The McDonnell administration figures the state can’t lose with an $80 million loan to build roads for the Kincora development in Loudoun County. Not everyone agrees.
by James A. Bacon
Even in Northern Virginia, the land of mega-development projects, Kincora in Loudoun County is a big deal. The massive, mixed-use development north of Washington Dulles International Airport calls for erecting 3.7 million square feet of office space, a half million square feet of retail, 1,400 apartment and condominium units, 570 hotel rooms, a cultural arts center and a baseball stadium, all of which will create an estimated $1.8 billion in taxable real property value.
The project stalled for several years because its location near the intersection of Rt. 7 and Rt. 28, two of the most heavily traveled roads in Northern Virginia, would aggravate the area’s hellish traffic conditions. County government approved the Kincora rezoning contingent upon the developer, NA Dulles Real Estate Investor LLC, spending $80 million up-front to make major improvements to Pacific Boulevard and the Gloucester Parkway. But that was a non-starter. NA Dulles could not find the financing.
In stepped the commonwealth of Virginia. In June, the Commonwealth Transportation Board (CTB) authorized an $80 million loan from the State Transportation Infrastructure Bank (STIB) funneled through Loudoun County’s industrial development authority. Not only did the developer get the financing, it enjoyed a below-market 2.83% interest rate on the debt. Suddenly, the project was a go. Work on the roads has begun.
Transportation Secretary Sean Connaughton says the deal does exactly what the infrastructure bank was designed to do: leverage local or private resources to get roads built — which in this case happen to be the top transportation priorities in Loudoun County, Virginia’s fastest growing locality. If the county had relied upon development proffers to be paid as the project was phased in over two decades, it would have been years before the road improvements were complete.
This way, says Connaughton, “We get the infrastructure beforehand. The day the roads open, we expect 25,000 vehicles per day” from commuters now using existing roads. “We get the improvements 10 to 15 years earlier than we would otherwise.”
While Virginia’s Smart Growth community has not made a major issue of the Kincora financing, some observers do express reservations about the deal. Conceding that NA Dulles’ mixed-use development is preferable to scattered, low-density “by-right” development, they warn that mixed-use projects work best when they can access mass transit — and this project doesn’t.
Moreover, Kincora will be competing in the commercial real estate marketplace with major projects planned in concert with the building of the METRO Silver Line through Tysons Corner, Reston, Dulles airport and points beyond. What happens if NA Dulles’ forecasts don’t pan out? What would be the state’s exposure?
“The question I keep asking, what if this project doesn’t make a go of it? The developer is supposed to pay back the bonds,” says Ed Gorski, Loudoun County land use field officer for the Piedmont Environmental Council. “The Virginia taxpayers would be left holding the bag.”
Driven by Commercial Real Estate
When NA Dulles purchased the Kincora property in 2005, the developers thought it a great location to build Class A commercial office space, says Mike Scott, a senior member of the Kincora development team. Loudoun’s population was growing by leaps and bounds but first-rate commercial development lagged. Much of the office space that existed, like the giant AOL facility, was clustered in insulated campus settings.
Self-sufficient corporate campuses provide their own food services and other amenities for employees on site. But few corporations are big enough to support such an infrastructure on their own. Scott envisioned a mixed-use environment where employers would function as part of an ecosystem of businesses and homeowners that could. “Amenities will not locate in a nine-to-five office park,” he says. “You need to create activities in the evening and on weekends. Our idea was to bring those things together with residents and some destination attractions like the cultural arts center and the baseball stadium.”
Loudoun County officials did not immediately embrace the proposal, despite the prospect of dramatically expanding the county tax base. There were numerous issues relating to the project, the most daunting of which was the horrendous traffic in the eastern half of the county. The two main traffic corridors there — the east-west Rt. 7 corridor and the north-south Rt. 28 corridor — were hideously congested, as was another east-west arterial, Waxpool Road, located south of the project.
Blue, green and pink show the three phases of road upgrades on Cloucester and Pacific.
Kincora sat athwart two smaller roads that the county wanted to upgrade, the Gloucester Parkway and Pacific Boulevard. The thinking was that Gloucester could serve as an east-west alternative to Rt. 7 and Waxpool Road while Pacific could function as an option for north-south traffic.
Although Kincora’s offices and housing would generate more traffic in an already congested area, completing planned improvements to the two roads would result in a net gain for the county. “Kincora traffic is projected to constitute 30% of the traffic on the extension of Gloucester Parkway. They [Kincora] will construct 100% of the cost of that critical transportation link,” wrote attorney John McGranahan in 2007 correspondence to Loudoun officials. Kincora also would spend roughly $12 million on its own internal roads and utilities. Read more.
well, I left a longer comment but it disappeared into the ethos!
