Lgistics Management Institute An Independent Evaluatin f the Engineer Prving Grund CE411MR1 Karen M. Dahut Marguerite E. Mss Thmas A. Müller 19951205 181 n i tr'r K.V-) Jm am m i
REPORT DOCUMENTATION PAGE Frm Apprved OPM N.0704-0188 Public reprting burden fr this cllectin f infrmatin Is estimated t average 1 hur per respnse, including the time fr reviewing instructins, searching existing data surces gathering, and maintaining the data needed, and reviewing the cllectin f Infrmatin. Send cmments regarding this burden estimate r any ther aspect f this cllectin f infrmatin, including suggestins fr reducing this burden, t Washingtn Headquarters Services, Directrate fr Infrmatin Operatins and Reprts, 1215 Jeffersn Davis Highway, Suite 1204, Arlingtn, VA 22202-4302, and t the Office f Infrmatin and Regulatry Affairs, Office f Management and Budget, Washingtn, DC 20503. 1. AGENCY USE ONLY (Leave Blank) 2. REPORT DATE March 1995 4. TITLE AND SUBTITLE An Independent Evaluatin f the Engineer Prving Grund 3. REPORT TYPE AND DATES COVERED Final 5. FUNDING NUMBERS C MDA903-90-C-0006 PE0902198D 6. AUTHOR(S) Karen M. Dahut, Marguerite E. Mss, Thmas A. Müller 7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES) Lgistics Management Institute 2000 Crprate Ridge McLean, VA 22102-7805 8. PERFORMING ORGANIZATION REPORT NUMBER LMI- CE411MR1 9. SPONSORING/MONITORING AGENCY NAME(S) AND ADDRESS(ES) U.S. Army Crps f Engineers Directr, Cnstructin Divisin Pulaski Building CEMP-C Washingtn, D.C. 20314 10. SPONSORING/MONITORING AGENCY REPORT NUMBER 11. SUPPLEMENTARY NOTES 12a. DISTRIBUTION/AVAILABILITY STATEMENT A: Apprved fr public release; distributin unlimited 12b. DISTRIBUTION CODE 13. ABSTRACT (Maximum 200 wrds) The Army Prgram Manager fr Ttal Develpment in the Natinal Capital Regin has prpsed a "public-private venture" t develp the 805-acre Engineering Prving Grund (EPG) site near Frt Belvir in Fairfax, Va. The EPG jint venture cncept is that the Army will prvide the land, and the develper will build ffice space fr the Army, cnstruct the necessary infrastructure, and build ther space fr private use. Revenues generated by the sale r lease f the private-sectr space that the develper builds wuld be expected t pay fr the cst f cnstructing the required infrastructure and the Army space. That arrangement wuld allw the Army t btain "rent-free" space in which it culd cnslidate peratins nw lcated in leased space thrughut the Natinal Capital Regin, thus reducing its lng-term ccupancy csts. The EPG develpment plan as cnceived in 1990 was ratinal and feasible given what were, at that time, several reasnable assumptins: the slwdwn in the ffice building bm in Fairfax Cunty was seen as a shrt-term cnditin; residual rent payments were cntemplated as the mechanism t ensure that develpers culd affrd t prvide the Army space at belw-market rates; and it was expected that the Army culd guarantee a large Department f Defense anchr tenant in Phase 1. Hwever, since 1990, market and ther cnditins have changed cnsiderably. As a final check, the Army Crps f Engineers asked the Lgistics Management Institute t assess the ecnmic feasibility f the plan given current market cnditins. 14. SUBJECT TERMS Engineer Prving Grund, Market analyses, Frt Belvir, Fairfax Cunty, rent-free space, appraisal 15. NUMBER OF PAGES 89 16. PRICE CODE 17. SECURITY CLASSIFICATION OF REPORT 18. SECURITY CLASSIFICATION OF THIS PAGE 19. SECURITY CLASSIFICATION OF ABSTRACT 20. LIMITATION OF ABSTRACT Unclassified Unclassified Unclassified UL NSN 7540-01-280-5500 Standard Frm 298, (Rev. 2-89) Prescribed by ANSI Std. 239-18 299-01
March 1995 An Independent Evaluatin f the Engineer Prving Grund CE411MR1 Karen M. Dahut Marguerite E. Mss Thmas A. Müller jutic QUALITY INSPECTED 5 lesaln fr HTIS QRAtI DTIC TAB Unannunced Justificatin. D D Prepared pursuant t Department f Defense Cntract DACW31-94-D-0092. The views expressed here are thse f the Lgistics Management Institute at the time f issue but nt necessarily thse f the Department f Defense. Permissin t qute r reprduce any part except fr gvernment purpses must be btained frm the Lgistics Management Institute. By Availability?flbdea Avail and/r Lit Speftd.,,* \ Lgistics Management Institute 2000 Crprate Ridge McLean, Virginia 22102-7805
CE411MR1/March 1995 LOGISTICS MANAGEMENT INSTITUTE An Independent Evaluatin f the Engineer Prving Grund Executive Summary The Army Prgram Manager fr Ttal Develpment in the Natinal Capital Regin has prpsed a "public-private venture" t develp the 805-acre Engineer Prving Grund (EPG) site near Frt Belvir in Fairfax Cunty, Va. The EPG jint venture cncept is that the Army will prvide the land, and the develper will build ffice space fr the Army, cnstruct the necessary infrastructure, and build ther space fr private use. Revenues generated by the sale r lease f the private-sectr space that the develper builds wuld be expected t pay fr the cst f cnstructing the required infrastructure and the Army space. That arrangement wuld allw the Army t btain "rent-free" space in which it culd cnslidate peratins nw lcated in leased space thrughut the Natinal Capital Regin, thus reducing its lng-term ccupancy csts. The 1990 Defense Authrizatin Act, which prvided enabling legislatin fr the venture, specifies that the fair market value f the land cnveyed t the develper may nt exceed the value f the ffice space built fr the Army. That is, the amunt f rent-free space that the Army gets depends n the value f the land. Thus, the Army planned the EPG develpment s that it wuld maximize that value. As part f the planning prcess, the Army requested that Fairfax Cunty rezne the land. In exchange fr the rezning, the Army made several tentative cmmitments, r prffers, t Fairfax Cunty, that must be signed befre the Cunty will apprve the EPG rezning applicatin. The EPG develpment plan as cnceived in 1990 was ratinal and feasible given what were, at that time, several reasnable assumptins: the slwdwn in the ffice building bm in Fairfax Cunty was seen as a shrt-term cnditin; residual rent payments were cntemplated as the mechanism t ensure that develpers culd affrd t prvide the Army space at belw-market rates; and it was expected that the Army culd guarantee a large Department f Defense anchr tenant in Phase 1. Hwever, since 1990, market and ther cnditins have changed cnsiderably. As a final check, the Army Crps f Engineers asked the Lgistics Management Institute t assess the ecnmic feasibility f the plan given current market cnditins. We cncluded the fllwing: The EPG site wuld have difficulty attracting tenants fr ffice space bth because its prjected lease rates are high relative t thse f cmpeting sites in Fairfax Cunty and because its lcatin is less desirable. m
