Cameron Pratt On Why Montgomery County Has Fallen Behind Northern Virginia
Foulger-Pratt is one of the most active developers in Montgomery County, with major projects including Park Potomac, East Village and Inventa Towers that are adding new apartments, office space and walkable retail to the county.
Cameron Pratt, who will speak July 16 on Bisnow's Future of Bethesda and Beyond event, has served as Foulger-Pratt's CEO since 2014. In May, he and three other Foulger-Pratt executives took over as managing partners and majority owners of the company.
While his company is making huge investments in Montgomery County, Pratt does have some concerns about the county's efforts to attract companies and improve its office market. In an interview with Bisnow this week, Pratt said Foulger-Pratt's leasing meetings on its Northern Virginia projects usually include many more large prospective tenants than those in Montgomery County.
He attributed this disparity to Northern Virginia's superior infrastructure, with two airports, an ongoing extension of the Metro system and highways that feed directly into Downtown D.C.
"If Montgomery County is not willing to make investments in infrastructure, I don’t think they’ll be able to attract employers and compete with Northern Virginia," Pratt said. "They have made investment in transportation infrastructure and Montgomery County hasn’t."
Pratt also discussed Montgomery County's housing moratorium that will expand to cover 12% of the county as of July 1, and he gave the latest updates on Foulger-Pratt's developments in the county. Read the full interview below.
Bisnow: I want to start by talking about a few of the projects Foulger-Pratt is working on in Montgomery County. Earlier this month, you received preliminary approval for 630K SF of new mixed-use development at Park Potomac, bringing the total project to 2.3M SF. What does this approval mean for the project and what will this next phase look like?
Pratt: The preliminary plan we got approved is really a minor adjustment of a plan that was approved many years ago. It’s really a reprogramming of Park Potomac. It’s just really being responsive to a shift in the market in Montgomery County over the years.
Originally we had a hotel programmed for Park Potomac, that’s just not feasible in the market today, and we had more office approved. So it was really just shifting some office density to multifamily density. That was the primary change. It’s really a reprogramming of the master plan.
Bisnow: Why did you decide to shift some office density to multifamily? Does it reflect that it is difficult for an office project to be viable in this location?
Pratt: We do believe office is viable as evidenced by recently leasing up our most recent office at 12345 Park Potomac. Our office space is 100% leased, so there is demand for office in Montgomery County, but certainly there’s more demand in places like Downtown Bethesda and there’s a lot more demand in other parts of the Metro region, D.C. and Northern Virginia.
We do believe there is a segment of employers that want to locate in Montgomery County and there is demand. What we’ve created is a location with great vehicular access. It’s easy to get to and has walkable amenities. People are calling it suburban-urban, we created a small little node of walkable amenities in the suburbs and that’s appealing. We find there are a lot of tenants in traditional office parks that don’t want to leave Montgomery County, but they don’t want to be in an office park where they have to get in their car to go to lunch. Park Potomac offers a great environment. It’s still in the suburbs but it provides amenities that have been found in more urban areas.
We’re seeing that not just throughout the D.C. area but all over the country in close-in suburbs more proximate to where the employment base lives. We’re seeing urban nodes pop up, so that’s what Park Potomac is, but we have to recognize Montgomery County has not had the employer demand that we’ve seen other places. So we are planning more office at Park Potomac, but we’ve shifted some of our office density to multifamily. We will have two additional office buildings and one additional multifamily project, which was not planned previously.
Bisnow: The next phases also include ground-floor retail, are there any types of retailers you think Park Potomac is missing that you’re looking to bring into the next buildings?
Pratt: There’s not a new type of retailer, it would just be more neighborhood retail. It’s more of what we already have. It’s going to be restaurants, shops, clothing boutiques and that kind of thing. Our focus is to be a neighborhood and so we won’t have any big-box retailers, but it will continue to be just neighborhood-supporting retail.
Bisnow: Do you have a timeline for when you plan to begin construction on the office and multifamily buildings planned at Park Potomac?
