GO Item 2
June 22, 2017
Worksession 2
MEMORANDUM
June 20, 2017
TO:
FROM:
SUBJECT:
Government Operations and Fiscal Policy Commit~
Robert H. Drummer, Senior Legislative Attorney
y'ln';J-·
Worksession 2:
Bill 10-17, Recordation Tax-Rates - Amendments
Bill 10-17, Recordation Tax - Rates -- Amendments, by Lead Sponsor Councilmember
Elrich and Co-sponsor Councilmember Leventhal, was introduced on April 4. A public hearing
was held on April 25 and a Government Operations and Fiscal Policy Committee worksession was
held on May 4.
Bill 10-1 7 would modify the recordation tax rates levied under state law for certain
transactions.
Background
The "Recordation Tax Premium" went into effect in 2008. Bill 15-16, enacted on May 18,
2016, increased the Premium rate from $1.55 to $2.30/$500. Unlike the two elements of the base
rate paid on all transactions, the Premium applies only to the cost of a property or a refinancing
that is more than $500,000. Half of the proceeds from the Premium are allocated to County
Government capital projects (i.e., capital projects of departments in the Executive Branch); the
other half is for rent assistance for low and moderate income households.
Bill 10-17 would reduce the Premium for transactions that are more than $500,000 but less
than $1,000,000 from 2.30 to $1.55/$500. The Bill would increase the Premium for transactions
that are more than $1,000,000 but less than $2,000,000 from $2.30 to $2.55/$500. The Bill would
also increase the Premium for transactions that are more than $2,000,000 from $2.30 to
$3.55/$500.
Public Hearing
The lone speaker, Peg Mancuso, representing the Greater Capital Area Association of
Realtors, supported the Bill to the extent it lowers the premium recordation tax rate on transactions
greater than $500,000 and less than $1 million. See ©5-6. Ms. Mancuso also recommended that
the Bill be amended to lower all recordation tax rates. The Apartment and Office Building
Association of Metropolitan Washington (AOBA) submitted written testimony opposing an
increase in the recordation tax rates for commercial transactions greater than $1,000,000.
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May 4 GO Worksession
Councilmember Elrich also attended the worksession. Alex Espinosa, David Platt, and
Mike Coveyou, Department of Finance, represented the Executive Branch. Jacob Sesker, Senior
Legislative Analyst and Robert Drummer, Senior Legislative Attorney, represented the Council
staff. The Committee discussed the need to have a fiscal impact statement for the Bill before
acting. Finance representatives said they expect to have an estimate for the fiscal impact in 1
month. Mr. Elrich indicated that his intent was to make the Bill revenue neutral on the overall
recordation tax collected. The Committee agreed to wait for the fiscal impact before acting on the
Bill.
Issues
1.
What is the fiscal and economic impact of the Bill?
The goal of the Lead Sponsor, Councilmember Elrich, is to change the premium rates so
that transactions valued at more than $1 million would be charged a higher tax rate than
transactions valued at less than $1 million. The intent of the Bill is to make this change without
changing the total amount of recordation tax revenue received by the County. However, the tax
rates in the Bill, as introduced, were not verified to be revenue neutral.
Since the May 4 worksession, Finance analyzed State assessment records for multiple years
to determine an estimate of the total revenue. Finance determined that the rates in the Bill, as
introduced, would result in additional revenue of $9,700,000. Representatives from the
Department of Finance are expected to attend the worksession to explain their work to date. They
will be able to suggest optional rates that would be revenue neutral while still reducing the
premium rate charged for transactions between $500,000 and $1,000,000.
If
we receive the Fiscal and Economic Impact Statement before the worksession, we will
publish it as an addendum.
2. Would the Bill increase the volatility of recordation tax revenue received each year?
Recordation tax is charged on real property transactions. Tne total revenue depends upon
the total number of transactions completed in each fiscal year. Historically, the number of
transactions between $500,000 and $1,000,000 each year varies less than the number of larger
transactions. The table below details the historical percentages for the Bill's proposed divisions
based on sales data from FY09-16. To the extent that more revenue is derived from fewer, larger
commercial transactions, the total revenue received each fiscal year is likely to vary more.
Percentage of Total
Transactions
78%
18%
4%
Percentage of Total
Premium Tax Revenue
20%
20%
60%
$500,000 to $1,000,000
$1,000,000 to $2,000,000
$2,000,000 and greater
Finance concluded that 60% ofthe premium tax revenue comes from only 4% ofthe transactions.