The Army culd expect t receive nly 550,000 square feet f rent-free space in exchange fr the land, r nly 25 percent f the free space riginally anticipated. It is unlikely that the Army will be able t attract an anchr tenant that wuld lease 1.2 millin square feet f space because the expected lease rates fr the EPG wuld be cnsiderably abve market rates. Prffers culd place the Army in a psitin f financial risk. The Army will be required t relinquish ver 300 acres f land regardless f the success f the verall develpment, and the Army will be respnsible fr infrastructure and ther prffers that are identified with rezning apprval. Given the risks assciated with the plan, we believe that the Army will be unable t attract ptential investrs r develpers fr the EPG develpment. In sum, ur analyses shw that the current EPG develpment plan can prvide, at best, nly a fractin f the space riginally anticipated. The Army Engineer District, Baltimre, appraisal, which was cmpleted in January 1995, cncurs with ur finding that the current EPG develpment plan is nt ecnmically viable. We recmmend that the Army refrain frm signing prffers that wuld cmmit future financial resurces and address the fundamental issue f whether it wants t act as the lng-term develper f the EPG site and assume the risks and liabilities assciated with that rle. IV
Cntents Chapter 1. Intrductin 1-1 Backgrund 1-1 The EPG Legislatin 1-2 The Task 1-2 Reprt Organizatin 1-3 Chapter 2. The Planned EPG Develpment 2-1 Lcatin and Site Descriptin 2-1 Overview f the Develpment Plan 2-1 Prffers 2-6 Status f EPG Develpment Plan 2-9 Next Steps 2-10 Chapter 3. Market Analysis f Planned EPG Land Uses 3-1 Office Space 3-1 Husing 3-10 Htels/Mtels 3-13 Retail Space 3-13 Chapter 4. Land Value f EPG Site 4-1 Backgrund 4-1 Estimates Using EPG Mdel 4-2 Fairfax Cunty Estimates 4-6 Baltimre District Estimates 4-6 Cmparisn f Estimates 4-7 Cnversin f Land Values t Army Rent-Free Space 4-8 Chapter 5. Plan Implementatin Issues 5-1 Title Cnveyance 5-1 Limited Develper Flexibility 5-2 Identificatin f Anchr Tenant fr Phase I 5-2 Prffers 5-3
Cntents (Cntinued) Chapter 6. Cnclusins and Recmmendatins 6-1 Cnclusins 6-1 Recmmendatins 6-3 Appendix. Assumptins Used t Estimate Land Values and Army Rent-Free Space at the EPG Site VI
Tables 2-1. Distributin f Space by Land Use 2-4 2-2. Prjected Rent-Free Space Based n 1990 Army Cnsultant Market Analysis 2-5 2-3. Amunt f Space by Land Use and Prject Phase 2-6 2-4. Estimated Infrastructure Cst 2-7 3-1. Fairfax Cunty Office Market Characteristics 3-3 3-2. Full-Service Office Lease Rates in Fairfax Cunty, by Submarket 3-4 3-3. Average Full-Service Office Lease Rates in Fairfax Cunty 3-5 3-4. 1990 Prjectin f Demand fr Office Space in Fairfax Cunty 3-6 3-5. Current Prjectin f Demand fr Office Space in Fairfax Cunty 3-7 3-6. Cmparisn f Office Space Demand Prjectins 3-7 3-7. Estimatin f Required EPG Capture Rate f New Office Demand in Fairfax Cunty 3-8 3-8. Cmparisn f Current and Prjected Average Lease Rates in Fairfax Cunty and the Springfield Submarket 3-9 3-9. Estimatin f Required EPG Capture Rate f Ttal Office Lease Activity in High-End Submarkets 3-10 3-10. Planned Husing Units in Selected Planning Districts Near the EPG Area 3-11 3-11. Estimatin f Required EPG Capture Rate f Husing Market in Fur Planning Districts 3-12 4-1. 1990 and 1994 Values fr Updated Mdel Parameters 4-5 4-2. 1996 EPG Land Value Estimates 4-7 vu
Tables (Cntinued) 4-3. 1996 Net Present Value f EPG Land 4-8 4-4. Army Rent-Free Space 4-9 vm
CHAPTER 1 Intrductin BACKGROUND The Army Prgram Manager fr Ttal Develpment in the Natinal Capital Regin (PM, NCR) has prpsed a plan t enter int a unique "public-private venture" t develp the 820-acre Engineer Prving Grund (EPG) site. 1 The EPG site is lcated in Fairfax Cunty, Va., just west f Interstate 95 and suth f the Springfield Central Business District. Special cngressinal legislative authrity Sectin 2821 f the 1990 Defense Authrizatin Act (Public Law 101-189) allws the Army t cnvey "all r any prtin" f the EPG site t a third party wh will cnstruct facilities fr the Army and make infrastructure imprvements t the site. Basically, the EPG cncept is that the Army will prvide the land, and the develper will build ffice space fr the Army, cnstruct the infrastructure, and build ther space fr private use. The develpment plan specifies the square ftage that will be cnstructed by the private develper fr each phase and fr each f fur land uses. Revenues generated by the sale r lease f the privatesectr space that the develper builds are expected t pay fr the cst f cnstructing the required infrastructure and the Army space, as well as generate a return r prfit fr the develper. 2 Based n Army space requirement prjectins, which take the current dwnsizing f Army peratins int accunt, the prjected ttal rental space requirement in the Natinal Capital Regin is 2 millin square feet. 3 The Army's bjective is t cnslidate peratins currently lcated in leased space within the Natinal Capital Regin int the rent-free space and thus reduce its csts. By ccupying wned rather than leased space, the Army culd reduce its lng-term ccupancy csts. ^he Army cnsultant mdel assumes 820 acres. A later submissin t the Cunty estimates the site t be 805 acres. 2 T distinguish the ffice space that the Army will receive in exchange fr the EPG land frm the speculative ffice space the private develper cnstructs n the EPG site, the Army space is referred t thrughut this reprt as Army "rent-free" space. 3 Initially, the Army estimated that it wuld need 2.9 millin square feet f ffice space t replace the space it is leasing. 1-1
