Rosslyn Sector Plan Update Highway Air Rights … Sector Plan Update Highway Air Rights ... In terms of project feasibility, the scope of this study includes ... Redevelopment District

D R A F T | J a n u a r y 1 3 , 2 0 1 5 P a g e 1 | 35

A r l i n g t o n C o u n t y a n d G o o d y C l a n c y

Rosslyn Sector Plan Update

Highway Air Rights Development Feasibility Study

A. Introduction and Summary of Findings

Virginia’s Exploration of Potential Air Rights Development in Rosslyn

In July 2013, the Commonwealth of Virginia’s (“Commonwealth”) Office of Transportation Public

Private Partnerships (“OTP3”) and the Virginia Department of Transportation (“VDOT”) issued a

Request for Information (“RFI”) to solicit feedback from development teams regarding potential

Air Rights development projects in Arlington County.1 One of the two potential project sites

OTP3 identified for potential Air Rights development in the County included properties in

Rosslyn along Interstate 66 (“I-66”). OTP3 received responses from six developers, two

consultants, and three single-interest entities, on the range of topics presented in the RFI,

including:

Background information and respondents;

Key due diligence items to be considered;

Preferred transaction structures; and

Opinions on specific sites with regard to site viability, platform size, financial and

technical feasibility, and perceived risk.

All six developer responses stated an interest in Air Rights development on the Rosslyn site,

while including a variety of information addressing the topics above. However, private

development comprising the range of scale and program envisioned in the responses to the RFI

would not currently be permitted under Arlington County’s current General Land Use Plan and

existing zoning designations for the sites.

Meanwhile, at the time the RFI was issued, the County was leading a community planning

process to update the Rosslyn Sector Plan. Generally serving as a guide for future development

and public investment over the next twenty years, the Rosslyn Sector Plan Update could present

an opportunity, if warranted, to include planning guidance for the potential Air Rights

development locations. Such guidance on potential Air Rights development in Rosslyn could be

warranted if: 1) there was sound planning rationale for encouraging development in these

locations and 2) it was generally understood that such development would be economically

feasible in the foreseeable future.

1 The issuance of this RFI followed OTP3’s commissioning of a development feasibility analysis completed

by JLL.



Purpose of this County Study of Air Rights Development

Given the developer responses to the Commonwealth’s RFI indicating interest in air rights

development in Rosslyn, the County initiated its own study of potential air rights development.

The County retained a multi-disciplinary consultant team led by Goody Clancy to support the

RealizeRosslyn planning process with an analysis of development feasibility of four potential air

rights parcels over Interstate 66 in Rosslyn2. This study builds upon recent explorations of

potential air rights development conducted by OTP3 and its partners, and aims to better

understand the economic prospects, planning opportunities and implications, and other factors

related to such development. Several key County objectives of this study include:

Determining whether Air Rights development is, or will soon be, economically

feasible, taking into consideration reasonable contributions to the Commonwealth

(for payment of land) and County (for anticipated community benefits);

Whether important planning goals could be achieved through Air Rights

development above I-66 in Rosslyn;

Whether such goals should be pursued through future processes to consider

amendments to adopted County plans and rezonings to certain properties that

would be required to permit such development; and

While not including a detailed market analysis, qualitatively assessing current and

anticipated market conditions in Rosslyn to better understand overall feasibility of

potential air rights projects.

In addressing these items, this report will help inform recommendations as to whether or not the

County should expend resources as part of Realize Rosslyn to conduct detailed planning for air

rights development in Rosslyn. If potential air rights development in Rosslyn is found to be

economically feasible in the immediate future, that may suggest addressing these sites in

significant detail as part of Realize Rosslyn. Alternatively, if air rights development in Rosslyn

appears to be economically infeasible for the foreseeable future, it may suggest that detailed

planning for it should be deferred until the next update to the Rosslyn Sector Plan.

In terms of project feasibility, the scope of this study includes an evaluation of the economic

feasibility of potential air rights development projects based purely on anticipated financial

return. In doing so, it examines anticipated costs and revenues of a potential project as they are

currently understood in an attempt to determine whether a potential development project would

be viewed as being feasible enough to continue to pursue. However, a market demand analysis is

2 The team includes W-ZHA, LLC which provides real estate advisory services and Kittelson & Associates,

Inc. which provides transportation planning services.



not included as part of the study, and therefore, this report does not directly address questions of

market feasibility. Therefore, in the event that a project is found as economically feasible, it may

not necessarily mean the project is likely a development someone would build in a defined

timeframe, if the market doesn’t support it. This is an important caveat that applies to the study’s

findings for all four sites evaluated for potential air rights development in Rosslyn.

Study Sites

As expressed in the RFI, OTP3 and VDOT requested information from the development

community for four specific sites generally within the Rosslyn Metro Station. These four sites are

depicted in the map of the Rosslyn Coordinated Development District and Air Rights

Development Study Sites provided in Figure 1. Site 1 is located immediately east of the N. Lynn

Street bridge over Interstate 66, between the westbound and eastbound ramps connecting with

Lee Highway. Site 2 includes the portion of the highway generally located east of Arlington Ridge

Road. Site 3 includes the westernmost portion of the western half of Gateway Park, and might

envision potential development along this segment of N. Nash Street. Finally, site 4 is located

west of N. Nash Street, between the westbound and eastbound travel ways of Lee Highway.



Figure 1: The four potential air rights development sites identified by OTP3. They are situated between central Rosslyn and the Potomac River landscape, and are typically within a 5-10 minute walk of the Rosslyn Metro station.

Central Rosslyn’s Existing Development Context

The four sites examined for potential air right’s development are generally located north or east of

the Rosslyn Coordinated Development District, and within the northeastern limits of the Rosslyn

Metro Station Area. Since the 1960s, the County has established and updated a planning and

zoning framework for Rosslyn making it one of the most highly concentrated areas of activity in

Arlington. As of July 2014, Rosslyn included nearly 8.5 million square feet of office space, more

than 7,000 residential units, more than 2,100 hotel rooms, and more than one-half million square

feet of retail. These uses were all included within its 288 acres of land area.



Beyond existing development, there are several development projects that are currently under

construction, approved but not yet built, or undergoing the County’s formal development review

process. Taken together, this total pipeline development potential could add another net new 2.5

million square feet of office space, 1,600 residential units, 316 hotel rooms, and 131,000 square feet

of retail space. Although much of this development would occur within the Rosslyn Coordinated

Redevelopment District closest to Metro, these figures apply to existing and potential

development across the entire Rosslyn Metro Station Area,

Collectively, the net new development reflected in the pipeline totals more than 4,000,000 square

feet across all uses. However, given historic absorption rates and anticipated market demand, it

may take some time for all of this development to be realized. Current office vacancy rates in

Rosslyn are estimated in the range of 22-30%, compared with 6-7% rates just a few years ago.

These levels may have an impact on when developers make the decision to move forward with

already entitled projects, which sometimes already entail a number of years between entitlement

and construction. For example, the recent groundbreaking for construction of the residential and

office towers at Central Place will likely make the buildings ready for occupancy in 2017 and

2018, nearly a decade after they were approved by the County Board. While it may take time for

the Rosslyn market to absorb already approved projects in addition to future development

proposals that have yet, Rosslyn should remain very competitive in the regional marketplace and

should realize this development in the future.

Framing Questions and Summary of Findings

This analysis follows previous studies conducted by OTP3 and its team, and provides the County

with its own evaluation of potential air rights development in Rosslyn within the broader context

of the ongoing RealizeRosslyn planning process. A set of specific questions were developed to help

guide the study. The framing questions (and corresponding responses) for this analysis, which

encompass issues of physical development, feasibility parameters, and high-level transportation

issues, include:

Rosslyn MSA (Includes RCRD), Development Characteristics

Office (sq ft) Retail (sq ft) Other (sq ft) Hotel Rooms Residential Units

July 1, 2014 Base 8,477,674 557,289 164,504 2,141 7,063

Projects Under Construction (NET) 1,090,588 55,574 30,103 - 374

Approved Projects (NET) 360,171 5,772 - 316 772

Projects Under County Review (NET) 1,093,910 69,678 (9,440) - 454

Total Development in Pipeline (NET) 2,544,669 131,024 20,663 316 1,600

as percent increase over 2014 Base 30.0% 23.5% 12.6% 14.8% 22.7%

Source: CPHD, Planning Division



1) In terms of development feasibility, will air rights development in Rosslyn be

economically viable over the next 20 years? In the next 40 years? Beyond?

o W-ZHA’s analysis tests economic feasibility only. The analysis assumes there is

market to support air-rights development. In reality, project feasibility requires that

both market and economic forces align to generate sufficient investment return to a

developer.

o W-ZHA’s analysis applies assumptions that are relevant in today’s market and

economic environment. Today we are in an environment with historically low interest

rates. If interest rates increase, investment hurdle rates will increase thus putting more

pressure on rents. With this in mind, the conclusions below are likely optimistic, not

conservative.

o Given the assumptions, W-ZHA concludes that air rights development that is

exclusively developed on a newly constructed platform is likely not feasible for at least

20 years (sites 1, 2 and 4 independently). To be economically feasible each of the

alternatives would require rents to be 13 to 20 percent higher (net of inflation) than

they are today.

o On Gateway Park (site 3) the platform development costs are assumed to be less

because there is an existing platform. W-ZHA concludes that office development on

Gateway Park alone and/or in combination with Site 4, will likely be economically

feasible within a 20-year timeframe. Note: development on a portion of Gateway Park

would further limit the availability of park land in Rosslyn to serve recreational needs.