2
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3. Technical amendment.
The Bill, as introduced, inadvertently left no premium tax for transactions valued at
$1,000,000 or at $2,000,000. Council staff recommends the following technical amendment to
implement the intent of the Bill:
Amend lines 13-20 as follows:
(2)
if the consideration payable or principal amount of debt secured exceeds
$500,000[,t
(A)
an additional [$2.30] $1.55 for each $500 or fraction of $500 of the
amount over $500,000 but less than $1,000,000[,];
an additional $2.55 for each $500 or fraction of $500 of the amount
equal to or more than [[over]] $1,000,000 but less than $2,000,000;
and
.(9
an additional $3.55 for each $500 or fraction of $500 of the amount
equal to or more than [[over]] $2,000,000.
4. What are the policy issues for the Committee?
a.
Should the premium tax rates be split into divisions that create a higher premium tax
for larger transactions?
b.
If
yes:
(1)
how should the divisions be split; and
(2)
what should the tax rate be for each division?
If
enacted, what should the effective date be?
c.
This packet contains:
Bill 10-17
Legislative Request Report
GCAAR Testimony
AOBA letter
Circle#
1
4
5
7
F:\LA W\BILLS\1710 Recordation Tax Rates - Amendments\GO Memo 2.Docx
3
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Bill No.
------~10~-_1_7_ __
Concerning: Recordation Tax - Rates -
Amendments
Revised: April
7, 2017
Draft No. ~3_ __
Introduced:
April 4,
2017
Expires:
October 4
2018
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date: ----:..:N-=-on'"'"'e~------
Ch. ~ . Laws of Mont. Co.
(year)
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
Lead Sponsor: Councilmember Elrich
Co-sponsor: Councilmember Leventhal
AN ACT
to:
(1)
(2)
modify the recordation tax rates levied under state law for certain transactions; and
generally amend the law governing the recordation tax
By amending
Montgomery County Code
Chapter 52, Taxation
Section 52-16B
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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BILL
No. 10-17
1
Sec.
1.
Section 52-16B is amended as follows:
52-16B. Recordation Tax.
2
3
4
(a)
Rates.
The rates and the allocations of the recordation tax, levied under
Md. Tax-Property Code
§§12-101
to 12-118, as amended, are:
(1)
5
6
7
for each $500 or fraction of $500 of consideration payable or of
the principal amount of the debt secured for an instrument of
writing, including the amount of any mortgage or deed of trust
assumed by a grantee;
(A)
$2.08, of which the net revenue must be reserved for and
allocated to the County general fund; and
(B)
$2.37, of which the net revenue must be reserved for and
allocated to the cost of capital improvements to schools; and
8
9
1O
11
12
13
14
15
(2)
if the consideration payable or principal amount of debt secured
exceeds $500,000[,t
(A)
an additional [$2.30] $1.55 for each $500 or fraction of$500
of the amount over $500,000 but less than $1,000,000(.l;
(ID
an additional $2.55 for each $500 or fraction of $500 of the
amount over $1,000,000 but less than $2,000,000; and
16
17
18
19
©
an additional $3.55 for each $500 or fraction of $500 of the
amount over $2,000,000.
20
21
ill
The net revenue from the premiums payable under paragraph
{1}
[of which the net revenue] must be reserved for and allocated
equally to:
(A)
(B)
the cost of County government capital improvements; and
rent assistance for low and moderate income households,
which must not be used to supplant any otherwise available
funds.
22
23
24
25
26
27
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BILL
No. 10-17
28
29
(b)
Exemption.
The first $100,000 of the consideration payable on the
conveyance of any owner-occupied residential property is exempt from
the recordation tax if the buyer of that property is an individual and
intends to use the property as the buyer's principal residence by actually
occupying the residence for at least 7 months of the 12-month period
immediately after the property is conveyed.
Sec. 2. Effective Date.
30
31
32
33
34
35
36
This Act must apply to any transaction which occurs on or after September 1,
2017.
Approved:
37
38
Roger Berliner, President, County Council
39
Date
Approved:
40
Isiah Leggett, County Executive
41
Date
This is a correct copy of Council action.
42
Linda M. Lauer, Clerk of the Council
Date
f:\law\bills\1710 recordation tax rates -amendments\bill 3.docx
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LEGISLATIVE REQUEST REPORT
Bill 10-17
Recordation Tax-Rates --Amendments
DESCRIPTION:
Bill 10-17 would modify the recordation tax rates levied under state
law for transactions that are more than $500,000.