THE EPG LEGISLATION The legislatin authrizing the EPG cncept is specific with regard t certain aspects f hw the public-private venture is intended t wrk. Belw are the key specificatins in the legislatin: The value f the cnstructed Army space must be n less than the fair market value f the prperty that is cnveyed t the develper. In ther wrds, the value f the space built by the develper fr the Army must be equal t the fair market value f the land that the Army cnveys t the develper. That specificatin is significant; it means that the greater the value f the land, the mre ffice space the Army gets. "The develpment and all such imprvements [must] cmply with the specificatins f the master plan" and must be "agreed t by the apprpriate fficials f the Cunty f Fairfax, Va., and the Cmmnwealth f Virginia." The develpment f the prperty shall "include imprvements t public transprtatin systems, utilities and telecmmunicatins." If the third-party develper is unable r unwilling t develp the real prperty in accrdance with the master plan, "all right, title, and interest in and t the real prperty cnveyed... shall autmatically revert t the United States, regardless f the reasn fr such inability r unwillingness." THE TASK The Army Crps f Engineers, prir t issuing a request fr prpsals (RFP) fr the EPG develpment, asked the Lgistics Management Institute (LMI) t cnduct an independent analysis f the EPG develpment plan. We were t determine the plan's feasibility given current ecnmic cnditins and assess the risks assciated with its implementatin. The Army specified that LMI shuld cnsider nly the current EPG develpment plan and nt ptential variatins f that plan. In ur evaluatin f the EPG develpment plan, we fcused n assessing the financial feasibility with regard t the cash flw that wuld be required t supprt the plan and the incme that culd be generated. As a part f that analysis, we identified changes in the real estate market that have ccurred since 1990 when the plan was riginally develped and assessed the impact f thse changes n the feasibility f the EPG develpment plan. We als evaluated issues that culd impede the successful implementatin f the EPG develpment plan. Thse issues cncern bth plicies and financial aspects f the plan that may pse a prblem fr the Army r create a risk fr ptential develpers, making it mre difficult fr the Army t attract a develper. 1-2
REPORT ORGANIZATION This reprt is rganized int six chapters. In Chapter 2, we describe the current EPG develpment plan. We identify hw the Army expects t implement the plan, the infrastructure csts assciated with each phase f the plan, and the status f that plan within the Cunty's apprval prcess. In Chapter 3, we review the current market cnditins in Fairfax Cunty and assess hw they have changed frm the prjectins made by the PM in 1990. In Chapter 4, we discuss ur financial analysis f the EPG develpment plan. That chapter specifies hw the analysis was cnducted and discusses key parameters. In Chapter 5, we address issues that may affect the successful implementatin f the plan. Finally, in Chapter 6, we draw cnclusins abut the likelihd f success f the EPG prject. We als make tw key recmmendatins regarding hw the Army shuld prceed in the near term. 1-3
CHAPTER 2 The Planned EPG Develpment This chapter describes the EPG develpment plan that was prpsed by the PM, NCR and is the basis f ur analysis and evaluatin. We discuss the initial cnceptin f the develpment plan and its prpsed land uses and densities. We als discuss Fairfax Cunty's requirements fr site develpment, including preliminary estimates f infrastructure csts. Finally, we discuss the current develpment plan status and the remaining steps that have t be cmpleted. LOCATION AND SITE DESCRIPTION The EPG site is lcated in Fairfax Cunty, Va., 16 miles suthwest f Washingtn, D.C., and apprximately 10 miles nrthwest f Frt Belvir. Figure 2-1 is a map shwing the lcatin f the EPG develpment site relative t the Washingtn metrplitan area. The Army expects that the prject will be develped in five sequential phases. Each phase crrespnds t ne f five separate land bays, r gegraphic areas, n the EPG site. OVERVIEW OF THE DEVELOPMENT PLAN Initial Develpment Plan Cncept T ensure that it culd get as much rent-free space as pssible, the PM planned the EPG develpment t maximize the land value. The plan was based n the results f a study cnducted fr the PM, NCR by cnsultants and cmpleted in 1990. That study, referred t here as the PM's study, included a detailed analysis f real estate market cnditins thrugh 1989, transprtatin impacts, and ther aspects f the develpment. Since a higher land value translates int mre rent-free space fr the Army, the PM's study prpsed maximizing the value f the EPG land by phasing the prject ver 20 years r mre t reduce the discunt in price that wuld be assciated with selling the entire prperty at nce, rezning the prperty t allw substantial high-density incme-prducing develpment, and acting as master develper t cntrl the timing f the prject phases t avid the effects f market dwnturns. 2-1
Figure 2-1. Lcatin fepg Develpment Site As authrized by the cngressinal legislatin, the Army can exchange the EPG land fr imprvements equal t the market value. 1 The Army is seeking t exchange the bulk f the EPG land fr ffice space that will be cnstructed n a small prtin f the EPG site that the Army will cntinue t wn. The Army will receive needed space, and the private develper will receive the wnership and develpment rights t the balance f the site fr a preplanned and preapprved high-quality, mixed-use develpment. As the Army space is cnstructed and ccupied, the land will be cnveyed t the develper fr further private 1 Refer t Chapter 1 fr details f the cngressinal legislatin. 2-2
develpment in accrdance with the EPG develpment plan. Once the Army ffice space is cnstructed accrding t their specificatins, the Army is respnsible fr the nging perating and maintenance expenses assciated with wnership f its building. T retain cntrl f the EPG develpment, the PM structured the develpment plan s that each phase wuld be cmpeted independently. Thus, a different develper culd be selected fr each f the five phases. In cnjunctin with the space cnstructed in each phase f the develpment, assciated infrastructure imprvements are required as a part f the develpment plan. (The cst f infrastructure imprvements will be discussed later in this chapter.) The Army, as the landwner, will be respnsible fr ensuring that each phase is cmpleted in accrdance with the riginal develpment plan and that the prffers agreed t as part f the rezning prcess r as a result f transprtatin studies are cmpleted and meet Fairfax Cunty requirements. Land Use The prpsed EPG develpment is a multiuse, multiphase prject. The Army envisins an urban village cnsisting f a series f high-quality, mixed-use centers situated amidst wide areas f pen space. Specifically, the EPG develpment plan calls fr fur high-density, multiuse ndes that are separated by pen space and by clusters f lwer density develpment. Each multiuse nde includes residential and ffice buildings gruped