I’m not sure this is a good idea at all because where development occurs or not – is not something VDOT should be involved in – even on a tangential basis.
We have CDAs and transportation districts down in the Fredericksburg Area that are in trouble – because the land in the tax districts did not develop as anticipated and the supplemental tax revenue is not sufficient to pay back the bonds – and some are headed for default.
When VDOT ends up being the owner of failed developments, it will then put the State in a position of seeking to sell that land for as high a price as possible – to get it’s infrastructure bank loan back.
I’m not at all sure VDOT should be involving itself in land development.
Has anybody else noticed that Jim Bacon is never happy? For years he raved about mixed use development as the savior of humanity. Now, a mixed use development project is proposed and Jim get cold feet.
Jim wants developers to pay for roads. In this case, the developer will pay for the road. The state will simply guarantee the loan for the developer to use to build the road. You would think Jim would be happy. Guaranteeing a loan is a lot better than paying to build a road. But Jim now has concerns. What if the developer defaults? Well, I hope the state gets the road. If that were to happen – would $80M be a bad investment for that road? If it really will become a commuter road, the state could put a toll on the road until the $80M is paid back.
I suspect that Jim’s arrangement with the PEC is rearing its head here. Here’s my theory:
The people of western Loudoun County have a problem. They are about one redistricting away from becoming utterly irrelevant in Loudoun County politics. I can only imagine that they look across Rt 15 and see the eastern side of county growing by leaps and bounds while the low development policies of western Loudoun keep growth in check there. What happens when eastern Loudoun decides that the anti-development policies of western Loudoun are no longer in the county’s interests? Maybe all these development projects aren’t really what the people in western Loudoun want.
I’ll be the first to admit this is only a theory. However, ex-urban NIMBYism never seems to work in the long run. If you really want to live out in the country you probably have to move out in the country. No easy access to Dulles Airport, no evening dash into and out of DC to catch a play at the Kennedy Center. I can’t blame the people of western Loudoun. We’ve been fighting progress and development for decades in Great Falls. But every year – the county and its friends in the development community find some reason to add density. I just wish they’d make the developers take out loans to expand the roads!
So, Don, what about the article was unfair or unbalanced? Was the McDonnell administration’s viewpoint not fully presented? Did I weight the story to prejudice the reader against the project?
There was nothing unfair or unbalanced. I am just surprised that this “developer pays” plan for transportation in a mixed use community doesn’t get more positive commentary from you.
What if the developer goes under and the state gets stuck with the loan guarantee? Well, then I assume the state also gets the road. Is this a bad outcome? Sean Connaughton seems to think the road will be used by commuters to relieve congestion in a congested area.
Where is “Bacon’s Bottom Line” at the end of the article?
Is this a good move by the state or not?
You seem more subdued in your enthusiasm than I would expect.
mixed-use is a lot like “smart growth” in terms of what it is and what it is not and what it accomplishes …or not.
greenfield mixed use in an exurb is problematical if the residential is for commuters to points east in the NoVa region.
if you look at WHY mixed use is considered desirable – it has to do with jobs and mobility.
if a mixed-use development has jobs that people who live in the mixed-use development can be employed then it meets an important goal in that it generates less external traffic.
if it does not meet that goal but the commuters can access mass transit like METRO then it would still meet the goal of less traffic.
but if mixed-use is really a bifurcated situation where the people who live there commute to jobs some distance away and/or the jobs in the mixed-use development do not pay a high enough salary so that people who work at those jobs can live in the same mixed-use development then you have workers who live elsewhere and commute to the jobs in the mixed-use development.
That KIND of mixed-use generates just as much external traffic as many other kinds of development and fails to meet the organic benefits of a “real” mixed-use development that has workers who live nearby in the same mixed-use development.
Folks could agree or disagree about various aspects but what I would assert is that the first thing you ought to ask yourself and agree to is what are the goals of mixed-use development.
This is a continuing problem with people who advocate the benefits that legitimate mixed-use (or smart growth) have but let the nomenclature be co-opted and corrupted by those who are only interested in development for development sake but have no problem labeling it as “smart” or “mixed-use”.
Now one could also argue that mixed-use, as defined, is no realistic in all circumstances and I would agree with that but would point out again that – the folks who propose greenfield mixed-use have no intention of admitting that their development really is not “real” mixed-use in terms of performance.
Mixed-use is not a label or even a physical settlement pattern – it is a performance standard that generates less traffic than typical residential or commercial development because it combines both in one location that ends up “capturing” auto trips.
