City Leaders Detail Efforts to Lure Nordstrom

Originally posted in The Current on Wednesday, July 18, 2007
Written by Current Staff Reporter

District officials are hoping to lure the Nordstrom department store chain to the District, but they’re divided on a location.

Council members Jack Evans and Kwame Brown say Nordstrom officials have expressed strong interest in Western Development’s The Shops at Georgetown Park and that the company has no interest in the old convention center site — Mayor Adrian Fenty’s preferred location.

Fenty mentioned his interest in drawing the highend department store to the convention center site during a community meeting in Foggy Bottom late last month.

“We do want Nordstrom in the city, but we think we have a better site in the old convention center,” he said in response to a question about city financing for a Georgetown location. “Then no debt would be needed.”

Asked about those comments, at-large Council member Brown said he and Ward 2’s Evans had met with Nordstrom officials at a Las Vegas shopping center convention and “they flat-out said … that they are not interested.”

Brown said Nordstrom officials did not think plans for the downtown site, which call for office and residential buildings with street-level retail of over 275,000 square feet, a hotel and possibly a library, would attract the type of customers they want.

“I asked [them], ‘Is there anything we could do to make [you] go downtown?’” Brown said. “They said no. ‘Our suppliers know Georgetown. We know Georgetown.’”

Nordstrom representatives have repeatedly told the media that they, like most of their competitors, do not discuss possible locations publicly.

A spokesperson for the deputy mayor for planning and economic development declined to comment about any specific location. “We would love to see Nordstrom come to Washington,” he said. “We are not picking out a site.”

The Georgetown option

Brown said in an interview that a Nordstrom store in Georgetown would need to receive financial help from the city’s tax-increment financing or “TIF” program, possibly about $20 million. Through that program, the city would float bonds to be financed by the increase in sales taxes generated by the store.

Western Development has been planning a major renovation of the indoor shopping mall, which has frontage on the south side of M Street and then dips two stories underground. In an interview, Western Development president Ben Miller said his firm plans to establish a task force with representatives from the advisory neighborhood commission, Citizens Association of Georgetown and Georgetown Business Association “to determine the highest and best use for Georgetown Park.”

“We have been talking to different retailers to see if they are interested in Georgetown Park,” Miller continued. “Nordstrom is interested, but it’s a little early to say how much of a TIF we would need.”

He said the chain would likely require financial assistance to open in Washington because of the way the market for department stores operates.

Major department stores usually get their sites for practically nothing when they build in suburban shopping centers, Miller said. “And they are given tens of millions of dollars [by the shopping center developers] to build out their stores.”

The stores then draw customers to the mall’s smaller stores, which pay rent. Part of the rent is used to cover the department store payments, he explained.

“Department stores are having to adopt their model for urban locations, but they are not used to paying real rent,” Miller said. “ … There is no way we can bring Nordstrom’s into an urban location like Georgetown without the city’s support. It is just impossible.”

Miller said Western Development has not calculated how much help it would need. “We haven’t submitted for anything in the way of a TIF. … I don’t know where the $20 million number came from.”

Evans said the number was mentioned during conversations he and Brown had with Nordstrom officials but was not meant to be precise.

Miller said his company would make a number of improvements to Georgetown Park if Nordstrom were to locate there.

“We would have to redo the 25-, 30-year-old garage to add parking spaces, which is critical for Georgetown. There are a bunch of public improvements that would benefit us and the rest of Georgetown. … Some might go into the hard costs of building out the shell for Nordstrom’s to make it ready for them to build out their store,” he said, adding that the area’s sewer system also needs improvements.

Why city funds?

The city currently has $200 million available for tax-increment financing, according to Evans and Brown.

When asked why the city should use that money for an already prosperous area like Georgetown, Miller answered, “It’s not about Georgetown compared with Georgia Avenue. It’s Georgetown compared with Chevy Chase, [Md.,] and Tysons Corner.”

Georgetown Park itself, he added, “could support more than a $100 million TIF” because of the amount of sales tax revenue it creates.

Council member Brown suggested use of some of the tax-increment financing funded by Georgetown Park to help underserved neighborhoods, where the taxes generated by new retail would not be sufficient to pay off the bonds.

“Kwame’s idea of letting a Georgetown Park TIF underwrite the needs of other areas is right on,” said Miller.

Evans pointed out that Brown’s approach would require legislative changes. Currently, each tax-increment financing project must be self-financing.

“A $20 million TIF for Nordstrom’s in Georgetown Park could be supported by the center’s potential of $110 million,” Brown said. “If you need, say, $20 million for Nordstrom’s, you would still have $90 million left over for other underserved areas where a TIF cannot be supported. … To me that could be a win-win.”

A study by Basile Baumann Prost & Associates Inc., a public/private development advisory firm hired by Western Development, estimates that by adding Nordstrom, Georgetown Park would see a yearly sales increase of over $159 million, yielding the District over $9.7 million in sales taxes.

The report says additional shoppers attracted by the department store and more high-quality retail in Georgetown Park likely would make purchases of over $60 million in the Georgetown area outside of the center, yielding almost $3.5 million in additional sales taxes.

Georgetown vs. downtown

Miller said Nordstorm is interested in the city because of recent demographic changes. “The city has gotten a lot younger. It could now support a real fashion center that would compete with Tysons Corner.”

But he also said: “The only place in Washington that’s viable for international fashion is Georgetown. We’re envisioning a Soho-style fashion center [at Georgetown Park], if we can land an appropriate department store.”

He noted that stores like Nordstrom “want to be in a place with the energy of Georgetown with tourists, students and restaurants.”

Brown agreed, saying Georgetown would be more likely than downtown to draw desired customers into the city from the suburbs.

“Shoppers wouldn’t leave Pentagon City or Tysons Corner for the old convention center, but they would for Georgetown,” he said.“Nordstrom’s will be anchor to a number of other retail shops. It will attract more people.”

Evans said Nordstrom management does not believe their store alone can attract a sufficient number of shoppers to make it profitable. The company told city officials they are looking to locate in an area that is already a “destination — such as Georgetown.”

“They have no interest in being out there by themselves,” Evans said.

Lawsuit

A complicating factor in the financing debate may be a lawsuit Western Development has filed against the city over a rejected proposal for a real estate development near the new baseball stadium.

In response to a question, Evans said he doubts the Fenty administration would offer the company tax-increment financing while the suit is pending. “I would not think the city would entertain any kind of economic incentives for any company that is currently suing the city.”

He said Western Development should drop the lawsuit, but not as a quid pro quo. Then, he added, he would favor a serious consideration of tax-increment financing for a Nordstrom in Georgetown Park.

Miller could not be reached for comment on Evans’ statement.

Opposition

Ed Lazere of the D.C. Fiscal Policy Institute, a budget-analysis group generally linked with liberal causes, has objected to city financial support for a Georgetown Nordstrom.

Lazere said in an interview that if the project can generate enough revenue to justify a $100 millionplus tax-increment financing bond issue, Western Development“should be able to finance the project on [its] own.”

“You pay consultants to get what you want,” Lazere added, referring to Basile Baumann Prost.“You cannot put a single dime of trust into future projections [recommended by] consultants who are paid for by the beneficiaries of the outcome.”