Pratt: On the office buildings, we’re in active discussions with a couple of different tenants that would potentially pre-lease a portion of the office building, which would allow us to move quickly. On multifamily, we still have more entitlements to go through. We got the sketch plan approved but still have a process to go through to get final site plan approval.
Pratt: On that project, we went back in for an adjustment to our site plan and the primary driver of that was to change the way the parking was configured to allow for less costly parking construction. What that was driven by was we’ve had such dramatic increases in construction costs in the last few years, so most developers are looking at ways to reduce the cost of construction. The primary driver of changing that site plan was to come up with a more economic parking solution. The goal was to value engineer the building to reduce our construction costs.
Bisnow: Do you have an expected groundbreaking timeline on that project?
Pratt: We hope to break ground in 18 months.
Bisnow: Last year, you acquired the former Discovery Communications headquarters in Silver Spring after the company announced plans to move to New York. Why did you decide to acquire this property and what was the vision for making it a successful project?
Pratt: Well, Foulger-Pratt is the largest landlord in Silver Spring with millions of square feet of office, about 1,000 residential units and the Downtown Silver Spring retail project that we’re partners with Peterson on. We know Silver Spring extremely well and have a huge amount of confidence. It’s a submarket that has performed extremely well. When we learned about the opportunity to acquire Discovery’s former headquarters, we were intrigued because we understand the submarket, because of proximity to the Silver Spring transit center and Metro, and because it’s just a beautiful, timeless office building. It’s extremely high-quality office space proximate to transit.
We thought it’s a great value proposition. When you look at the leasing that’s happening in Downtown Bethesda and the pricing the new office towers are commanding, Silver Spring is such an incredible discount to that. It's only a few miles away and also on the Red Line. When you look at the value proposition to tenants that need to be inside the Beltway and want to be in Montgomery County, we can offer our asking rents at almost a 30% to 40% discount to what similar trophy office in Bethesda is commanding.
Bisnow: You rebranded the property as Inventa Towers and launched renovations aimed at making the building work for multiple tenants. Why did you decide to pursue that strategy versus going after one big company to fill the building?
Pratt: That building represents almost a half-million square feet of office space. Besides the Marriott headquarters, I don’t remember an office lease getting done in Montgomery County at those kinds of sizes in a very long time. We never had a strategy to go after a single user for the entire building just because those users that require that much space are few and far between. That’s elephant hunting and didn’t seem like a sound strategy.
Certainly we anticipated we’d get a few large leases and it was going to be a multi-tenant strategy. The physical changes revolve around changing it from single-user building to two multi-tenant towers, because that building looks like one, but structurally it's two towers connected by an atrium. The primary physical changes we’re making have to do with converting from a single user to multi-tenant and going from one lobby to two. The primary nature of it was we wanted to be able to go after a broad range of tenants, several different sized tenants and we’re having great success. The initial lease with Children’s was a strong indicator of the quality of tenants interested in this.
Bisnow: As you mention, in May you signed a 140K SF lease at the building with Children’s National Health System, do you think that will create momentum that will lead to additional leases?
Pratt: Yes. I’d say we have significant interest in the building from a wide variety of tenants, and we are in active lease negotiations with multiple tenants.
Bisnow: How important is it for this large office building in the heart of Downtown Silver Spring to be occupied and have people coming into work every day that will support surrounding businesses?
Pratt: It’s extremely important for Downtown Silver Spring to have this building occupied, so that the workers that will occupy this building will support all of the retailers. We own a lot of the retail space so we certainly had vested interest in seeing the building re-tenanted.
As we were negotiating to purchase it, there were other investors actively pursuing this, and really what it came down to was our relationship with Discovery. Both Discovery and Foulger-Pratt have been active participants in the Silver Spring community for a couple decades. We already had a relationship with the team and they saw we were good stewards of properties and care about the community. Discovery made a big impact on the redevelopment of Silver Spring when they relocated there 20 years ago. They’re good corporate citizens, they knew they were leaving a big hole and wanted to mitigate the impact and had confidence Foulger-Pratt would do right by the community.