The premium rate for transactions that are more than $500,000 but
less than $1,000,000 is high. The revenue loss from lowering this
premium rate can be made up by increasing the premium rate for
transactions that are more than $1,000,000.
The goal is to lower the premium rate for transactions that are less
than $1,000,000.
PROBLEM:
GOALSAND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
Office of Management and Budget, Finance
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
To be determined.
NIA
NIA
Robert H. Drummer, Senior Legislative Attorney
APPLICATION
WITHIN
MUNICIPALITIES:
applicable
PENALTIES:
NI
A
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TESTIMONY OF
THE
GREATER CAPITAL AREA ASSOCIATION
OF REALTORS®
BEFORE THE MONTGOMERY COUNTY COUNCIL ON
Bill 10-17,
"Recordation Tax-Rates
and
Amendments"
April
25, 2017
This testimony is on behalf of the Greater Capital Area Association of REALTORS®. GCAAR
represents nearly I 0,000 REALTORS® and real estate professionals. We are also the voice for
thousands
of buyers, sellers and homeowners. GCAAR appreciates the Council revisiting the
issue of possible ways to lower recordation taxes, and we support lowering recordation taxes
from $500k to under $Im within Bill I
0-1
7.
1
Overall, GCAAR maintains a commitment to the inherent value of homeownership and the
consistent positive force it has in our communities. We believe homeownership is the best
opportunity for people to securely plant their roots into Montgomery County, maintain stability
and gain financial freedom. In the long term, homeowners across the economic spectmm
~rn
contribute immensely to Montgomery County's revenue streams via the taxes they pay and local
businesses they support. This leads to greater resources for social services, transportation and
schools- to name a few.
Unfortunately, the rising cost of housing in the County have made it unaffordable for most
residents to purchase a home, especially in comparison to other local jurisdictions. GCAAR has
been seriously concerned that instead making homeownership viable, all we have seen over the
past few years are initiatives that move us further from this goal.
GCAAR must emphasize, if the recordation tax rate structure has more than the current number of tiers,
this may pose certain technical necessities that would need to be put in place by our industry to properly
administer the rates, GCAAR would like to have a more detailed conversation about ensuring accurate
implementation of a multi-tiered system with the Council and members of the real estate community on these
technical issues such as a later implementation date to allow the industry to make any necessary changes.
1
0
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Specifically, I came before you last when this Council pushed through a nearly $200 million
recordation tax increase on homeownership in less than a month's time. To make matters worse,
the County's recordation taxes were already amongst the
highest in the country.
That surge in
tax rates presented immediate challenges to residents across the County, particularly those first-
time homebuyers who already found themselves having immense difliculty putting together their
final closing costs.
Today, we find ourselves evaluating a Bill whose eflect would be to nominally reduce and return
the recordation tax rate to its' previous level prior to last year's increase for transactions more
than $500,000 but less than $1,000,000. We approximate this group the measure would reduce,:.
their recordation tax costs by a couple hundred dollars.
As we often stress, while a few hundred dollars may not seem like much for lawmakers dealing·;
with millions of tax dollars, this adds up very quickly for working families. In fact, the down
payment is often the greatest impediment for homeownership. GCAAR is supportive of the part
of Bi 11 10-17 that lowers recordation taxes from $500k to under $1 m because we firmly believe ·•
this relatively small benefit could have a worthy impact. The folks who are now tapping info the
last of their savings could find relief in saving even a small amount of additional dollars.
Further, we recommend lowering recordation taxes for future homeowners across the board.
GCAAR is able and willing to sit down and work with you and any another other interested
school stakeholders on finding funding mechanisms for our most critical priorities such as
MCPS.
If
the County needs more revenue, we can all work together on broader solutions.
In conclusion, GCAAR respectfully asks you to lower the high cost of the Montgomery County's
recordation taxes to make homeownership more attainable. Specifically, we believe returning
the rate to what it was previously for recordation taxes at the $500k to under $Im price point is a
positive start.