arund landscaped plazas and pen areas. In general, the mre incme-prducing space that the plan allws fr, the mre rent-free space the private develper is willing t prvide the Army. 2 Cnsequently, the EPG develpment has t be large enugh t generate sufficient incme s the develper is able t cnstruct significant rent-free space t meet Army bjectives. The develpment prgram includes a schedule fr the cnstructin f 17.5 millin grss square feet (GSF) f space. That space includes an estimated 2 millin square feet f Army rent-free space and 15.5 millin square feet f space privately develped fr varius uses. Cmmercial ffice space (including the Army space) accunts fr 48 percent f the ttal EPG develpment space, and residential space accunts fr an additinal 40 percent. The remaining 11 percent is dedicated t htel and retail space. The prpsed land use allcatin is currently under review by Fairfax Cunty. Table 2-1 summarizes the Army's prpsed develpment plan fr the EPG site. 2 This linkage ignres the infrastructure csts needed t supprt the given level f develpment, which may increase disprprtinately with an increase in incmeprducing prperty n the site. 2-3
Table 2-1. Distributin f Space by Land Use Land use Office Residential (abut 4,000 units) Retail Htel/ther Army rent-free space Space (millin GSF) 6.55 7 0.3 1.65 2 Percentage f ttal develpment 38 40 2 9 11 EPG ttal 17.5 100 Estimate f Rent-Free Space Given the prpsed develpment plan, the Army cnsultants riginally prjected that, ver the 21-year develpment perid, a private develper wuld be willing t cnstruct abut 2 millin square feet f rent-free space in exchange fr the EPG land. Table 2-2 shws the Army cnsultant's prjectins fr the amunt f rent-free space t be cnstructed at the beginning f each phase. Underlying this estimate are assumptins regarding land value and future market cnditins based n the reginal and natinal ecnmy in 1990. Because it is impssible t predict changes in these cnditins, the actual amunt f space the Army will receive and the develpment time perid is uncertain. Chapter 3 examines the assumptins underlying the prjectin and prvides an assessment f their reasnableness in tday's market. Table 2-2. Prjected Rent-Free Space Based n 1990 Army Cnsultant Market Analysis (grss square feet) Phase 1 2 3 4 5 Army Rent-free space 340,000 410,000 190,000 520,000 540,000 Ttal 2,000,000 Surce: Preliminary Market Analysis f Engineering Prving Gunds, Basile Baummann Prst & Assciates, Inc. (BBPA) Team, April 1990. 2-4
Develpment Density As part f the EPG develpment prcess, the Army has undertaken the necessary steps t rezne the EPG land in accrdance with Fairfax Cunty's Cmprehensive Plan fr the area. 3 Zning is a key factr in determining what the Army can realize in value fr the EPG land since it prescribes what can be dne n the site. In additin, having the zning fr the prpsed develpment plan in place raises the value f the prperty. All ther factrs being equal, a prperty zned fr a prpsed use is cnsiderably mre valuable than ne withut zning because the buyer des nt incur the risk and uncertainty f the rezning prcess. The EPG land is currently zned fr residential develpment with a density f ne unit per five acres. The prpsed zning plan fr the EPG site nt nly defines the land use but als the average density, r flr area rati (FAR), f the develpment. The FAR is defined as the square ftage a builder is allwed t cnstruct n the site as a percentage f the acreage r size f the site itself. The prpsed EPG rezning plan calls fr an verall FAR f 0.49, but the FAR will vary with land use; sme prtins f the site will have a FAR f up t 2.O. 4 Since the EPG site is 820 acres, r 35.7 millin square feet, a ttal f 17.5 millin square feet f space can be cnstructed n the site given a FAR f 0.49. A FAR f 0.49 is a relatively high density develpment fr Fairfax Cunty and particularly fr the EPG, as this area already incurs traffic cngestin. T supprt the level f prpsed develpment at the EPG site, the Cunty will require infrastructure imprvements as a cnditin f rezning apprval. In creating the prpsed EPG develpment plan, the PM's study attempted t balance the increased revenues that can be generated frm a higher density develpment and the reductin in value received by the Army fr the land as a result f increased infrastructure csts. The grss square ftage that is prpsed t be cnstructed fr each f the fur land uses in each phase is shwn in Table 2-3. 3 The current status f the rezning applicatin is discussed n page 2-9. 4 The FAR f 0.49 is determined by the ttal EPG site, including land that will be dedicated t the Cunty. 2-5
Table 2-3. Amunt f Space by Land Use and Prject Phase (square feet) Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Land use (4 years) (4 years) (4 years) (4 years) (4 years) Office 2,050,000 1,250,000 1,300,000 1,200,000 750,000 Residential 1,506,000 1,506,000 1,595,000 1,329,000 1,063,000 Retail 77,000 60,000 63,000 60,000 40,000 Htel/ther 50,000 450,000 450,000 450,000 250,000 Ttal 3,683,000 3,266,000 3,408,000 3,039,000 2,103,000 Nte: The "ther" categry culd include numerus uses such as a sprts cmplex. PROFFERS Prffers are a frmal negtiated agreement between Fairfax Cunty and an applicant (in this case, the Army) that specifies certain cmmitments frm the applicant in exchange fr rezning. Prffers typically identify specific items that the landwner agrees t accmplish in exchange fr the rezning f the prperty and fr the right t develp the prperty in accrdance with the Fairfax Cunty Cmprehensive Plan. Typically, the attrneys and experts representing the applicant meet with the Cunty planning staff and wrk ut mutually acceptable language. Such an agreement specifies what is being cmmitted, wh will implement the cmmitment (usually the applicant as landhlder), and the timing f the cmmitment. Prffers cver such issues as the parameters f the develpment, land use, envirnmental issues, transprtatin issues, and public facilities. Prffers are usually agreed t at the pint when the rezning apprval is pending final apprval by the Cunty Bard f Supervisrs. In January 1995, the PM infrmally indicated agreement t sme prffers fr the EPG develpment. Frmal, legally binding prffers, hwever, will nt be finalized until the rezning actin is apprved, which is expected t be n earlier than June 1995. 5 Since the Army will be the wner f the land when the rezning applicatin is apprved, the Army will be respnsible fr signing the prffer agreement, which then cmmits the Army t meet its requirements as lng as the Army retains wnership f the land. Each phase f the develpment plan will have specified prffers, and since the Army will initially retain wnership f all EPG land, it will be legally respnsible fr ensuring that the prffers are met. 5 Discussins with Fairfax Cunty indicate that the June 1995 date may be unrealistic since the transprtatin study being prepared by the Army cnsultants had nt been cmpleted as f January 1995. 2-6