Bisnow: I want to touch on a couple of larger issues in Montgomery County. On July 1 a moratorium will go into effect halting new housing in several parts of the county. What are your thoughts on this policy?
Pratt: I think the county certainly needs to be responsible. One of the great things we have is the public school system, so being careful to make sure schools have resources to handle demand is an important consideration.
I think having an arbitrary moratorium can be somewhat shortsighted. When you look at projects like Westfield’s Montgomery Mall expansion, they’re caught up in the moratorium. The company is planning to invest hundreds of millions to expand the mall, introduce significant additional retail in a walkable, outdoor, amenitized way, and that is going to bring a lot of jobs to the county. There happen to be some multifamily units as part of the project, because what mall owners are doing is adding density, having ground-level retail with office and multifamily which is sound, mixed-use urban planning. Westfield is investing hundreds of millions, but because they have residential units, they’re caught up in the moratorium. They can't build retail unless they can build multifamily, so its going to hold off a massive amount of retail investment.
While I understand the concern about school overcrowding, putting a blanket moratorium on residential development I think is somewhat shortsighted. There will be very few high school students living in these multifamily units above the retail, but a massive project is held up because of moratorium. I think that is shortsighted, but I understand the county’s concern. They just need to maybe put a finer point on the moratorium and be a little more nuanced.
Bisnow: On the office side, does Montgomery County need to do a better job of attracting new businesses to grow its office market and tax base?
Pratt: Absolutely they do. It’s interesting, we are a developer in multiple markets not only around the D.C. area but in other markets. Specifically in the D.C. area, we have significant office holdings in Montgomery County and in Northern Virginia, and we’re getting ready to break ground on a significant office development in Tysons.
I’m on weekly leasing calls for our Montgomery County and Northern Virginia assets, and when you look at prospective tenants in Northern Virginia and compare it to Montgomery County, there’s no comparison, not only in terms of the number of tenants but the square footage they’re looking for. There are significantly more active and large tenants in Northern Virginia than Montgomery County. I think that’s due to a number of factors.
It’s the business-friendly environment of Northern Virginia, which is always very proactive in economic development and pursuing tenants. I think the biggest challenge Montgomery County has is infrastructure. You look at Northern Virginia; they have two airports, they have a significant freeway system connecting the airports and the suburbs to downtown, and they’ve spent money to invest in HOT lanes, in extending the Metro to Dulles Airport. That infrastructure is because of decades of planing and investment and Montgomery has not made those same investments.
Montgomery County does not have a freeway connecting the suburbs to downtown. It does not have significant airport infrastructure and has not extended Metro further out. They have not been willing to grapple with the important issue of another river crossing and if Montgomery County is not willing to make investments in infrastructure, I don’t think they’ll be able to attract employers and compete with Northern Virginia. They have made investment in transportation infrastructure and Montgomery County hasn’t. They talk about Intercounty Connector, the I-270 widening, those are nice but not the significant infrastructure we need.
Bisnow: Foulger-Pratt announced in March a transition of management and majority ownership, and you’re part of the new ownership group. What does this ownership change mean for the company? Will there be any significant differences under the new managing partners?
Pratt: I think the biggest message is it’s really nothing new to be honest. This is a succession plan that has been in the works for over 15 years. One of Foulger-Pratt’s core values is we plan thoroughly and execute successfully. This was planned thoroughly, it follows the pattern of the first succession plan when Sid Foulger transitioned to Bryant Foulger, Clayton Foulger and Brent Pratt 30 years ago. This one is now happening.
There’s a pattern we’re following. There is a huge amount of thought and planning that went into this and the new majority owners and managers are all people that have been with Foulger-Pratt for a long time. It’s not new leadership. It’s new managing partners who have been working together running the company for many years, so it was just the natural phase in this 15-year succession plan we’ve been executing. In some ways, it's business as usual, and in other ways it’s an important message to the entire team at Foulger-Pratt as well as our partners and investors that we’re a careful, thoughtful company.