2) What are the likely significant costs associated with air rights development above

Interstate 66 in Rosslyn?

o Purchase of air rights development footprint from the State;

o Community benefit contributions to Arlington County;

o Platform development cost;

o Extended construction schedule to account for developing the platform, then

developing the land use - this will translate into higher finance costs;

o Increased risk associated with extended and complex development;

o Possibly, high infrastructure costs to integrate platform development with existing

infrastructure.

3) If found to be economically viable, what is the minimum amount of density/development

GFA assumed necessary to be built?

o This depends upon the land use and the platform configuration. It is likely that air

rights projects will require all of the development envelope allowed by assumed

height restrictions envisioned by the Metropolitan Washington Airports Authority.

Each of the scenarios tested maximizes the development capacity on the platform



given assumed height restrictions. FAR’s in these scenarios range from 5.8 FAR to 10

FAR.

4) If found to be economically viable, how much (if any) net value can the County expect to

be manifest as community benefits?

o Financially feasible private development projects will likely need to support both the

cost of the air rights access paid to the State as well as community benefits provided to

the County to mitigate the impact of the development, through existing or future

Arlington County zoning tools. Currently, the market value of density in Rosslyn is

$52.50 per FAR square foot of office, $75.00 per FAR square foot of residential, and

$65.00 per FAR square foot of retail. In zoning districts such as "C-O-Rosslyn" the

appraised market value of approved increases in density has been the typical tool to

determine the amount of the total, market-feasible community benefits contributions.

Local community benefits serve a specific purpose (mitigation of the impact of

density), are calculated through an appraisal and not competitive process, and are

most often paid only when a building is delivered, all of which is very likely different

than the disposition of air rights by the State that is akin to sale or land lease of a

development site. The method the State chooses to pursue when determining the

timing and value of the disposition of their air rights will have a significant impact of

the financial viability of negotiated community benefits contributions to the County. 5) What are the potential impacts of making available air rights development in Rosslyn on

the millions of square feet of development already entitled or under review in the core of

Rosslyn? And how might this potential air rights development have an effect on market

absorption in the larger Rosslyn submarket?

o A market analysis was not conducted as part of this work effort. However, from an

economic perspective, allowing air rights development may stall the redevelopment of

existing under-developed sites in the core of Rosslyn. Developers will go to locations

where the economic reward is highest. If air rights development is deemed a more

attractive investment location, allowing air rights development may have an impact on

the harder-to-develop core by reducing developer interest there. It is important to note

that the level of risk and complexity associated with air rights development greatly

compromises its attractiveness as a development option.

o It is unclear whether air rights projects will bring a different type of tenant into the

Rosslyn market or whether air rights development will simply be another location

option for the same market. In the former case, absorption may increase. In the latter

case, overall absorption will stay the same, but its location may shift to the air rights

locations instead of Rosslyn’s core.



6) What opportunities might potential air rights development present to advance established

County goals for Rosslyn, or those emerging from Realize Rosslyn?

o Increase economic development for Arlington County by capturing value from

currently underutilized land

o Reinforce Rosslyn’s market position and identity as a location for prime waterfront

views

o Add workers, residents, and/or visitors who can intensify use of adjacent park spaces

like Gateway Park and the planned Esplanade, making them more attractive

destinations for additional people.

o Improve existing walking connections to the Key Bridge, regional trail system, park

network, future boathouse, Esplanade

o Create new paths and/or public spaces over Interstate 66

o Reduce Interstate 66’s impact as a visual barrier that generates noise and pollution

7) What is the potential impact of an additional 4 to 5 million square feet of new air rights

development on the transportation infrastructure serving Rosslyn?

o Assuming on-site parking is provided as prescribed by current “C-O Rosslyn” zoning

requirements and fully utilized, traffic volumes would likely increase on key Rosslyn

streets such as North Lynn Street, Lee Highway, 19th Street, Ft Myer, and to a lesser

extent, Arlington Ridge Road and Wilson Boulevard. Peak hour volumes are already

high on N. Lynn, Lee, 19th, and Wilson so the location, magnitude, and timing of trips

from new development would require careful study and planning to be feasible.

o The proximity of these sites to the transit network will mitigate some of these impacts,

especially if a new station entrance is created along North Lynn Street near 19th Street.

Reducing the amount of parking provided and vehicle trips generated, in conjunction

with measures to encourage access on foot, transit, bike and/or shared vehicles, could

significantly enhance development feasibility from transportation and development

economics perspectives. However, reduced parking would also need to be acceptable

to potential business and residential tenants. Further market analysis and/or

discussion with developers should be pursued to confirm actual market-based parking

demand for these sites.

o Vehicular access to these sites is limited by their location over the highway, especially

for Site 1. Traffic entering and exiting Site 2 from 19th Street would have to cross the

planned multi-use Esplanade creating potential conflicts with pedestrians, bicyclists,

and other users. Sites 3 and 4 would benefit from access points using the one-way pair

of Lee Highway to the north and south side, by eliminating need for curb cuts along

Nash Street and thereby enhancing north-south walkability between Rosslyn, the site

and points north like the Marriott Hotel and Key Bridge.



Study Conclusions

In consideration of the results of this economic feasibility analysis and responses to the preceding

framing questions, this study concludes that the Rosslyn Sector Plan Update should include only a

brief section on potential air rights development above I-66 in Rosslyn. The sector plan should

reference air rights development as an item for potential future consideration, and may identify

broad planning goals the County would like to see advanced if air rights development in this area is

in fact pursued. This conclusion is supported by a number of factors, including:

In 1996, the County Board established the Rosslyn Coordinated Redevelopment District

(RCRD) to encourage the physical and economic development needed to maximize Rosslyn’s

potential to become a competitive first class urban center.

Since that time, public and private investments have made meaningful improvements in

central Rosslyn, through the addition of Class A office space, infusion of new residences and

hotel units, and key enhancements in public spaces and infrastructure.

In the face of challenges presented by current office vacancy rates above 25% in Rosslyn, the

County maintains its strong interest in advancing planning and development solutions that

will enhance, revitalize and energize Rosslyn’s core over the next 20 to 30 years.

More than 4,000,000 square feet of net new development is already in the pipeline (either

proposed, approved but not yet built, or under construction) for central Rosslyn, which if

completed, would present significant supply of new building space for some time while

contributing to significant progress towards the County’s goals for the area.

Over time, as fewer sites in the RCRD become available for redevelopment, air rights

development may emerge as more of a longer-term proposition to help continue Rosslyn’s

transformation into a great urban place.

In the near-term, any serious exploration of air rights development in Rosslyn may best be

reserved for a unique deal that could help implement immediate improvements to key public

realm elements, such as major improvements to Gateway Park, the existing highway deck,

and the Rosslyn Circle/northern gateway to Rosslyn environs, for example.

If air rights development is pursued in this manner by the Commonwealth and its partners,

the County would determine a special process to guide the community review and

evaluation before the County Board takes action on such a proposal.