Because the current prffer submissin t the Cunty is preliminary, these prffers are expected t be mdified and thers added during the negtiatin prcess with Fairfax Cunty. Typically, prffer statements fr a large develpment exceed 100 pages. The preliminary 26-page PM draft is nt sufficiently specific t meet all the requirements f a negtiated prffer agreement. Infrastructure-Related Prffers Infrastructure imprvements at the EPG site will cst an estimated $200 millin. Thse imprvements will include utilities and rads thrughut the site as well as sme imprvements required by Fairfax Cunty, including ffsite rad upgrades and the partial cst f a peple-mver mass transit system. The cst f the imprvements are expected t be brne by the private develper and paid fr frm the incme-prducing space. Table 2-4 shws the Army cnsultant's estimated csts fr infrastructure imprvements by phase. Table 2-4. Estimated Infrastructure Cst Amunt Phase ($000) 1 25,661 2 21,042 3 92,085 4 59,860 5 2,868 Ttal 201,516 The size, land-use mix, and density f the develpment dictate the infrastructure and site imprvements that are required t btain rezning apprval frm Fairfax Cunty. Because f the Cunty's cncerns as t the impact n existing traffic cnditins, the Army has agreed that as a part f the EPG develpment, a peple mver (a light-rail mass transit system) will be cnstructed t supprt the traffic flws in and ut f the develpment. The Army (r designated develper) wuld fund 20 percent f the prject, r abut $70 millin. In additin t the peple mver, additinal infrastructure imprvements, specifically external rads, may be needed. Thse imprvements will be determined n the basis f transprtatin studies that will be cnducted at the end f each develpment phase. Imprvements identified in thse studies wuld have t be made befre the Army culd prgress t the next phase f the plan. Transprtatin imprvements will be required such that the rads surrunding 2-7
the site maintain a service level "D" 6 r better after each develpment phase is cmpleted. Develpment Restrictins As stated in the Amended Cmprehensive Plan, at least 80 percent f the nnresidential cnstructin and 100 percent f all majr infrastructure must be cmpleted during Phase 1 befre the next phase can be initiated. That means that at least 80 percent f all ffice space has t be ready fr ccupancy in rder t begin Phase 2. This cnditin f cmpletin refers nly t cmmercial develpment. Presumably, residential unit cmpletin rates are nt a cncern because the Cunty wants t ensure that cmmercial develpment is cnstructed t ffset the net fiscal cst f residential develpment. Therefre, Phase 2 culd be initiated even if prjected residential develpment is nt cnstructed in Phase 1. Land Dedicatin and Cnveyances As part f the prffer statement and cnsistent with the Amended Cmprehensin Plan, the Army agreed t dedicate t Fairfax Cunty 215 acres f the Acctink Creek valley fr an envirnmental quality crridr; 45 acres t the Fairfax Cunty Park Authrity fr parks and ther uses, including 25 acres fr such revenue-generating use as a stadium (the site is being cnsidered fr use as a baseball stadium); 25 acres fr schl/yuth sprts cmplex site; 2 acres fr fire and rescue statins; and right-f-way fr transprtatin facilities, mstly the Fairfax Cunty Parkway, estimated t be 76 acres n a map submitted by the Army cnsultants t Fairfax Cunty in January 1995. (The final number f acres required fr right-f-way will nt be determined until the mnitring and evaluatin prcess is cmpleted at the end f each develpment phase.) The amunt f dedicated land culd ttal up t 363 acres, r as much as 44 percent f the grss land area, depending n right-f-way needs. As nted earlier, thse land dedicatins have n impact n allwed maximum density fr the site, which was based n the grss density f 805 acres. The Army als agreed t dedicate the specified land, free f envirnmental hazards, within 60 mnths after Fairfax Cunty apprves the rezning 6 Service level "D" means that "at an intersectin there is a delay f 25 t 40 secnds per vehicle. The influence f cngestin becmes nticeable; lnger delay may result." In general, service level "D" is the minimum design standard acceptable t Fairfax Cunty. 2-8
applicatin. These land dedicatins are independent f ther activities. Fr example, even if n cnstructin fr Phase 1 were t take place within the first 60 mnths, land dedicatin wuld prceed unless Fairfax Cunty agreed t a delay. STATUS OF EPG DEVELOPMENT PLAN Fairfax Cunty Review and Apprval In Nvember 1991, the PM, NCR submitted t Fairfax Cunty a "cnditinal density prpsal" fr the develpment f the EPG site. During subsequent discussins with the Cunty, the PM indicated that the Army intends t enter int a "residual value lease" agreement with the develper(s) selected t implement the EPG plan. This agreement wuld require that the Army pay rent fr the amunt by which the cst f imprvements exceeds the value f the land. 7 In respnse t that submissin, the Fairfax Cunty Office f Cmprehensive Planning asked TAI Realty Advisrs t cnduct a market study and a feasibility analysis f the EPG develpment prpsal. Fllwing the cmpletin f the cnsultant reprt and a review by Cunty staff, Fairfax Cunty amended its Cmprehensive Plan t accmmdate the prpsed EPG plan. As part f this prpsed site plan mdificatin, the Army made several cmmitments, such as t dedicate a substantial share f EPG land, t design and cnstruct a peplemver transit system and t develp strategies that wuld result in 40 percent f the emplyees arriving by means ther than single-ccupancy vehicles. 8 That submissin cnstituted the basis fr amendments t the Fairfax Cunty Cmprehensive Plan t allw nnresidential develpment at the EPG site. The Cmprehensive Plan, which includes the Army cmmitments nted abve, was apprved in February 1994. Rezning Applicatin Fllwing the apprval f Cmprehensive Plan revisins in 1994, the Army and Fairfax Cunty began discussins n the submissin f a rezning applicatin. Their discussins, which began in March 1994, have cntinued. The size f the develpment dictates ther infrastructure imprvements and site imprvements that are required t get rezning apprval frm Fairfax Cunty. In January 1995, Fairfax Cunty received an initial draft f the transprtatin study prepared fr the Army by cnsultants. That study fcuses n traffic mdeling factrs, trip generatin factrs, and trip distributin. The rezning applicatin review cannt be cmplete until the transprtatin study is essentially cmplete. In additin, Fairfax Cunty was als given an initial draft f prffers. The 7 The ability fr the Army t enter int a "residual value lease" agreement has since been questined. 8 Office f Cmprehensive Planning, Fairfax Cunty, Va., Francnia-Springfield Area Plan, February 1994. 2-9