(i)
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-· Af'AtffMf.NT AND
t)ff:t:.r:·-
BlJllO!NG ASSOCll<r!ON
OF
MtTfU:WOU1AN WASHINGTON
TO:
Councilmember Nancy Navarro, Chair,
Committee on Government Operations and Fiscal Policy
Councilmember Sidney Katz, Member
Committee on Government Operations and Fiscal Policy
Councilmember Hans Riemer, Member
Committee on Government Operations and Fiscal Policy
FROM:
Nicola Y. Whiteman, Senior Vice President of Government Affairs
Apartment and Office Building Association of Metropolitan Washington
May 2, 2017
Oppose Bill 10-17 Recordation Tax
-
Rates-Amendments
DATE:
RE:
The Apartment and Office Building Association of Metropolitan Washington (AOBA) is a non-
profit trade association whose members include owners and managers of more than 112,000
apartment units and over 33 million square feet of office space in suburban Maryland, of which
more than
57,000 apartment units and over 24 million square feet of office space are located
in Montgomery County.
AOBA strongly opposes Bill 10-17 Recordation Tax
-
Rates -Amendments,
which proposes
to increase the recordation tax premium component of the recordation tax.
This measure
will
almost triple the recordation tax premium for commercial and multifamily properties
as most
are valued at more than $1 million. Property owners could thus face, for example, a staggering
increase from $1.55 (2015 rate) to an additional $3.55 for each $500 or fraction of $500 of the
amount over $2,000,000 in a just a few years.
The proposal will
unfairly
impose a second, significant increase to the recordation tax rate on
AOBA members and other businesses that already bear a disproportionate share of the County's
tax burden. The non-residential sector, for example, accounts for approximately
67.1%
of energy
tax revenues. AOBA supports across the board tax enhancements that are universally applicable
but cannot support a proposed structure that intentionally targets businesses.
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The 2017 proposed tax hike follows the Council's 2016 decision to significantly raise both the
school increment and recordation tax premium
in addition
to a record increase to the property
tax rate. The 20 I 6 increase was a shock to the real estate market, especially a weak commercial
office market, and the 2017 proposal is pending as the market continues to struggle.
A second recordation tax increase will undermine the County's economic development
goals and serve as a disincentive to needed investment in the County. Annual tax increases
primarily borne by businesses sends the wrong signal that MONTGOMERY COUNTY IS
CLOSED FOR BUSINESS.
TAX INCREASES UNDERMINE THE COUNTY'S AFFORDABLE HOUSING GOALS
The proposal will increase the costs associated with the purchase and sale of rental housing.
Rising interest rates and higher transaction costs:
AOBA cautions the Council that the impact
of this misguided proposal must also be considered along with other changing market conditions.
Notably, the loan period for many multifamily properties averages
7
to
IO
years, making
refinancing a frequent, and if this proposal passes, more expensive occurrence. Higher
recordation rates, in addition to projected increases to interest rates and rising operating expenses
(i.e. increases to electric and water rates in addition to numerous surcharges, among others)
should raise alarms about the ability to preserve and operate the County's existing rental housing
stock.
Draft Rental Housing Study Policy Recommendations
-
Tax
Incentives:
At the same time a
tax increase is before the Council, the same government is also considering real property tax
abatement and exemptions as a tool for preserving and incentivizing affordable rental housing.
(See Policy Recommendation, page 32.) Real property taxes can account for 22% of operating
expenses so real property tax
credits
not increases can serve to preserve existing and incentivize
the development of new rental housing.
Tax proposal paints bull's eye on real estate investment trusts ("REITs"):
Many of the
apartment communities in Montgomery County are owned by REITs and other investment
ventures that rely on stable markets so that they can buy and sell properties quickly. REITs are
already hesitant to invest in this County, given the high taxes and uncertainty regarding the
future of the County's rental housing laws. An increase to recordation taxes could further
dissuade REITs from investing in the County.
Government regulation and policies, such as the current proposal can limit access to
housing by increasing the costs of producing new and preserving existing housing.
See 14
Million Households "Priced Out" By Government Regulation, "NAHBV Economics estimates
that 14 million American households are priced out of the market for a new home by government
regulations that, on average, increase the new home price by 24.3%." This does not include, for
example, costs such as the impact fee here in the County.
For multifamily properties, the
percentage can be as much as 30%.
<D
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TAX HIKE PUNISHES NOT HELPS ALREADY FRAGILE OFFICE MARKET
The struggling office market is already facing high vacancy rates that create the risk of
declining
property values and tax revenues.
Another proposed recordation tax increase will thus do little
to address the challenges plaguing the office market sector and may in fact result in a net
decrease in projected revenue. For example, the proposal could scare away potential purchasers
already skittish about acquiring challenged properties. Adopting a second recordation tax
increase will encourage many to instead look to neighboring jurisdictions where the tax burden is
more reasonable, making development and reposition deals more attractive.