B. Previous Feasibility Explorations

In the Fall of 2012, the Commonwealth of Virginia Office of Public Private Partnerships (OTP3)

and the Virginia Department of Transportation (VDOT) initiated an investigation of air rights

development feasibility over Interstate 66 in Rosslyn. As part of this initiative, VDOT contracted

Jones Lang LaSalle (JLL) to conduct a preliminary analysis on the financial feasibility of air rights

development over a portion of Interstate 66 (JLL Analysis). The question was whether private

development could pay the State an upfront payment in return for the State’s air rights. While

preliminary in nature, the JLL Analysis concluded that: “an Air Rights development at the Rosslyn

site would likely be feasible from a market standpoint, including the construction of the platform. However,

the project is not able to support the payment of an upfront “value” to VDOT [Virginia Department of

Transportation] for the Air Rights.”3

In additional to the JLL Analysis, OTP3 issued a Request for Information (RFI) from developers

regarding air rights development at the Rosslyn and East Falls Church Metro station areas.

Developers were asked to address questions like the optimum size of a platform to support

vertical development, estimated platform cost, and development viability. A number of well

qualified and experienced development companies responded to the RFI. Information from RFI

submissions was considered in W-ZHA’s Air Rights Development Economics Memorandum.

Review of findings

Arlington County retained W-ZHA to review the JLL Analysis and its assumptions in light of W-

ZHA’s prior research on development economics in Rosslyn. W-ZHA also reviewed the

responses to the State’s RFI regarding air rights development at the Rosslyn and East Falls

Church Metro station areas. Informed by their previous work, the JLL Analysis and the

information contained in the RFI responses, W-ZHA developed a new set of assumptions related

to air rights development economics. This analysis and its conclusions are contained in W-ZHA’s

Air Rights Development Economics Memorandum which is attached in Appendix A.

W-ZHA compared their initial analysis of Rosslyn development economics to JLL’s development

cost assumptions and operating assumptions. W-ZHA applied the assumptions contained in the

RFI responses to understand the JLL Analysis without the benefit of their financial model. For

platform cost, W-ZHA relied on information contained in the Monday Properties’ and the

Akridge Companies’ RFI submissions. For the most part, JLL’s assumptions are in line with W-

ZHA’s understanding of development economics. The assumptions regarding the cost to develop

3 Jones Lang LaSalle, Air Rights Development in Northern Virginia, February 4, 2013 Internal Draft.



the air rights platform differed, however. W-ZHA cost was higher at $550 per platform square

foot versus what W-ZHA interpreted the JLL assumption to be, $320 per square foot.

The JLL Analysis was preliminary in nature and was intended to determine whether there was

market and economic justification for VDOT to pursue air rights development over Interstate 66.

An important omission in the JLL analysis was Arlington’s practice of working with developers

of projects seeking densities above standard site plan base densities to negotiate a package of

community benefits to be provided to help ameliorate the adverse impacts of the additional

density. It is likely that air rights development will require that developers invest in community

improvements. Including community investments as part of a project’s development cost will

further challenge air rights development feasibility.

Based on W-ZHA’s understanding of Rosslyn market economics and the assumptions contained

within the JLL Analysis, W-ZHA concluded that the following development cost assumptions

(net of community investments) are reasonable for air rights development in Rosslyn: $418 per

gross square foot office, $491 per gross square foot retail, and $423 per gross square foot

residential. In addition to these costs, air rights development projects will likely be required to

invest in community improvements. These investments would be additional costs to

development. For additional detail, see the tables of assumptions in Section D.

The JLL Analysis assumed slightly higher operating costs per square foot as compared to W-

ZHA’s understanding of Rosslyn market economics. W-ZHA concluded that JLL’s assumptions

were reasonable but did not change its own operating cost assumptions. For additional detail, see

the tables of assumptions in Section D.



C. Development Scenarios for Analysis

Goody Clancy developed potential development scenarios to test the capacity of each air rights

site within the maximum building heights currently presumed by the Metropolitan Washington

Airports Authority to preserve safe departure procedures for flights departing from Ronald

Reagan Washington National Airport (DCA). (It should be noted that at the time of this report,

the Federal Aviation Administration has a proposed policy change pending to incorporate one

engine inoperative procedures into standard reviews of proposed structures. Any future outcome

of that process may yield adjustments to presumed building height limits for these, and other

sites).

Figure 2: The four potential sites (labeled with red numbers) with presumed maximum building height limits above mean sea level, or AMSL, (labeled in white) as provided by the Metropolitan Washington Airports Authority. View looks to south from above Key Bridge. Site information provided by VDOT.

The scenarios incorporate the following assumptions:

20’ minimum clearance of any structure above Interstate 66 travel lanes

4’ platform structure thickness supporting parking and the development above

Horizontal structural spans allow support columns to align with the edges and center median

of the highway

293’

284’

302’ 309’ 312’

325’

327’

333’

279’



13’ office floor-to-floor height and 11’ residential floor-to-floor height

20’ rooftop mechanical penthouse height

100’-120’ wide office buildings and 60’ wide residential buildings

1,100 sq. ft. per residential unit

Minimum on-site parking requirements (per “C-O Rosslyn” zoning district provisions): 1

space per 1,000 sq. ft. office; 1 space per residential unit; 2 spaces per 1,000 sq. ft. retail

The development program for Site 1 matches the JLL analysis in order to be directly comparable.

The program for the other sites is based on the capacity of each site given its unique physical

constraints. Two alternatives were considered for sites 3 and 4: development independent of one

another and joint development by a common owner. Joint development opens the possibility of

locating all of the parking for both sites on Site 4. This would allow for more development on Site

3 and eliminate the need for parking in the levels above the street.



Development scenarios for the four identified air rights sites were physically modeled using a 3D

computer model originally developed as part of the Realize Rosslyn process to update the

Rosslyn Sector Plan. Correspondingly, exhibits depicting potential air rights development

scenarios in this report also include building massing studies of potential development on other

sites throughout central Rosslyn. Plan and aerial views from this model are shown on subsequent

pages. All model studies depicted in this report should be considered preliminary and illustrative

only, and do not reflect specific recommendations for development on individual sites. Buildings

are colored in model views as follows:



Site 1

Site 1 is located along North Lynn Street at the I-66 ramps and east of Gateway Park. The

maximum height assumptions range from 309’ AMSL at Lynn Street to 302’ AMSL to the

southeast. The JLL analysis assumed a program of 460,000 sq. ft. office; 200 residential units; and

10,000 sq. ft. retail to reach FAR 10.0. The model assumes an office building along the North Lynn

Street bridge and a residential tower on the eastern end of the platform with a landscaped plaza

between them that serves as an amenity for office workers and residents. The plaza may be

connected to the public plaza at Waterview/Potomac Tower to the south and/or provide access to

the Mount Vernon Trail to the north.

Among the four study sites, this one has the most challenging vehicular access issues. Access

directly from the ramps is not feasible. Traffic signals at both ends of the bridge control flow

to/from the highway and cars frequently queue on N. Lynn Street particularly during morning

peak hours, making it an undesirable access point. One option would be to explore shifting the

western ends of the ramps eastward to create space for parking access from an extended Lee

Highway. The site benefits from being near a potential future Metro station entrance on Lynn

Street near 19th Street, adjacent to the planned Esplanade, and adjacent to existing regional trails

and bicycle paths, all of which would encourage reduced vehicular access in favor of walking,

bicycling, and transit.

Site 1: plan



Site 2

Site 2 is located at the eastern end of 19th Street and east of Arlington Ridge Road. The maximum

height limit assumptions are most restrictive for this site and range from 284’ AMSL at the south

to 293’ AMSL at the north. The program includes two office buildings totaling 566,000 sq. ft. and

220 residential units in two towers. Parking is concentrated in one large structure beneath the

northern office tower with a smaller structure within the southern office building. The proposed

18th Street corridor would extend across this site and link to the trail system to the east, and the

Esplanade would run parallel to this site along its western edge.

This site would be accessed from 19th Street, Arlington Ridge Road, and/or the lower Arlington

Ridge Road service drive envisioned as part of the Rosslyn Plaza redevelopment. Vehicular traffic

would come largely from Lynn Street and Wilson Boulevard. The site benefits from being near a

potential future Metro station entrance on Lynn Street near 19th Street and adjacent to the planned

Esplanade, both of which would encourage reduced vehicular use

Site 1: view from northeast

Waterview -

Office

Gateway Park

Potomac

Tower

Waterview -

Residential /

Hotel

(Height: 242’ ASE /

302’ AMSL)


297’ AMSL)



Site 2: view from east

Site 2: plan

Potomac

Tower

Waterview -

Residential /

Hotel


279’ AMSL)

(Height: 185’ ASE / 257’ AMSL)


283’ AMSL)

(one alternative explored

via Realize Rosslyn)

Rosslyn Plaza (one alternative explored via Realize Rosslyn)



Site 3

Site 3 is located at the western end of Gateway Park at Nash Street and would be built on top of

the existing platform structure (which may require reinforcing). Note that development on a

portion of Gateway Park would further limit the availability of park land in Rosslyn to serve

recreational needs. The assumption for maximum height on this site is approximately 325’ AMSL.

