infrastructure spending, this funding will probably have to come from state and local sources, and must include private co-investment.

2) Walkable urban places, with their complex mix of residential, office and retail products, are much more difficult to develop than stand-alone drivable sub-urban projects. The initial phase of any walkable urban project must achieve enough critical mass to create a “there there.”

3) Not all of the drivable sub-urban space in an edge city will be converted to walkable urban development. Some of the existing office, retail and residential products will remain, and will still be able to attract tenants unable to afford the higher-priced walkable urban product.

4) Conventional underwriting probably does not apply to these projects, especially in their early phases. Upfront investment in infrastructure and parks, along with some unproven product offerings, especially at the required rent or sales price levels, will require a leap of faith at times. Property owners will eventually profit from the increase in land value in subsequent phases.

5) Place making is essential for success. Whether through a business improvement district, government-funded urban districts or private place management, extraordinary cleaning and safety services, festival management and promotion, park development and management, economic development and more are required, and do not come cheap.

Since the first projects following the opening of Metrorail have only recently been completed and the first phase of The Boro, Tysons’ first major walkable urban place, has not yet delivered, the jury is still out on Tysons’ transition to walkable urbanism.

What is known is that, if the largest edge city in the country can pull this off, other edge cities will take notice and follow Tysons’ lead. In fact, Fairfax County is already applying some of the new policies and practices developed for Tysons to the Reston Transit Corridor, where the Silver Line is being extended to Dulles Airport.

The Boro

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The new walkable urban place that is furthest along in Tysons is The Boro, a multiphase mixed-use project being developed by The Meridian Group. Although the company was initially skeptical about investing in Tysons, following the adoption of the comprehensive plan and the commencement of Metrorail construction, Meridian felt Tysons was “ready to transition … away from the suburban office park model and create high energy pockets where people want to be,” according to Gary Block, partner and chief investment officer with Meridian.

Boro park
The Boro will feature vibrant streetscapes and greenspaces; its first phase will contain 1.7 million square feet of apartments, condos, office and retail space, including a 15-screen cinema. Courtesy of The Meridian Group

The Meridian Group wanted a Tysons location that would allow it to begin with a first phase large enough “to dramatically change the perception and feel of that area, which would drive land value of subsequent phases,” says Block. In August 2013, the company acquired the three-building headquarters of SAIC, a major government contractor, adjacent to the Greensboro Metrorail station. The property included 630,000 square feet of Class B office buildings, a parking deck and a call option for additional land with 3 million square feet of FAR. SAIC leased back 130,000 square feet in one of the three buildings.

The first improvement Meridian made was to add a new “front door” to the SAIC property to face the new Metrorail station, in addition to the original car-oriented entrance. Meridian then acquired a 765,000-square-foot portfolio of four buildings adjacent to The Boro on the east and a 210,000- square-foot building directly across Greensboro Drive to the south. This will allow subsequent phases of development to take advantage of the critical mass that will be created in the first phase.

The rezoning of Meridian’s holdings allows a total buildout of nearly 4 million square feet. The Boro’s first phase will contain 1.7 million square feet of apartments, condos, office and retail space, including a 15-screen ShowPlace Icon movie theater and the largest Whole Foods Market in the U.S.

Two parks and new streets will break up the super blocks. The Boro aims to create the walkable urbanity promised by the comprehensive plan when its first phase delivers
in 2019.

Office rents at The Boro have already increased from the mid-$20s annually in 2013 to the mid-$40s in 2018, following renovation of the existing buildings from Class B back up to Class A. Office rents at the new phase I office tower are in the mid-$50 per square foot per year. Condos will be priced at $800 per square foot, on average, and some early reservations have achieved $1,000 per square foot. The rental apartment market is still new in this location, but Meridian is projecting annual rents of $36 to $42 per square foot. There is plenty of room for apartment rents to rise, since Tysons apartments currently rent at a discount to those in the R-B Corridor and downtown Washington.

The key, according to Block, will be to “co-brand our properties and integrate one into the other, creating co-dependence and allowing one to benefit from investment in the other.” This “more is better” value creation phenomenon is common to most walkable urban places. As you build more retail space, housing, offices and entertainment, the area improves over time. More people on the sidewalks attract even more people. This is also referred to as the “upward spiral of value creation.” Meridian has planned substantial additional development to reap the benefits of the critical mass it expects to achieve in phase I.

Any questions, contact RezaieCo at (202) 802-8200 or support@rezaieco.com

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