rezning applicatin was scheduled t be heard by the Fairfax Cunty Planning Cmmissin in May 1995, but the hearing is likely t be delayed. NEXT STEPS An applicatin fr rezning f a large site with multiple land uses, such as the EPG site, typically takes the Cunty staff up t six mnths t review. As f mid-january 1995, the Cunty had nt received all f the necessary data, s, it is uncertain whether the currently scheduled May 1995 date fr the Planning Cmmissin t hld public hearings n the rezning applicatin can be met. The Fairfax Cunty Bard f Supervisrs usually acts n rezning abut six weeks fllwing the Planning Cmmissin recmmendatin. Prffers have t be signed by the applicant befre the Fairfax Cunty Bard f Supervisrs will apprve the rezning applicatin. Fllwing the apprval f the rezning applicatin by the Bard, the Army wuld presumably issue an RFP that wuld incrprate the cnditins and terms f the rezning and request respndents t specify hw much ffice space the Army culd expect t receive. Initiating an RFP prir t rezning apprval wuld be premature, as ptential develpers culd nt estimate the net the value f the land withut detailed knwledge f the prffers. 2-10
CHAPTER 3 Market Analysis f Planned EPG Land Uses Determining the ecnmic feasibility f develping the EPG site requires an analysis f the cmpetitive market fr the prpsed land uses in this case, an evaluatin f the demand fr ffice space, husing, htels/mtels, and retail space at the EPG site given market cnditins in the area as a whle. In this chapter, we fcus n the ffice space market; ffice space (cmmercial and Army) accunts fr 48 percent f the space t be cnstructed at the EPG site, and it is the land use mst affected by changes in ecnmic cnditins. We als briefly discuss the markets fr husing, htels/mtels, and retail space. Husing accunts fr 40 percent f the space t be built at the EPG site, and htels/mtels and retail space tgether accunt fr the remaining 12 percent. OFFICE SPACE In ur analysis f the demand fr ffice space at the EPG site, we define the market area, characterize the current ffice market, and evaluate alternative estimates f market demand. 1 We then estimate the share f the ffice market that the EPG develpment is likely t capture. Market Area The definitin f an ffice market area depends n the characteristics f the businesses seeking space. A few business firms have n predetermined preference fr a site; they select a lcatin n the basis f such factrs as business climate, residence f the business wner, and quality f schls. Mst firms, hwever, have a particular area in mind when seeking ffice space: a business dealing primarily with a particular Federal agency prefers t lcate clse t that agency, cmpanies that interact clsely with the Department f Defense prefer t be within 30 minutes f the Pentagn, medical ffices prefer t lcate near majr hspitals, and law firms seek ffices near curts. Firms are als attracted t sites that already have a cncentratin f ffice space. This agglmeratin effect is partially the result f a preference t be clse t ther firms perfrming similar r cmplementary functins. Fr example, financial services firms and law firms tend t cluster. Tysns Crner in Fairfax lr rhe demand fr ffice space excludes Army rent-free space; it is limited t space that the private develper must lease. 3-1
Cunty and Rsslyn in Arlingtn Cunty are examples f ffice cncentratins in Nrthern Virginia. The EPG site is within the Springfield ffice submarket f Fairfax Cunty, as defined by the Fairfax Cunty Ecnmic Develpment Authrity (FCEDA) and a private real estate firm. The Springfield ffice submarket cmprises small ffice buildings clustered near Interstate 95. The cnstructin f a metr statin t serve Springfield, which is clse t the EPG site, shuld imprve accessibility and increase the likelihd f attracting firms that are cnsidering lcating within Fairfax Cunty. Market Characteristics The Fairfax Cunty ffice market is diversified. It includes small, ne- and tw-stry ffice buildings as well as large, multistry, high-quality ffice cmplexes. The fllwing subsectins discuss the current and planned ffice inventry (in terms f square ftage), the vacancy rates, and the lease rates fr ffice space in Fairfax Cunty as a whle and in the Springfield submarket. Each f thse factrs affect the demand fr ffice space. The PM's study cnsiders Fairfax Cunty the apprpriate market area frm which EPG wuld draw ccupants. The Cunty ffice market is subdivided int smaller areas f ffice cncentratin, called submarkets. Mst submarkets are identified by a majr rad cmplex r a mass transit statin. Fr this analysis, we cnsidered Fairfax Cunty t be the market area even thugh this apprach prbably verstates the demand. CURRENT AND PLANNED INVENTORY In mid-1994, the Fairfax Cunty inventry f ffice space exceeded 74 millin square feet. Table 3-1 shws the distributin f that space amng Cunty submarkets. The tw largest submarkets are Tysns Crner and Restn; tgether they accunt fr 44.7 percent f the ttal inventry. The Springfield submarket (the submarket that includes the EPG site) ranks eighth in size, accunting fr 3.9 percent f all ffice space in the Fairfax Cunty inventry. An additinal 40 millin square feet f ffice space are planned (assuming a market demand) in Fairfax Cunty. Nearly 60 percent f that space will be built in Tysns Crner, Restn, Merrifield, and Fairfax Center. The Springfield submarket accunts fr nly 2.7 percent, r 1.1 millin square feet, f the planned ffice inventry (excluding ffice space planned fr the EPG site). VACANCY RATE The Fairfax Cunty vacancy rate in mid-1994, as cmputed by FCEDA, was 11.8 percent. At that time, 8.5 millin square feet f ffice space were available fr rent (Table 3-1). Nearly half f that space was in Tysns Crner and Restn. 3-2