As part of this study, an independent development scenario was explored, comprising a 200,000

sq. ft. office building with 16,000 sq. ft. of ground-level retail and parking contained within the

floors immediately above street level. An alternative joint development scenario combining Sites

3 and 4 was also explored and modeled, and is ultimately illustrated in this report. In this

combined scenario, all parking would occur on Site 4, providing the potential for either a 280,000

sq. ft. office building (as modeled) or an 183,500 sq. ft. residential building, both with ground

level retail.

This site would greatly benefit from a pair of access points using the Lee Highway one-way pair,

one on the eastbound leg and the other on the westbound leg, to facilitate vehicular flow around

the site. Nash Street should not be an access point to preserve the improved pedestrian

environment that will be created with new development and active street-level uses to facilitate

north-south pedestrian access to and beyond the site. This site is adjacent to the planned

Esplanade which would run along the southern edge of the site and provide pedestrian and

bicycle access.

Site 4

Site 4 is located west of Gateway Park across Nash Street. The assumption for maximum heights

ranges from 327’ AMSL at Nash Street to 333’ AMSL at the western edge. The program includes a

309,000 sq. ft. office building with 4,000 sq. ft. retail along Nash Street. Parking is contained in a

structure within the lower levels of the building that extends west, and in the combined Site 3 and

4 scenario as modeled, would also include parking for Site 3. The parking levels within the

building should be designed to mitigate their visual impact using architectural panels, green

walls, public art, or some other strategy.

This site would greatly benefit from a pair of access points using the Lee Highway one-way pair,

one on the eastbound leg and the other on the westbound leg. This would facilitate vehicular flow

around the site. Nash Street should not be an access point to preserve the pedestrian environment

that will be created with new development and active street-level uses there. This site is further

from the Metro station than the others but is near the end of the planned Esplanade which would

stop at Nash Street.



Site 4 Site 3

Site 3

Site 4

Sites 3 & 4: view from northeast

Sites 3 & 4: plan

Key Bridge

Marriott

Highgate Townhomes


312’ AMSL)


322’ AMSL)



D. Economic feasibility

Assumptions

W-ZHA tested the financial feasibility of the air rights development scenarios presented in

Section C using assumptions that are based on the review of the JLL analysis. An underlying

assumption to the analysis is that there is sufficient market to support each development

program. In reality, project feasibility requires that market and economic forces align to generate

an attractive investment opportunity. The analysis assumes the following development costs for

office, retail and residential air rights development:

A lower platform cost ($300 per square foot) is used for Site 3 since its location on Gateway Park

would not require a new platform but would likely require the existing platform to be reinforced.

The analysis reflects the following operating costs for office, retail and residential air rights

development:

Office Retail Residential

Air Rights Platform (New) /Platform SF $550 $550 $550

Building

Hard Cost /GSF $175 $175 $220

Soft Cost 25% /GSF $44 $44 $55

Sub-Total /GSF $219 $219 $275

Tenant Allowance/Fit-Out /RSF $80 $75 $30

Hard Cost na

Soft Cost na

Parking Cost /Space /Space $40,000 $40,000 $40,000

Total Development Cost $388 $429 $392

Finance Fees and Interest /GSF $29 $63 $31

GRAND TOTAL /GSF $418 $491 $423

Source: W-ZHA

E:\ros air\[assumptions.xlsx]Sheet1

W-ZHA Final Development Cost for Air Rights Development

Rosslyn, VA



Both the State and the County will require economic consideration from air rights projects.

These projects will likely have to pay the State to obtain the air rights, and in addition will be

required by Arlington County to invest in community improvements above and beyond project

development costs in accordance with established County policy.

Specific payment amounts to the state and county have yet to be determined. For purposes of this

analysis, W-ZHA applied the fair market land values below to each FAR foot of air rights

development to estimate the cost of both air rights access and community investments. This cost

is treated as a development cost in the feasibility analysis.

To be financially feasible, a real estate project must generate sufficient income to justify the

investment. W-ZHA employed a yield analysis to determine air rights development feasibility.

The “yield” is simply the project’s net operating income divided by development cost. When the

yield is higher than the investor’s hurdle rate, the project may be worth pursuing.

Hurdle rates are a function of the cost of money, capitalization rates, perceived market risk and

investment risk. Each investor is different in terms of their access to capital and risk tolerance.

Therefore, hurdle rates vary depending on the investor. Hurdle rates also vary by land use.

Generally, hurdle rates today range from 6.25 percent to 9 percent depending on the land use.

These hurdle rates reflect historically low interest rates, strong market forces and conventional

development.


Rent /RSF $60.00 $35.00 $40.80

Vacancy Rate % of Rent 5% 7% 5%

Operating Expenses /RSF or /Unit $18.00 $0.00 $9,000

Parking NOI /Space /Mo $150 $150 $130

Source: W-ZHA

E:\ros air\[air rights 2.xlsx]Sheet5

Operating Assumptions for Air Rights Development

Rosslyn, VA


Fair Market Land Value /FAR Ft $52.50 $65.00 $75.00

Source: Arlington County; W-ZHA


Fair Market Land Values by FAR Ft by Land Use

Rosslyn, VA



W-ZHA has assumed that air rights projects must achieve a hurdle rate in excess of 9 percent to

attract private investor interest. This assumption takes into consideration that air rights

development will likely be perceived as more risky than conventional development because of its

complexity and extended construction period. This assumption also takes into consideration that

the cost of money (or interest rates) will likely increase in the future.



Findings

For each site below, the feasibility determination is presented followed by one table summarizing

the total project cost and another presenting the yield calculation (to determine whether the yield

exceeds the 9% hurdle rate). The evaluation of the two alternative joint development scenarios for

Sites 3 and 4 follow the evaluation of each site as an independent project. More detailed

information and additional tables are contained in W-ZHA’s Air Rights Feasibility Memorandum

which is attached in Appendix B.

Site 1

Given the development cost and operating assumptions, Site 1 air rights development is not

feasible in the near term. Rent would need to increase by 15 percent to achieve a 9 percent

investment hurdle rate (excluding financing). This translates into real rent growth (exclusive of

inflation) of 1.4% over 10 years or 0.7% over 20 years. Air rights development may be feasible in

the long term (20 years-plus).

Cost /GSF

Community Benefit Package $41,300,000 $59.86

Platform $37,950,000 $55.00

Building Cost $230,964,500 $334.73

Total Project Cost w/out Financing $310,214,500 $449.59

Financing Cost $29,229,520 $42.36

Project Cost with Financing $339,444,020 $491.95

Source: W-ZHA

E:\ros air\[Site 1 .xlsx]total cost

Total Project Cost

Site 1

Rosslyn Air Rights Feasibily Analysis



Sq Ft 220,000

Rentable Sq Ft 182,600

Rent $3.40

Vacancy 5%

Op Exp /Unit $9,000

Gross Revenue $7,450,080

Vacancy ($372,504)

Net Revenue $7,077,576

Operating Expenses ($2,052,000)

Net Operating Income $5,025,576

Sq Ft 460,000


Rent $60.00

Vacancy 5%

Op Exp /Sq Ft $18.00


Vacancy ($1,283,400)




Sq Ft 10,000

Rent $35.00 NNN

Vacancy 5%

Op Exp 0%

Gross Revenue $350,000

Vacancy ($17,500)

Net Revenue $332,500

Operating Expenses $0

Net Operating Income $332,500

Spaces 680 Residential 200

Mo Permit Rate $144 Office/Retail 480

Vacancy 0%


Vacancy $0

Net Revenue/NOI $1,176,000

Sq Ft 690,000


Vacancy ($1,673,404)




Yield Without Financing 7.5%

Yield With Financing 6.8%

Source: W-ZHA

E:\ros air\[Site 1 .xlsx]yield

Retail

Parking

Total

Investment Return

Net Operating Income and Yield


Office

Site 1

Residential

Target hurdle rate 9%



Site 2

Given the development cost and operating assumptions, Site 2 air rights development is not

feasible in the near term. Rent would need to increase by over 20 percent to achieve a 9 percent

investment hurdle rate (exclusive of financing costs). Site 2 is a long term (20 years-plus)

development proposition.

