With Companies Relocating, Economic Incentives Stakes Keep Getting Higher

When a company considers relocating its HQ, local governments jump at the opportunity to create more jobs in their jurisdictions and bring in more tax revenue. This often leads to fierce competition between DC, Maryland and Virginia to see who can offer the best financial incentive packages. Reps from each jurisdiction's economic development department will share the stage at Bisnow's Property Management and Leasing Forum on July 14.

"It's a battle," Virginia Economic Development Partnership VP Rob McClintock (above) tells Bisnow. "I think the region has always been very competitive with each other and amongst each other." 

This was the case the last time a big private tenant was looking for new space, The Advisory Board Co. Monday Properties tried to get the healthcare and education consulting company to move into its 1812 North Moore building in Rosslyn, the largest tower in the region, which it built on spec and remains vacant.

But DC gave The ABC a $60M incentives package and the company ultimately chose to keep its business in the District and move to 500k SF in Douglas Development and Brookfield's 655 New York Ave NW in Mount Vernon Triangle. The deal raised eyebrows all over the region as a possible market-setter.

"The District has really ramped up its toolbox with their tax incentive program. It's formidable," Rob says. "I think all three entities here have sort of stepped up their game since the recession."

The DC deputy mayor for economic development's chief of staff, Andrew Trueblood (above, next to the mayor) says the benefits The Advisory Board will bring to DC far outweigh the $60M package to lure them in. He said the financial package was contingent on the company hiring 1,000 net new DC residents over 10 years, which he said would bring in an estimated $350M to $400M in revenue.

"We're proud of this deal," Andrew says. "I think people see $60M and don’t look at the details. When we start sharing what The Advisory Board committed to, they see that it wasn’t just a giveaway, and there was a lot the District needed to get in return."

The next big prize is Marriott International, which employs 2,000 people at its 900k SF Bethesda HQ. Its lease runs up in 2022 and it is actively seeking a new location. Maryland put up a $58M incentives package in 1999 to keep the company from leaving.

Andrew says DC is "actively involved," in talks with Marriott and Virginia also has its eyes on the hotel company. Montgomery County executive Ike Leggett promised at a Bisnow event in February that the county wouldn't lose its largest private employer.

Maryland Department of Commerce tax incentives director Mark Vulcan (above) couldn't comment on the specifics of the Marriott bid, but he emphasized that financial incentives are only a part of what attracts companies to choose a location.

"Maryland is well-positioned with our locations, our universities, our hospitals and our education system as some of the nation's best schools," Mark says. 

Mark doesn't see Maryland's neighboring jurisdictions as competitors, but rather as partners because when a company comes to the region, everyone benefits. 

"It's better to cooperate than build barriers between the states when you only have a couple miles between the borders," Mark says. "It’s a friendly cooperation and that’s what I’m seeing."

Andrew agreed that at the top levels, cooperation exists between Maryland, DC and Virginia's governments, but he said that is not always the case with counties and cities.

"Municipalities, depending on their officials, have different views on local competitiveness," Andrew says. "Officials in some of our neighboring jurisdictions seem to see local competitiveness as a zero sum game, which is not our perspective."

Robert does not view the environment quite as cooperatively, noting how seriously Virginia takes each bid to keep a company in the state. That's why 80% of the time, Rob says, a company stays put after its search. And the state's funds for employers are "agnostic," Rob says, about keeping companies in-state or luring them from elsewhere.

"If we start losing employees to other jurisdictions, that’s going to be a real drain for the existing business base of these communities and ultimately the commonwealth," Rob says.

How high could the package for Marriott go? Maybe we'll get an answer on July 14 at the Four Seasons in Georgetown at our Property Management and Leasing Forum.