The Springfield submarket had 600,000 square feet f ffice space available fr rent, r a vacancy rate f abut 21 percent. Table 3-1. Fairfax Cunty Office Market Characteristics 1994 inventry Planned space Submarket Square ftage (millins) Percentage f ttal Square ftage (millins) Percentage f ttal 1994 available space (millin sq. ft.) Tysns Crner 21 28.2 6 15 2.5 Restn 11.9 16.0 7.9 19.7 1.5 Merrifield 6.8 9.2 5.1 12.7 0.5 Fairfax Center 6.1 8.2 4.6 11.5 0.8 Herndn 4.5 6.0 3.1 7.7 0.6 Baileys Crssrads 3.4 4.6 0.5 1.2 0.3 McLean 3.2 4.3 0.2 0.5 0.2 Springfield 2.9 3.9 1.1 2.7 0.6 Vienna 2.6 3.5 1.6 4.0 - Dulles 2.5 3.4 3.3 8.2 0.3 All thers 9.5 12.7 6.7 16.8 1.2 Ttal 74.4 100.0 40.1 100.0 8.5 Surce: FCEDA Business Reprt Midyear 1994 Real Estate Market Review. LEASE RATES The FCEDA estimated that mid-1994 full-service lease rates fr ffice space in Fairfax Cunty ranged frm $9.50 t $29.50 per square ft. Table 3-2 shws the ranges f lease rates in each submarket fr 1993 and 1994. The rents at the lw end f the market ranged frm $8.00 t $12.00 in 1993 and frm $9.50 t $14.50 in 1994. At the high end, rents ranged frm $18.00 t $29.50 in 1993 and frm $16.00 t $29.50 in 1994. Restn had the highest rent ($29.50), and Tysns Crner had the next highest ($26.00 in 1994, a reductin frm $28.00 in 1993). The rents in the Springfield submarket were relatively lw, ranging frm $9.65 t $18.00. A smewhat different estimate f lease rates was made by Smithy-Braedn, a majr, private real estate firm. 2 That firm estimated that, in the third quarter f 1994, rents in Fairfax Cunty averaged $15.33 per square ft. Bth the FCEDA and Smithy-Braedn calculated lease rates frm asking prices. 3 The 2 Smithy-Braedn Third Quarter 1994 Market Reprt. 3 Typically, actual lease payments are smewhat lwer than the full-service asking price as a result f discunts and ther reductins ffered as inducements fr lngerterm leases. 3-3
Table 3-2. Full-Service Office "Lease Rates in Fairfax Cunty, by Submarket ($ per square ft) Mid-1994 Majr submarket Mid-1993 Range Midpint Tysns Crner 11.00-28.50 14.50-26.00 20.25 Restn 11.00-29.50 10.50-29.50 20.00 Merrifield 12.00-21.00 13.00-21.50 17.25 Fairfax Center 9.00-20.00 9.50-17.50 13.50 Herndn 8.00-26.50 10.00-22.50 16.25 Baileys Crssrads 9.00-22.50 10.00-21.50 15.75 McLean 10.00-20.00 13.50-20.00 16.75 Springfield 10.00-18.00 9.65-18.00 13.83 Vienna a 10.00-18.00 14.00 Dulles 12.00-19.75 11.75-16.00 13.88 Surce: FCEDA Business Reprt Midyear 1993 and Midyear 1994 Real Estate Market Review. " Lwer range includes net lease rates and is therefre excluded. variatin between the estimates may be attributable t differences in the definitin f "asking price" and differences in the ffice inventry data base. The U.S. Army Engineer District, Baltimre, estimated that rents in Fairfax Cunty fr Class A 4 full-service ffice space in 1994 ranged frm $13.00 t $24.00 per square ft. 5 The highest rent range fr Class A ffices was in Restn ($16.00 t $24.00); in the Springfield submarket, the rent fr quality space ranged frm $15.00 t $16.00 per square ft. Taking int accunt the varius estimates, we assume, fr purpses f this reprt, that ffice rents in Fairfax Cunty during 1994 averaged $15.00 t $17.00 per square ft. Prjected Demand fr Office Space Frm the perspective f financial institutins, expected demand fr new space is a majr criterin in determining whether a speculative building shuld be financed. Future demand fr ffice space depends n several factrs. The mst imprtant variable is emplyment grwth in sectrs that use ffice space business, financial, persnal service, gvernment service, etc. (Trade 4 Office space is usually gruped int three classes: A, B, and C. Class A is cnsidered prime, high-quality space and is leased at higher rates than ther ffice buildings. 5 Appraisal f Engineering Prving Grunds, Springfield, Va., U.S. Army Engineer District, Baltimre, January 1995. 3-4
and manufacturing accunt fr mst nnffice emplyment.) In Fairfax Cunty, an estimated 60 percent f all new jbs will be in sectrs ffering ffice emplyment. Since 1990, Cunty rents have been relatively stable because f a surplus f unleased space. The weighted average rent, based n FCEDA data, was abut $17.43 per square ft in mid-1994. As shwn in Table 3-3, average rents remained essentially unchanged frm mid-1993 t mid-1994. Table 3-3. Average Full-Service Office Lease Rates in Fairfax Cunty ($ per square ft) Year Average lw rent Average high rent Average midpint rent Average rent in highest quartile a 1993 1994 b 10.71 11.95 23.97 22.91 17.34 17.43 20.59 20.13 "Assumes nrmal distributin. b Data available fr first half f the year nly. A secnd factr affecting the prjected demand fr ffice space is the amunt f space allcated t each emplyee. Space allcatin can be attributed in part t industry characteristics. Fr example, medical ffices require mre space than real estate firms. Rent levels als affect space allcatin. As rents rise, businesses becme less willing t allcate a higher share f all revenue fr space; cnversely, when rents are relatively lw, businesses allcate mre space t their emplyees. Fr example, the typical ffice wrker in Manhattan, N.Y., has substantially less space than a wrker in the Washingtn, D.C., suburbs, where rents are ne-half f the New Yrk average. We fund that, in Fairfax Cunty between 1987 and 1993, the amunt f space allcated t each emplyee averaged 298 square feet. 6 The third factr affecting the demand fr new ffice space is the rate at which ld ffice buildings are being demlished r cnverted t anther use. In Fairfax Cunty, that factr is negligible, at least in the shrt run, because mst ffice space is less than 15 years ld. The apprach used by the PM t estimate the future demand fr ffice space in Fairfax Cunty was t prject emplyment levels and then t apply the tw primary factrs affecting the demand fr new ffice space in Fairfax Cunty: the percentage f ffice-related jbs and the amunt f space allcated per emplyee. Assuming mderate grwth, the 1990 PM's study estimated that the emplyment level wuld increase by 121,900 emplyees frm 1995 t 2000, by 6 The PM's analysis estimates 290 square feet per emplyee n the basis f ffice emplyment changes during the 1980s. The slight increase is prbably attributable t a relative decline in ffice rents between 1989 and 1993 (see the appendix). 3-5