Cost /GSF


Platform $70,400,000 $86.65

Building Cost $273,004,875 $336.01


Financing Cost $36,635,247 $45.09


Source: W-ZHA


Total Project Cost

Site 2

Rosslyn Air Rights Feasibility Analysis



Sq Ft 246,000


Rent $3.40

Vacancy 5%

Op Exp /Unit $9,000


Vacancy ($416,527)




Sq Ft 566,500


Rent $60.00

Vacancy 5%



Vacancy ($1,580,535)






Vacancy 0%


Vacancy $0


Sq Ft 812,500


Vacancy ($1,997,062)






Source: W-ZHA


Parking

Total

Investment Return



Office

Site 2

Residential




Site 3

Given the development cost and operating assumptions, Site 3 air rights development may be

feasible within a 20-year timeframe. Real rent (net of inflation) would need to increase by 2

percent to achieve a 9 percent hurdle rate on development costs net of financing.

Cost /GSF


Platform $9,060,000 $41.94

Building Cost $72,610,000 $336.16


Financing Cost $9,682,110 $44.82


Source: W-ZHA

E:\ros air\[Site 3 Office.xlsx]total cost

Total Project Cost

Site 3 Office




Sq Ft 200,000


Rent $60.00

Vacancy 5%



Vacancy ($558,000)




Sq Ft 16,000

Rent $35.00 NNN

Vacancy 5%

Op Exp 0%


Vacancy ($28,000)




Spaces 232 Residential -


Vacancy 0%


Vacancy $0

Net Revenue/NOI $417,600

Sq Ft 216,000


Vacancy ($586,000)




Yield Without Financing Cost 8.8%

Yield With Financing Cost 8.0%

Source: W-ZHA

E:\ros air\[Site 3 Office.xlsx]yield

Retail

Parking

Total

Investment Return



Office

Site 3 Office




Site 4

Given the development cost and operating assumptions, Site 4 office development is not feasible

in the near term. Rent would need to increase by 13 percent to achieve a 9 percent investment

hurdle rate on cost excluding financing cost. Site 4 is a long term (20 years-plus) development

proposition.

Cost /GSF


Platform $25,300,000 $80.83

Building Cost $114,882,185 $367.04


Financing Cost $15,256,486 $48.74


Source: W-ZHA


Total Project Cost

Site 4 Office

Rosslyn Air Rights Analysis



Sq Ft 309,000


Rent $60.00

Vacancy 5%



Vacancy ($862,110)




Sq Ft 4,000

Rent $35.00 NNN

Vacancy 5%

Op Exp 0%


Vacancy ($7,000)






Vacancy 0%


Vacancy $0


Sq Ft 313,000


Vacancy ($869,110)






Source: W-ZHA


Retail

Parking

Total

Investment Return



Office

Site 4 Office




Sites 3 & 4: Alternative 1

Two alternatives were considered for sites 3 and 4 assuming joint development. The preceding

analysis assumed the sites would develop independently of one another. It is conceivable,

however, that due to their close proximity they would be controlled by one developer which

opens the possibility of locating all of the parking for both sites on Site 4. This would allow for

more development on Site 3 and eliminate the need for parking in the levels above the street.

Under the first alternative office space with ground floor retail is developed on both Sites 3 and 4

with parking for both buildings on Site 4. This allows an increase in the total amount of

development that fits within the physical constraints.

From an economic perspective, the alternative is not feasible today. Rents would need to increase

by 5 percent to achieve a 9 percent hurdle rate. This alternative may be feasible within a 20-year

timeframe.

Total Sq Ft 564,000

Gross Sq Ft Office 540,000

Rentable Sq Ft Office 502,200

Gross Sq Ft Residential 0

Rentable Sq Ft Residential 0

Gross Sq Ft Retail 24,000

Rentable Sq Ft Retail 24,000

Parking Spaces 588

Source: W-ZHA

E:\ros air\[Site 3 Office with site 4.xlsx]Sheet1

Building Program Assumptions


Site 3 Office with Site 4

Cost /GSF


Platform $36,560,000 $64.82

Building Cost $188,871,000 $334.88


Financing Cost $24,236,031 $42.97

Total Project Cost $279,577,031 $495.70

Source: W-ZHA

E:\ros air\[Site 3 Office with site 4.xlsx]total cost

Total Project Cost





Sq Ft 540,000


Rent $60.00

Vacancy 5%



Vacancy ($1,506,600)




Sq Ft 24,000

Rent $35.00 NNN

Vacancy 5%

Op Exp 0%


Vacancy ($42,000)






Vacancy 0%


Vacancy $0


Sq Ft 564,000


Vacancy ($1,548,600)






Source: W-ZHA

E:\ros air\[Site 3 Office with site 4.xlsx]yield

Retail

Parking

Total

Investment Return



Office





Sites 3 & 4: Alternative 2

Under the second alternative residential is developed on Site 3 and office space is developed on

Site 4 with parking for both buildings on Site 4. While the total development square footage is less

than sites 3 and 4 developed independently, this alternative creates a better mixed-use

environment and would allow the developer greater flexibility in phasing to respond to market

demand.

From an economic perspective, under this alternative rents would need to increase by 20 percent

to achieve a 9 percent hurdle rate. This alternative may be feasible after 20 years.

Total Sq Ft 467,600



Gross Sq Ft Residential 183,600

Rentable Sq Ft Residential 152,388



Parking Spaces 475

Source: W-ZHA

E:\ros air\[Site 3 resi with site 4.xlsx]Sheet1



Site 3 Residential with Site 4

Cost /GSF


Platform $36,560,000 $78.19

Building Cost $157,330,640 $336.46


Financing Cost $21,281,228 $45.51


Source: W-ZHA

E:\ros air\[Site 3 resi with site 4.xlsx]total cost

Total Project Cost





Sq Ft 183,600


Rent $3.40

Vacancy 5%

Op Exp /Unit $9,000


Vacancy ($310,872)




Sq Ft 260,000


Rent $60.00

Vacancy 5%



Vacancy ($725,400)




Sq Ft 24,000

Rent $35.00 NNN

Vacancy 5%

Op Exp 0%


Vacancy ($42,000)






Vacancy 0%


Vacancy $0


Sq Ft 467,600


Vacancy ($1,078,272)






Source: W-ZHA

E:\ros air\[Site 3 resi with site 4.xlsx]yield

Retail

Parking

Total

Investment Return



Office


Residential




Economic Feasibility Conclusions

Given the assumptions, this analysis concludes that air rights development is not economically

feasible today.

The analysis concludes that air rights development on Site 3 may be feasible within a 20-year

timeframe. Because there is already a platform supporting Gateway Park, platform development

cost is assumed to be lower on Site 3.

Air rights development on Sites 1, 2 and 4 (without associated Site 3 development) is likely not

feasible for at least 20 years because each would be exclusively developed on newly constructed

platforms.

MEMORANDUM

TO: Ben Carlson, Goody Clancy FROM: Sarah Woodworth

DATE: September 8, 2014

RE: Air Rights Economic Feasibility

________________________________________________________________

EXECUTIVE SUMMARY

In this Technical Memorandum, W‐ZHA evaluates the feasibility of potential air rights development

projects based purely on anticipated financial return. In doing so, it examines anticipated costs and

revenues of a potential project as they are currently understood in an attempt to determine whether a

potential development project would be viewed as being feasible enough to interest an investor. A

market demand analysis has not been performed. Therefore, this analysis does not directly address

questions of market feasibility.

Therefore, in the event that a project is found as economically feasible, it may not necessarily mean the

project is likely a development someone would build in a defined timeframe, if the market doesn’t

support it. This is an important caveat that applies to the study’s findings for all four sites evaluated for

potential air rights development in Rosslyn.

Given the assumptions, W‐ZHA concludes that air rights development that is exclusively developed on a

newly constructed platform is likely not economically feasible for at least 20 years in Rosslyn. To be

economically feasible rents would need to increase by 13 to 20 percent (net of inflation) from where

they are today.

W‐ZHA’s analysis concludes that air rights development as office space may be feasible within the next

twenty years on Rosslyn’s Gateway Park site. While not economically feasible today, to be economically

feasible real rent would need to increase by 2 to 5 percent. The Gateway Park is more feasible than the

other sites because it is assumed that reinforcing the Gateway Park platform is less expensive than

constructing a new platform. It is important to note that the adopted RealizeRosslyn Plan Framework

revitalizes Gateway Park as a park, not a development site.