Localities and developers are not particularly interested in establishing traffic generation thresholds that could be used to judge the effectiveness of mixed use in meeting trip capture.
The latest gambit of exurban developers is to propose “mixed-use” development – in areas – where they KNOW the buyers of the residential WILL be commuters not workers in the mixed use development.
“The latest gambit of exurban developers is to propose “mixed-use” development – in areas – where they KNOW the buyers of the residential WILL be commuters not workers in the mixed use development.”.
Are the developers displaying clairvoyance?
I wonder what you would have thought of Robert E Simon’s original plan to develop Reston?
Do developers in Spotsylvania County even pretend they are building mixed use communities?
re: Spotsylvania – they propose mixed use knowing full well that the residents will be commuters.
How can you tell? By the KIND of houses that are in the mixed-use AND the percentage of non-residential commercial.
mixed-use that contain minimal affordable residential if the commercial is light and not significant employment center type is basically token mixed-use which is not much different than having a strip commercial in front of a massive residential development.
some mixed use is actually planned as real mixed-use but it depends a lot WHERE it is planned. Exurban green-field mixed use is suspect unless it is planned like Reston was with a significant commercial office employment center.
There is a difference and you can tell if you look at it.
So, is Kincora a deliberate “bait and switch” or it is legit?
I don’t think Kincora is a bait-and-switch. It’s the product of prolonged negotiation with Loudoun County. The developers are kicking in big bucks up-front for transportation improvements. That’s a good thing. It’s fully consistent with my philosophy that user/beneficiary pays.
But I do think there are some risks for the state. It’s betting that real estate development will take place… just like Transurban did with the Pocahontas Parkway. The difference is that Transurban is set up to handle such risks, the state is not. Hopefully, things will work out. And hopefully, if they don’t work out, the state will get fully recompensed. In the meantime, Loudoun County will have roads it really needs.
Kincora seems like a good idea to me. The macro question is whether there is too much commercial real estate development happening in NoVa right now. A lot of square feet are being built and there is already a lot of space. I assume that the people building the space know what they’re doing but it wouldn’t be the first time a whole industry went into deep group think.
We have to look at the space that is being built right now and also the space that has been zoned to be built. When you add up all the space in the Dulles Corridor that has been approved, it is a phenomenal amount. It will take decades to absorb. I’m perfectly happy for NA Dulles (Kincora’s owners) to take that risk — that’s their business. I am less comfortable with the commonwealth taking the risk.
On the other hand, if everything goes to hell in a handbasket, the state does get to take possession of the property, which it would resell, allowing it to recoup some percentage of its investment.
In an early version of the deal, the value of the Deed of Trust was supposed to be valued at 2X the loan. That would have provided extremely good coverage for the state’s loan. I could not tell, however, if that provision survived in the final contract. I could find no mention of it in the documents provided to the CTB.
If a bank would not take the offer (and ability to assume ownership of the property in the event of failure) why would Virginia take that deal?
It’s not bait and switch but the thing that is not recognized by the average public and perhaps some elected is that just calling something mixed-use does not necessarily gain the supposed benefits.
the mantra that often goes along with mixed use is: live, work, play, and shop – the Reston model.
but many mixed-use developments that are greenfield and/or located in exurban locations have much less potential to deliver that goal.
If Kincora was really the Reston-style mixed use – all those transportation improvements would not be so important.
If Kincora is going to house a significant number of commuters to NoVa, then the proposed improvements that they’ve offered likely won’t cover nor mitigate other infrastructure that the commuters will use.
The problem here is that localities like Loudoun somewhat accept responsibility for schools that development generates the need for but since Va has for decades took responsibility at the state level for transportation infrastructure – few localities really consider it their core responsibility so their concern and interest in how well a developer mitigates transportation impacts is largely from a local perspective not a regional one.
VDOT is IMHO inviting disaster with this step. Other localities and other developers are going to want to enter into similar arrangements and VDOT may end up being the owner of a string of failed developments because as long as developers can walk away with minimal risk and loss.. what would keep them from doing that?
I agree with your last paragraph. I worry about the precedent that the deal sets. Other developers will be looking for the same kind of treatment.
Of course, the Virginia State Infrastructure Bank is out of money, now, so there won’t be any more such deals in the future — unless the state runs big enough budget surpluses to put more money into the infrastructure bank.
There’s an easy way to judge the performance of mixed-use in terms of traffic generation and that is to use developments like Reston as the standard and also to compare mixed-use traffic generation to non-mixed use traffic generation.
Most low-density residential is calibrated at about 10 trips per residence per day. Commercial has different values depending on the type of commercial.
something that is claimed to be mixed-use but generates trips at the same rate as low-density residential will tell the tale.
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