Montgomery County is not an island.
Consider, for example, that Prince George's County is
aggressively working to attract new residents and businesses through a variety of regulatory
policies and incentives. The County is also an increasingly attractive market due to a number of
factors including, for example, cheaper land and the availability of jobs for persons choosing to
relocate to the County. Prince George's County is indeed "Primed for Business." See, for
example, Five Key Takeaways from DC's QI Office Market, Banister, April 4, 2017.
https ://w w,v.bi
snovv.co
111
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01;wn-dc/ncws/o fficc/fi vc:::JJtkcnwa vs-frorn-dcs-q l -officc-ma
rket-
"The relative lack of affordable metro-centric developments in other locations may
be a catalyst for Prince George's County
... ,"
JLL director of U.S. office research Scott Homa
said.
"Natural economic forces are driving government tenants to Prince George's
and will
likely continue to do so over the long term, especially with this [Trump] administration focused
on reining in the cost of government."
1
How will the fairly new Montgomery County Economic Development Corporation, whose
mission includes business retention and expansion and removing barriers, respond to existing
and prospective businesses concerned about seemingly annual tax increases in the County?
1
Will
businesses continue to "Choose Montgomery?" Will they be able to afford to "Choose
Montgomery?"
THE PERFECT STORM:
Higher Recordation Tax and Troubled Financial Markets
Understanding the full impact of the proposed increase requires the Council to first carefully
consider how many commercial loans are structured as well as anticipated developments in the
financial market. First as noted, many of these loans are for 7 to 10-year terms, thus making
refinancing and exposure to a high recordation tax rate a frequent occurrence. Secondly, the
proposed increase comes at a time when financial markets are predicting additional challenges
ahead due to the storm brewing around commercial mortgage backed securities (CMBS) loans.
2
h11p~>/thinkmrll'O.co111<1bnut-mcl'dcwho-wc-art
1
"Business retention and expansion efforts continue to be our
priority, We are engaging with businesses across the county to add value and remove barriers as needed,
knowing that the greatest job growth will be generated by those businesses already located in the region."
2
Real estate's ticking bomb: Who gets hurt, CNBC, Olick, Diana, March 10 2016 ("Commercial mortgage backed
securities (CMBS) are bonds sold to investors"); US Commercial Mortgage Backed Securities FAQs ("CMBS are
bonds, which are backed by commercial real estate collateral."); Refinancing CMBS loans could prove difficult,
Greater Fort Wayne Business Weekly, Lipp, Linda, March 30, 2017 ("While $6.7 billion in maturing CMBS debt is
1
(j)
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The Council should be mindful that many of these CMBS loans, which were hugely popular in
2007 and many of which are 10-year balloon mortgages, were due in the fourth quarter of 2016
and 2017 for refinancing.
3
Given the strict defeasance and prepayment penalties, the only time
to refinance is within the narrow 6-month period before maturation. A second, substantial
increase to the County's recordation taxes could stand in the way of, or change the structure of,
refinances for these commercial loans, and lead to catastrophic default.
If
unable to refinance
these properties, building owners may be forced to sell properties and at prices far below the loan
amount.
This will result in lower recordation tax collections and revenues earmarked for the
various capital projects and rental assistance programs.
AOBA also cautions the Council that owners planning to refinance CBMS loans already face a
challenged financial market. CMBS loans are essentially bonds and some industry analysts are
questioning whether there will be sufficient investor demand for these loans.
4
Additionally, the
ability to refinance assumes an owner has sufficient equity in a property. Those properties which
have not been able to sufficiently increase rents and income and thus increase property values
will find refinancing much more challenging.
5
We know, given the current state of the
coming due this month, the figure is minuscule compared to what's coming.
Over the next six months alone, about
$61.1 billion in debt
will
come due.
But almost 6 percent of the maturing debt is past due on payment and 10.5
percent is in special servicing, according to data from market research firm Trepp. Difficulty in refinancing is the
key culprit.
Tighter regulations in the financial markets have made
it
more difficult and more expensive to
refinance these loans,
said attorney Daniel Martin, a partner in McDermott Will
&
Emery in New York. Loans that
were originated more than 10 years ago may have been at 75 percent to 80 percent, loan to value. It's much harder to
borrow that much today.")