‐ 2 ‐

INTRODUCTION

STUDY PURPOSE

W‐ZHA, LLC is part of a multi‐disciplinary consultant team lead by Goody Clancy Associates to support

the County in the RealRosslyn planning process. W‐ZHA, LLC provides real estate advisory services. In

this Technical Memorandum, W‐ZHA tests the financial feasibility of various air rights development

scenarios over Interstate 66.

In this Technical Memorandum, W‐ZHA evaluates the feasibility of potential air rights development

projects based purely on anticipated financial return. In doing so, it examines anticipated costs and

revenues of a potential project as they are currently understood in an attempt to determine whether a

potential development project would be viewed as being feasible enough to interest an investor. A

market demand analysis has not been performed. Therefore, this analysis does not directly address

questions of market feasibility.

Therefore, in the event that a project is found as economically feasible, it may not necessarily mean the

project is likely a development someone would build in a defined timeframe, if the market doesn’t

support it. This is an important caveat that applies to the study’s findings for all four sites evaluated for

potential air rights development in Rosslyn.

BACKGROUND

In the Fall of 2012, the Virginia Department of Transportation (VDOT) initiated an investigation of air

rights development feasibility over Interstate 66 in Rosslyn. As part of this initiative, VDOT contracted

Jones Lang LaSalle (JLL) to conduct a preliminary analysis on the financial feasibility of air rights

development over a portion of Interstate 66 (JLL Analysis). The question was whether private

development could pay the State an upfront payment in return for the State’s air rights. While

preliminary in nature, the JLL Analysis concluded that: “an Air Rights development at the Rosslyn site

would likely be feasible from a market standpoint, including the construction of the platform. However,

the project is not able to support the payment of an upfront “value” to VDOT [Virginia Department of

Transportation] for the Air Rights.”1

In additional to the JLL Analysis, the State issued a Request for Information (RFI) from developers

regarding air rights development at the Rosslyn and East Falls Church Metro station areas. Developers

were asked to address questions like the optimum size of a platform to support vertical development,

estimated platform cost, and development viability. A number of well qualified and experienced

development companies responded to the RFI. Information from RFI submissions was considered in W‐

ZHA’s Air Rights Development Economics Memorandum (see Appendix A).

1 Jones Lang LaSalle, Air Rights Development in Northern Virginia, February 4, 2013 Internal Draft.

‐ 3 ‐

Arlington County retained W‐ZHA to review the JLL analysis in light of W‐ZHA’s prior research on

development economics in Rosslyn and RFI responses. This analysis and its conclusions are contained in

W‐ZHA’s Air Rights Development Economics Memorandum which is attached in Appendix A.

For the most part, JLL’s assumptions jibe with W‐ZHA’s understanding of development economics. The

assumptions regarding the cost to develop the air rights platform differed, however. W‐ZHA cost was

higher at $550 per platform square foot versus what W‐ZHA interpreted the JLL assumption to be, $320

per square foot.

A significant omission in the JLL analysis was Arlington’s practice of requiring development projects that

exceed base zoning to invest in community improvements. This cost was not included in the JLL

analysis. W‐ZHA includes community benefits as a project cost in this financial feasibility analysis.

STRUCTURE OF THIS TECHNICAL MEMORANDUM

Following this introduction, the key assumptions underlying the feasibility analysis are presented. Then

each air rights scenario is tested for financial feasibility. Finally, feasibility conclusions are summarized.

ASSUMPTIONS

SITE DEVELOPMENT PROGRAMS

‐ 4 ‐

The Site 1 development program is from the JLL Analysis. Development programs for the remainder of

the Sites were developed by Goody Clancy Associates. Goody Clancy’s programs reflect the maximum

density of development as constrained by height.

DEVELOPMENT COST (NET OF AIR RIGHTS AND COMMUNITY BENEFIT COSTS) AND OPERATING ASSUMPTIONS

As per W‐ZHA’s Air Rights Economics Memorandum (see Appendix A), this analysis assumes the

following development costs for office, retail and residential air rights development.

Site 1 Site 2 Site 3 Office

Site 3 Office/Site 4

Office & Parking

Site 3 Rental

Residential /Site 4

Office & Parking Site 4 Office

Platform New New Reinforced Reinforced/New Reinforced/New New

Total Sq Ft 690,000 812,500 216,000 564,000 467,600 313,000

Gross Sq Ft Office 460,000 566,500 200,000 540,000 260,000 309,000

Gross Sq Ft Residential 220,000 246,000 0 0 183,600 0

Gross Sq Ft Retail 10,000 0 16,000 24,000 24,000 4,000

Parking Spaces 680 829 232 588 475 317

Source: W‐ZHA

E:\ros air\[Site 4 Office.xlsx]Sheet4


All Air Rights Development Scenarios



Air Rights Platform (New) /Platform SF $550 $550 $550

Building

Hard Cost /GSF $175 $175 $220

Soft Cost 25% /GSF $44 $44 $55

Sub‐Total /GSF $219 $219 $275

Tenant Allowance/Fit‐Out /RSF $80 $75 $30

Hard Cost na

Soft Cost na

Parking Cost /Space /Space $40,000 $40,000 $40,000

Total Development Cost $388 $429 $392

Finance Fees and Interest /GSF $29 $63 $31

GRAND TOTAL /GSF $418 $491 $423

Source: W‐ZHA


W‐ZHA Final Development Cost for Air Rights Development

Rosslyn, VA

‐ 5 ‐

Site 3 is Gateway Park. Air rights development on Site 3 would not require that a new platform be

developed. The existing platform over Interstate 66 would likely need to be reinforced.

A development company, JBG Companies, estimated the platform cost for Site 3 in their Request for

Information submission to VDOT. The estimated cost was between $300 and $350 per platform square

foot. W‐ZHA has assumed a Site 3 platform cost of $300 per platform square foot.

As per W‐ZHA’s Air Rights Development Economics Memorandum (see Appendix A), this analysis reflects

the following operating for office, retail and residential air rights development.

ADDITIONAL COST ‐‐ AIR RIGHTS AND COMMUNITY BENEFIT CONTRIBUTIONS

Air rights projects will likely have to pay the State to obtain air rights. In addition, air rights projects will

be required to invest in community improvements above and beyond project development costs. Both

the State and the County will require economic consideration from air rights projects.

How the air rights and community benefit formula works out between the State and the County is

unknown. For purposes of this analysis, W‐ZHA has applied fair market land values to each FAR foot of

air rights development to estimate the cost of both air rights access and community investments. This

cost is treated as a development cost in the feasibility analysis.


Rent /RSF $60.00 $35.00 $40.80

Vacancy Rate % of Rent 5% 7% 5%

Operating Expenses /RSF or /Unit $18.00 $0.00 $9,000

Parking NOI /Space /Mo $150 $150 $130

Source: W‐ZHA

E:\ros air\[air rights 2.xlsx]Sheet5

Operating Assumptions for Air Rights Development

Rosslyn, VA

‐ 6 ‐

Fair market land values are summarized in the following table.

INVESTMENT HURDLE RATES

To be financially feasible, a real estate project must generate sufficient income to justify the investment.

W‐ZHA employed a yield analysis to determine air rights development feasibility. The “yield” is simply

the project’s net operating income divided by development cost. When the yield is higher than the

investor’s hurdle rate it is a project that may be worth pursuing.

Hurdle rates are a function of the cost of money, capitalization rates, perceived market risk and

investment risk. Each investor is different in terms of their access to capital and risk tolerance.

Therefore, hurdle rates vary depending on the investor. Hurdle rates also vary by land use.

Generally, hurdle rates today range from 6.25 percent to 9 percent depending on the land use. These

hurdle rates reflect historically low interest rates, strong market forces and conventional development.

W‐ZHA has assumed that air rights projects must achieve a hurdle rate in excess of 9 percent to attract

private investor interest. This assumption takes into consideration that air rights development will likely

be perceived as more risky than conventional development because of its complexity and extended

construction period. This assumption also takes into consideration that the cost of money (or interest

rates) will likely increase in the future.