133,700 emplyees frm 2001 t 2005, and by an additinal 140,900 wrkers between 2006 and 2010. (See Table 3-4.) Assuming that 60 percent f all emplyment is ffice related and that each new emplyee wuld require 290 square feet f space, the PM's study cncluded that Fairfax Cunty wuld need t add 4.2 millin square feet f ffice space annually between 1995 and 2000. The annual requirement fr new space wuld increase t 4.9 millin square feet between 2005 and 2010. (As a frame f reference, the PM's prjectin f annual demand exceeds the highest histrical level f new leased space in Fairfax Cunty 3.9 millin square feet, which was reached in 1986. The annual amunt f new leased space in Fairfax Cunty during the 1980s averaged 2.5 millin square feet.) Table 3-4. 2990 Prjectin f Demand fr Office Space in Fairfax Cunty (thusands) Time perid Ttal number f new emplyees Ttal number f new ffice emplyees 3 Annual increase in ffice emplyees Annual space requirement (sq. ft.) b 1995-2000 2001-2005 2006-2010 121.9 133.7 140.9 73.1 80.2 84.5 14.6 16.0 16.9 4,234 4,640 4,901 Surce: Preliminary Market Analyses Engineering Prving Grunds prepared fr U.S. Crps f Engineers, Baltimre District, April 1990 (Mderate Grwth Rate Assumptin). Assumes 60 percent f ttal emplyment grwth is in sectrs using ffice space. 'Assumes 290 square feet per emplyee. Because the estimates f the future demand fr ffice space were utdated, LMI recalculated the prjectins using the PM's apprach. Our prjectins were based n the latest available emplyment estimates derived by the Washingtn, D.C., area Cuncil f Gvernments (COG) in cperatin with Fairfax Cunty. The results are shwn in Table 3-5. Table 3-6 cmpares the 1990 PM prjectins with the current prjectins. Althugh the same apprach was used, the difference between the tw prjectins is substantial. The 1990 PM estimate exceeds current estimated annual demand fr new ffice space by abut 46 percent fr the 1995-2000 time perid and by 68 percent fr the 2006-2010 time perid. Tw factrs explain the difference. First, the PM prjectins were based n the high emplyment rates achieved in the late 1980s instead f n reginal frecasts. After the PM made thse prjectins, emplyment rates were reduced as a result f the 1990-1992 ecnmic dwnturn in the regin. Secnd, PM prjectins fr 1995-2000 were based n a 4.5 percent annual emplyment grwth rate, which exceeded COG frecasts. Because the lwer prjectins are mre realistic, we use them as a basis fr assessing the market share that the EPG site must capture. 3-6
Table 3-5. Current Prjectin f Demand fr Office Space in Fairfax Cunty (thusands) Time perid Ttal number f new emplyees Ttal number f new ffice emplyees 3 Annual increase in ffice emplyees Annual space requirement (sq. ft.)» 1996-2000 73.7 44.2 8.8 2,552 b 2000-2005 55.8 33.5 6.7 1,943 2006-2010 44.7 26.8 5.4 1,566 2011-2015 32.3 19.4 3.9 1,131 Surce: Fairfax Cunty Planning Department. Fairfax Cunty Emplyment Sectrs, Nvember 17,1993. a Assumes 60 percent f ttal emplyment grwth is ffice related. "Ttal annual demand shuld be reduced by 250,000 in this time perid t allw fr absrptin f existing available space. Thus, new 1995-2000 demand is 2.3 millin. Table 3-6. Cmparisn f Office Space Demand Prjectins Time perid Annual space requirement (000 sq. ft.) PM 1990 Current Percentage difference 1995-2000 4,240 2,300 45.7 2001-2005 4,653 1,943 58.2 2006-2010 4,901 1,566 68.0 Surce: Tables 3-4 and 3-5. Estimated EPG Market Share A crucial factr in determining the ecnmic viability f cnstructing an ffice cmplex in a cmpetitive market is the ability f that cmplex t capture a large enugh share f that market t fill the planned space. Fr the EPG cmplex, the plan in Phase 1 is t build abut 2 millin square feet f ffice space, r sme 410,000 square feet per year. As shwn in Table 3-5, the Cunty-wide annual net demand fr ffice space fr the next five years, adjusted t allw fr the absrptin f existing available space, is estimated t be 2.3 millin square feet. Assuming that it can cmpete fr all new ffice space demand in Fairfax Cunty, the EPG cmplex wuld have t capture 17.8 percent f the market in the 1996-2000 perid, 16.1 percent in the 2001-2005 perid, and 20.9 percent in the 2006-2010 perid (see Table 3-7). Thse capture rates are substantially higher than thse prjected in the 1990 PM's reprt, primarily because the ttal demand fr ffice space in Fairfax Cunty has been shwn t be cnsiderably 3-7
lwer than was estimated in 1990. We believe that the true capture rates wuld have t be even higher because it is unlikely that the EPG cmplex wuld be cmpetitive with all f Fairfax Cunty. One reasn fr limited cmpetitiveness is that the EPG cmplex is nt in a prime lcatin. Anther reasn is that EPG ffice rents are expected t be substantially higher than the estimated Fairfax Cunty average f $16 t $18 per square ft in 1995. Typically, lease rates in new buildings exceed the average f all rents, in part because tenants prefer the amenities available in a new building. Table 3-7. Estimatin f Required EPG Capture Rate f New Office Demand in Fairfax Cunty Measure 1995-2000 2001-2005 2006-2010 Annual new Cunty demand (000) a 2,300 1,943 1,566 Annual EPG space (000) 410 313 325 EPG space as percentage f Cunty demand EPG space (less anchr tenant space) 6 as percentage f Cunty demand 17.8% 16.1% 20.8% 7.4% 16.1% 20.8% a Frm Table 3-6. "Assumes anchr tenant will ccupy 1.2 millin square feet, r 240,000 square feet annually, in 1996-2000 time frame. The estimated average Fairfax Cunty lease rates frm published reprts are cnsistent with the Baltimre District appraisal, which estimated Fairfax Cunty Class A full service rents t be between $13 and $24. In the Springfield submarket, lease rates fr Class A space negtiated in late 1994 averaged between $15 and $16 per square ft. The appraisal assessed full service rentals in the immediate EPG market and states that "we cncluded (fr EPG) a market rental f $16 per square ft, assuming a building f cmparable quality was cnstructed." 7 Lease rate estimates derived frm several surces fr Fairfax Cunty and the Springfield submarket are cmpared in Table 3-8. These rates are als cmpared t expected lease rates at the EPG site in 1998. The cmparisns shw a wide gap between the estimated 1995 and 1998 lease rates and the lease rates necessary at the EPG site t prvide the Army the quantity f rent-free space required t meet their needs. Specifically, there is a difference f $9, r 52 percent, between the EPG lease rates prjected in the Baltimre District appraisal and the lease rates prjected by the PM applying 1990 values. The difference using LMI1994 values is 64 percent. 'Appraisal f Engineering Prving Grunds, Springfield, Va., U.S. Army Engineer District, Baltimre, January 1995. 3-8