Yesterday afternoon the Washington Metro region business landscape got a bit of a shaking up as Intelsat, the world’s largest provider of fixed satellite services, announced it would be moving from its currently owned facility near the Van Ness Metro in DC to a new 22-story office tower under construction in Tysons Corner. After several years of decreasing their ownership of the 917,000 sf John Andrews building, and a 12 month process of courting new regional partners (Bethesda and Tysons), Intelsat announced it has selected the ambitious Tysons Tower by Macerich as its new home. What exactly does this mean for Tysons, and who is Intelsat?
Intelsat, unlike a lot of vague IT corporations in Tysons, has a very straight forward business plan. They launch and control media and telecommunication satellites which provide transmissions for private corporations, governmental secure systems, and television. The term fixed satellite simply means the point in orbit the satellite is launched into becomes its permanent home, an analogy which will hopefully become apt to Intelsat’s selection of Tysons as home.
Intelsat was founded in Luxembourg and originated as an international governmental organization (imagine if NASA was your telecommunication provider). In 2001 Intelsat, with the prodding of the US Government and SEC, was privatized in order to avoid unfair advantages over competitors in the US. In 2005 the company was sold for $3.1 billion to a handful of private equity firms, and later expanded its capabilities via the acquisition of PanAMSat.
Current Business
Intelsat’s business has been slowed, as many companies have been, due to the global recession and fiscal austerity in infrastructure spending. During this time they have continued to grow revenue (at a slower rate) while decreasing their operational costs (such as the ongoing depreciation and amortization costs of a large and aging building in an expensive part of town).
Daniel Sernovitz of Washington Business Journal noted in an article yesterday that Intelsat’s decision would likely be based on operational and lease costs rather than tax rates and incentives (which both DC and Montgomery County were actively promoting). DC has been trying many tricks to keep businesses from leaving, and counter balancing the nearly 50% more expensive lease rates, including arbitrary tax assessment decreases for buildings. The move of Intelsat could be a bell weather of corporate opinion in this region and likely continues the trend of expansion to the inner Virginia suburbs.
In our own article looking at the commercial real estate in our region: Rising Lease Costs More to Blame Than Tax Rates ; we noted that the very element that DC officials (and local writers) tout, the much higher lease rates in DC, are actually what is killing organic growth of industries in the city and narrowing the market of possible tenants. It is no shock that Intelsat is moving from the aging 6-story space to the new 22-story marquee location in Tysons. By current standards their existing DC headquarters would not qualify as Class A space and lacks many of the common amenities that Tysons Tower will possess. Even more remarkable is the reduction in cost that will occur by moving from an owned and amortized space to a leased tenant space (a condition that is rarely the case).
Many will scoff this move as another case of a company’s exodus to more car centric suburbs for lower taxes (the tax haven defense). This view is shallow and unfounded; the problem is that DC economic promoters view the entire city as a homogeneous urban wonderland. This is frankly not true about 90% of the city. Tysons may currently be the epitomy of suburban sprawl but massive changes are on-going, to believe that over the next 10 years it will remain statically the same is foolish and dismissive (traits that corporations in assessment of long term financial deals rarely exhibit). Much like the case of Charlotte, North Carolina when the economic fundamentals are in place, local officials want to promote growth, and the cost to make a profit by developers/corporate partners is low urbanity comes easy and rapidly.
The biggest winner in the announcement is Macerich Real Estate, who started the ambitious Tysons Tower project speculatively with many questioning the logic of such an investment during the regions commercial stagnation. Since that time Macerich has proven the critics wrong by landing both Hyatt, for their new 17-story hotel space at Tysons Tower, as well as significant occupancy of their new 22-story office tower.
The biggest losers? Well DC, of course, who loses a large corporate presence which was somewhat separated from the usual government heavy portfolio. Don’t worry though DC, after all a spokesmen for Mayor Gray recently noted “We don’t consider Fairfax County to be our competition… New York City is our competitor. San Francisco is our competitor. They’re not even in the same league.” What’s that old saying? Living well is the best revenge?