Fair Market Land Value /FAR Ft $52.50 $65.00 $75.00

Source: Arlington County; W‐ZHA


Fair Market Land Values by FAR Ft by Land Use

Rosslyn, VA

‐ 7 ‐

SITE 1 OFFICE, RETAIL AND RESIDENTIAL DEVELOPMENT

Development Program

Total Sq Ft 690,000







Parking Spaces 680

Source: JLL Analysis; W‐ZHA

E:\ros air\[Site 1 .xlsx]Sheet1



Site 1

‐ 8 ‐

Air Rights and Community Benefit Costs

Sq Ft Attained Office 460,000

Less: Standard Base Zoning 0

Difference 460,000

Assumed Fair Market Value $52.50

Community Benefit Package Value $24,150,000

Sq Ft Attained Residential 220,000


Difference 220,000



Sq Ft Attained Retail 10,000


Difference 10,000


Community Benefit Package Value $650,000

Total Sq Ft Attained 690,000


Difference 690,000




E:\ros air\[Site 1 .xlsx]contrib



Site 1

‐ 9 ‐

Building Cost

Building $163,312,500

Office and Retail Hard Cost $82,250,000

Sq Ft 470,000

Cost /SF $175.00

Residential Hard Cost $48,400,000

Sq Ft 220,000

Cost /SF $220.00

Sub‐Total Hard Cost $130,650,000

Soft Cost @ 25% $32,662,500

Tenant Improvement Allowance $40,452,000

Office 427,800 @ $80.00 $34,224,000

Residential 182,600 @ $30.00 $5,478,000

Retail 10,000 @ $75.00 $750,000

Parking $27,200,000

Spaces 680 @ $40,000

Total Cost $230,964,500

Cost /SF $334.73

Source: RS Means; W‐ZHA

E:\ros air\[Site 1 .xlsx]bldg cost

Building Development Cost (Excluding Platform)

Site 1


‐ 10 ‐

Platform Cost

Total Cost

Platform Reinforcement Sq Ft 0

Platform Cost /Sq Ft $300

Sub‐Total Cost $0

New Platform Sq Ft 69,000


Sub‐Total Cost $37,950,000

Total Platform Cost $37,950,000

Cost /FAR Ft $55.00

Source: JBG Expression of Interest; W‐ZHA

Platform Cost

Site 1


E:\ros air\[Site 1 .xlsx]plaatform cost

Cost /GSF


Platform $37,950,000 $55.00

Building Cost $230,964,500 $334.73


Financing Cost $29,229,520 $42.36


Source: W‐ZHA


Total Project Cost

Site 1


‐ 11 ‐

Yield

Conclusion

Sq Ft 220,000


Rent $3.40

Vacancy 5%

Op Exp /Unit $9,000


Vacancy ($372,504)




Sq Ft 460,000


Rent $60.00

Vacancy 5%



Vacancy ($1,283,400)




Sq Ft 10,000

Rent $35.00 NNN

Vacancy 5%

Op Exp 0%


Vacancy ($17,500)






Vacancy 0%


Vacancy $0


Sq Ft 690,000


Vacancy ($1,673,404)






Source: W‐ZHA


Retail

Parking

Total

Investment Return



Office

Site 1

Residential

‐ 12 ‐

Given the development cost and operating assumptions, Site 1 air rights development is not feasible.

Rent would need to increase by 15 percent to achieve a 9 percent investment hurdle rate (excluding

financing). This translates into real rent growth (exclusive of inflation) of 1.4% over 10 years or 0.7%

over 20 years. Air rights development may be feasible in the long term (20 years‐plus).

SITE 2 OFFICE AND RESIDENTIAL DEVELOPMENT

Development Program

Total Sq Ft 812,500





Gross Sq Ft Retail 0

Rentable Sq Ft Retail 0

Parking Spaces 829

Source: W‐ZHA

E:\ros air\[Site 2 .xlsx]Sheet1



Site 2

‐ 13 ‐




Difference 566,500





Difference 246,000



Sq Ft Attained Retail 0


Difference 0


Community Benefit Package Value $0



Difference 812,500




E:\ros air\[Site 2 .xlsx]contrib



Site 2

‐ 14 ‐

Building Cost

Building $191,571,875


Sq Ft 566,500

Cost /SF $175.00


Sq Ft 246,000

Cost /SF $220.00


Soft Cost @ 25% $38,314,375


Office 526,845 @ $80.00 $42,147,600

Residential 204,180 @ $30.00 $6,125,400

Retail 0 @ $75.00 $0

Parking $33,160,000

Spaces 829 @ $40,000

Total Cost $273,004,875

Cost /SF $336.01


E:\ros air\[Site 2 .xlsx]bldg cost


Site 2


‐ 15 ‐

Platform Cost

Total Cost

Platform Reinforcement Sq Ft 0


Sub‐Total Cost $0

New Platform Sq Ft 128,000




Cost /FAR Ft $86.65


Platform Cost

Site 2


F:\8000s, misc\80099 Roslyn\air rights\[Site 2 .xlsx]plaatform cost

Cost /GSF


Platform $70,400,000 $86.65

Building Cost $273,004,875 $336.01


Financing Cost $36,635,247 $45.09


Source: W‐ZHA


Total Project Cost

Site 2


‐ 16 ‐

Yield

Sq Ft 246,000


Rent $3.40

Vacancy 5%

Op Exp /Unit $9,000


Vacancy ($416,527)




Sq Ft 566,500


Rent $60.00

Vacancy 5%



Vacancy ($1,580,535)






Vacancy 0%


Vacancy $0


Sq Ft 812,500


Vacancy ($1,997,062)






Source: W‐ZHA


Parking

Total

Investment Return



Office

Site 2

Residential

‐ 17 ‐

Conclusion

Given the development cost and operating assumptions, Site 2 air rights development is not feasible in

the near term. Rent would need to increase by over 20 percent to achieve a 9 percent investment

hurdle rate (exclusive of financing costs). Site 2 is a long term (20 years‐plus) development proposition.

SITE 3 OFFICE AND RETAIL DEVELOPMENT

Development Program

Site 3 is Gateway Park. Gateway Park is already located on a platform over Interstate 66. Under this

scenario an office building is developed with retail on the ground floor, a parking garage above the

ground floor, and office above the parking. The building is self‐parked on Site 3.

It is important to note that the adopted RealizeRosslyn Plan Framework revitalizes Gateway Park as a

park, not a development site.

Total Sq Ft 216,000







Parking Spaces 232

Source: W‐ZHA




Site 3 Office

‐ 18 ‐

Community Contribution Package Value



Difference 200,000



Sq Ft Attained Residential 0


Difference 0





Difference 16,000





Difference 216,000



Source: Arlington County, W‐ZHA

E:\ros air\[Site 3 Office.xlsx]contrib



Site 3 Office

‐ 19 ‐

Building Cost

Building $47,250,000


Sq Ft 216,000

Cost /SF $175.00

Residential Hard Cost $0

Sq Ft 0

Cost /SF $220.00


Soft Cost @ 25% $9,450,000


Office 186,000 @ $80.00 $14,880,000

Residential 0 @ $30.00 $0

Retail 16,000 @ $75.00 $1,200,000

Parking $9,280,000

Spaces 232 @ $40,000

Total Cost $72,610,000

Cost /SF $336.16


E:\ros air\[Site 3 Office.xlsx]bldg cost


Site 3 Office


‐ 20 ‐

Platform Cost

Total Cost

Site 3 Platform Reinforcement Sq Ft 30,200



Site 4 Platform Sq Ft 0


Sub‐Total Cost $0


Cost /FAR Ft $41.94


Platform Cost

Site 3 Office


E:\ros air\[Site 3 Office.xlsx]plaatform cost

Cost /GSF


Platform $9,060,000 $41.94

Building Cost $72,610,000 $336.16


Financing Cost $9,682,110 $44.82


Source: W‐ZHA


Total Project Cost

Site 3 Office


‐ 21 ‐

Yield

Sq Ft 200,000


Rent $60.00

Vacancy 5%



Vacancy ($558,000)




Sq Ft 16,000

Rent $35.00 NNN

Vacancy 5%

Op Exp 0%


Vacancy ($28,000)




Spaces 232 Residential ‐


Vacancy 0%


Vacancy $0


Sq Ft 216,000


Vacancy ($586,000)




Yield Without Financing Cost 8.8%

Yield With Financing Cost 8.0%

Source: W‐ZHA


Retail

Parking

Total

Investment Return



Office

Site 3 Office

‐ 22 ‐

Conclusion

Given the development cost and operating assumptions, Site 3 air rights development may be feasible

within a 20‐year timeframe. Real rent (net of inflation) would need to increase by 2 percent to achieve a

9 percent hurdle rate on development costs net of financing. The RealizeRosslyn planning framework

assumes Site 3 remains a park and is revitalized as such.

