To the Editor:
The City of Alexandria is leveraging its full faith and credit to issue about $200 million in debt to pay for construction of the Potomac Metro station. The repayment plan is to segregate funds from property taxes collected from the properties located in or near the site of the Metro station (both residential and commercial) to be captured in a “Station Fund" in amounts sufficient to service this debt as well as other costs associated with the Metro station. Thus, if all works according to plan, Alexandria taxpayers (ie. those not living in the station fund area) would not incur any costs associated with the station. It should be noted that “full faith and credit” means that to the extent that anticipated revenues do not cover debt service, Alexandria taxpayers are responsible. Our city leaders assure us that this is unlikely to occur.
But what could cause this to occur? Risks include market risk, economic risk, counterparty performance risk among others. Market risk deals with the financial success of the total venture, particularly in the earlier years. In this respect, probably the shakiest component is the office building sector. Currently neighboring Crystal City has an office vacancy rate of 23 percent second in the area only to Rosslyn’s 28 percent. Developers will hesitate to build into this market. Retail seems solid, particularly if a high proportion of existing retailers reestablish in the town center. Residential, both rental and sales, seems close to the saturation point in the area. Given the leveling off of federal government spending, one has to expect the area’s economy to act similarly and thus demand for new residences could be somewhat tepid.
In this case, performance risk seems most relevant with respect to the various developers. JBG and MRP are area developers with impressive records while Pulte is one of the major residential developers in the country. The final group, CPYR, has reportedly agreed to help fund the station cost but only if Alternative B (the alternative with the highest permitted development) was chosen. As expected Alternative B has been recommended but CPYR has indicated it now wishes to renegotiate its contribution downward. Now that CPYR has its desired alternative, it wants its contribution to shrink. I guess this is how performance risk works, although some may use a different expression.
A Kearney
Alexandria