SITE 3 OFFICE WITH SITE 4 OFFICE AND PARKING DEVELOPMENT

Development Program

Under this scenario office is developed on both Sites 3 and 4. The parking for both office buildings is

located on Site 4. There is no parking on Site 3.



Total Sq Ft 564,000







Parking Spaces 588

Source: W‐ZHA

E:\ros air\[Site 3 Office with site 4.xlsx]Sheet1




‐ 23 ‐




Difference 540,000





Difference 0





Difference 24,000





Difference 564,000




E:\ros air\[Site 3 Office with site 4.xlsx]contrib




‐ 24 ‐

Building Cost

Building $123,375,000


Sq Ft 564,000

Cost /SF $175.00


Sq Ft 0

Cost /SF $220.00


Soft Cost @ 25% $24,675,000


Office 502,200 @ $80.00 $40,176,000


Retail 24,000 @ $75.00 $1,800,000

Parking $23,520,000

Spaces 588 @ $40,000

Total Cost $188,871,000

Cost /SF $334.88


E:\ros air\[Site 3 Office with site 4.xlsx]bldg cost




‐ 25 ‐

Platform Cost

Total Cost




Site 4 Platform Sq Ft 50,000




Cost /FAR Ft $64.82


Platform Cost



E:\ros air\[Site 3 Office with site 4.xlsx]plaatform cost

Cost /GSF


Platform $36,560,000 $64.82

Building Cost $188,871,000 $334.88


Financing Cost $24,236,031 $42.97

Total Project Cost $279,577,031 $495.70

Source: W‐ZHA

E:\ros air\[Site 3 Office with site 4.xlsx]total cost

Total Project Cost



‐ 26 ‐

Yield

Sq Ft 540,000


Rent $60.00

Vacancy 5%



Vacancy ($1,506,600)




Sq Ft 24,000

Rent $35.00 NNN

Vacancy 5%

Op Exp 0%


Vacancy ($42,000)






Vacancy 0%


Vacancy $0


Sq Ft 564,000


Vacancy ($1,548,600)






Source: W‐ZHA

E:\ros air\[Site 3 Office with site 4.xlsx]yield

Retail

Parking

Total

Investment Return



Office


‐ 27 ‐

Conclusion

Given the development cost and operating assumptions, Site 3 office development with Site 4 office and

parking development is not feasible in the near term. Rent would need to increase by 5 percent to

achieve a 9 percent investment hurdle rate without financing. This Scenario may be implementable

within a 20‐year timeframe.

SITE 3 RENTAL RESIDENTIAL WITH SITE 4 OFFICE AND PARKING DEVELOPMENT

Development Program

Under this scenario residential is developed on Site 3 and office is developed on Site 4. The parking for

the residential use and the office use is located on Site 4. There is no parking contemplated on Site 3.



Total Sq Ft 467,600







Parking Spaces 475

Source: W‐ZHA

E:\ros air\[Site 3 resi with site 4.xlsx]Sheet1




‐ 28 ‐




Difference 260,000





Difference 183,600





Difference 24,000





Difference 467,600




E:\ros air\[Site 3 resi with site 4.xlsx]contrib




‐ 29 ‐

Building Cost

Building $112,615,000


Sq Ft 284,000

Cost /SF $175.00


Sq Ft 183,600

Cost /SF $220.00


Soft Cost @ 25% $22,523,000


Office 241,800 @ $80.00 $19,344,000

Residential 152,388 @ $30.00 $4,571,640

Retail 24,000 @ $75.00 $1,800,000

Parking $19,000,000

Spaces 475 @ $40,000

Total Cost $157,330,640

Cost /SF $336.46


E:\ros air\[Site 3 resi with site 4.xlsx]bldg cost




‐ 30 ‐

Platform Cost

Total Cost








Cost /FAR Ft $78.19


Platform Cost



E:\ros air\[Site 3 resi with site 4.xlsx]plaatform cost

Cost /GSF


Platform $36,560,000 $78.19

Building Cost $157,330,640 $336.46


Financing Cost $21,281,228 $45.51


Source: W‐ZHA

E:\ros air\[Site 3 resi with site 4.xlsx]total cost

Total Project Cost



‐ 31 ‐

Yield

Sq Ft 183,600


Rent $3.40

Vacancy 5%

Op Exp /Unit $9,000


Vacancy ($310,872)




Sq Ft 260,000


Rent $60.00

Vacancy 5%



Vacancy ($725,400)




Sq Ft 24,000

Rent $35.00 NNN

Vacancy 5%

Op Exp 0%


Vacancy ($42,000)






Vacancy 0%


Vacancy $0


Sq Ft 467,600


Vacancy ($1,078,272)






Source: W‐ZHA

E:\ros air\[Site 3 resi with site 4.xlsx]yield

Retail

Parking

Total

Investment Return



Office


Residential

‐ 32 ‐

Conclusion

Given the development cost and operating assumptions, Site 3 rental residential development with Site

4 office and parking development is not feasible in the near term. Rent would need to increase by over

20 percent to achieve a 9 percent investment hurdle rate on cost without financing. This scenario is

likely not feasible within the next 20 years.

SITE 4 OFFICE DEVELOPMENT

Development Program

In this Scenario, an office building is developed on Site 4 with its own parking. Site 4 does not contain

any parking beyond what is required to support the Site 4 office program.

Total Sq Ft 313,000







Parking Spaces 317

Source: W‐ZHA




Site 4 Office

‐ 33 ‐

Community Benefit Package Value



Difference 309,000





Difference 0





Difference 4,000


Community Benefit Package Value $260,000



Difference 313,000




E:\ros air\[Site 4 Office.xlsx]contrib



Site 4 Office

‐ 34 ‐

Building Cost

Building $68,468,750


Sq Ft 313,000

Cost /SF $175.00


Sq Ft 0

Cost /SF $220.00


Soft Cost @ 25% $13,693,750


Office 287,370 @ $80.00 $22,989,600


Retail 4,000 @ $75.00 $300,000

Parking $12,680,000

Spaces 317 @ $40,000

Total Cost $104,438,350

Cost /SF $333.67


E:\ros air\[Site 4 Office.xlsx]bldg cost


Site 4 Office


‐ 35 ‐

Platform Cost

Total Cost

Site 3 Platform Reinforcement Sq Ft 0


Sub‐Total Cost $0





Cost /FAR Ft $80.83


Platform Cost

Site 4 Office


F:\8000s, misc\80099 Roslyn\air rights\[Site 4 Office.xlsx]plaatform cost

Cost /GSF


Platform $25,300,000 $80.83

Building Cost $114,882,185 $367.04


Financing Cost $15,256,486 $48.74


Source: W‐ZHA


Total Project Cost

Site 4 Office


‐ 36 ‐

Yield

Sq Ft 309,000


Rent $60.00

Vacancy 5%



Vacancy ($862,110)




Sq Ft 4,000

Rent $35.00 NNN

Vacancy 5%

Op Exp 0%


Vacancy ($7,000)






Vacancy 0%


Vacancy $0


Sq Ft 313,000


Vacancy ($869,110)






Source: W‐ZHA


Retail

Parking

Total

Investment Return



Office

Site 4 Office

‐ 37 ‐

Conclusion

Given the development cost and operating assumptions, Site 4 office development is not feasible in the

near term. Rent would need to increase by 13 percent to achieve a 9 percent investment hurdle rate.

Site 4 is a long term (20 years‐plus) development proposition.

AIR RIGHTS FEASIBILITY CONCLUSIONS

Given the assumptions, W‐ZHA concludes that air rights development that is exclusively developed on a

newly constructed platform is likely not economically feasible for at least 20 years in Rosslyn. To be

economically feasible rents would need to increase by 13 to 20 percent (net of inflation) from where

they are today.

W‐ZHA’s analysis concludes that air rights development as office space may be feasible within the next

twenty years on Rosslyn’s Gateway Park site. While not economically feasible today, to be economically

feasible real rent would need to increase by 2 to 5 percent. The Gateway Park is more economically

feasible because it is assumed that reinforcing the Gateway Park platform is less expensive than

constructing a new platform. It is important to note that the adopted RealizeRosslyn Plan Framework

revitalizes Gateway Park as a park, not a development site.

Documents

Rosslyn Sector Plan Update Highway Air Rights … Sector Plan Update Highway Air Rights ... In terms of project feasibility, the scope of this study includes ... Redevelopment District