3
Projected CMBS Issuance for 2017 Under $80 Billion, Bell, Diana, Jan 19, 2017 ("While 2016 brought choppiness
to the CMBS market, rising interest rates and risk retention rules in 2017 may pose headwinds to the sector this year,
sources say .... Rising interest rates will be a concern for CMBS financiers watching their bottom line ...
Approximately 30 percent of $47 billion in Fitch-rated CMBS loans maturing this year could default. ... The firm
says expects "significant delinquencies" in those loans, citing high leverage levels .... About $112 billion in CMBS
loans is scheduled to come due in 2017, according to research firm Trepp, with another $17.6 billion slated to
mature in 2018. Office and retail loans account for the bulk of the balances, Trepp analysts say"); Banks to Fed:
We've Tightened Commercial Real Estate Lending. Drake, Martin, May 6, 2016 ("CMBS is also facing a looming
maturity wall - i.e. the wave of securitized loans that will need refinancing over the next six months."); Real estate's
ticking bomb: Who gets hurt ("CMBS tends to have a IO-year life span, at which point the debt matures and real
estate owners
have
to refinance the loans.")
4
Real estate's ticking bomb: Who gets hurt ("CMBS tend to have a 10-year life span, at which point the debt matures
and real estate owners have to refinance the loans. These maturities are expected to surpass $400 billion annually
this year and in 2017, according to CBRE, a real estate services firm. That is $100 billion more than last year.
CBRE
"conservatively" estimates that 18 percent of loans this year and 29 percent of loans next year could have problems
refinancing. due to lack of investor demand for the bonds. This translates into about $43 billion in potentially
troubled loans over these two years."
"We think some of these are going to be remonetized through asset sales, but
some will certainly hit the foreclosure list ... ""); Coming Due: How CMBS Market Will Handle $300B Maturing
2015-2017, January 7, 2015, Colomer, Nora ("The amount of commercial mortgage debt maturing is set to spike this
year, when loans taken out during the height of the real estate bubble start coming due.
Between 2015 and 2017,
more than $300 billion
will
need to be refinanced.")
5
Wall of CMBS Loan Maturities Shrinks, Remains Daunting. Commercial RealEstate Direct, January 19, 2016,
("Healthy real estate market fundamentals have enabled many owners to increase rents and income, which has
contributed to an increase in property values and made refinancing easier than it otherwise would be. Borrowers
have taken advantage of the strong market fundamentals, the availability of debt capital and relatively low interest
rates to defease CMBS loans and refinance properties before their underlying loans mature.") While owners of
challenged properties will still be able to refinance a property, they might face, for example, higher interest rates.
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commercial office market in Montgomery County, that this 1s a reality for many property
owners. In other words - the perfect storm.
BACKGROUND
>···.•
.
. . . .
(
.
..
.iiQlZ017Jl,C.~:eon.t ....
stJJ3tJRBA..N;Mn,'\{A..¢A..Nt:Y:•n.A..tt$~
\. •\.)/.
"No
office buildings were under construction
m
Montgomery County and only one office
development was under construction in the Suburban Maryland region in the first quarter. No
office buildings will be completed in 2017; the next office building isn't scheduled to deliver
until the third quarter of 2018."
7
Class C
ClassB
Submarket.
Total Vacancy
Class A
16.3%
15.4%
Montgomery County
16.3%
17.3%
15.8%
11.4%
9.5%
7.5%
Bethesda CBD
NIA
42.3%
Bethesda
-
Rock Spring
28.1%
26.4%
NIA
9.2%
9.2%
NIA
Burtonsville
NIA
3.9%
16.7%
Chevy Chase
11.3%
NIA
3.5%
Clarksburg
3.5%
NIA
20.6%
13.3%
Gaithersburg
13.7%
13.7%
26.1%
15.8%
Germantown
15.8%
14.5%
11.7%
2.5%
Kensington
9.6%
NIA
NIA
9.9%
6.6%
15.3%
North Rockville
10.9%
21.9%
Shady Grove
18.6%
17.5%
3.4%
28.5%
Park Potomac/Tower Oaks
25.1%
27.4%
20%
21.9%
9.3%
Rockville Pike Corridor
16.6%
14.5%
Downtown Silver Spring
20.7%
14.6%
11.8%
NIA
North Silver Spring
23.8%
14.9%
16.5%
25.9%
Wheaton
25.9%
NIA
NIA
MONTGOMERY COUNTY COMPREHENSIVE ECONOMIC STRATEGY
MARCH2016
"It is clear, however, that diversifying the County's business sector portfolio beyond
those tied to the federal government while exploring new opportunities to better leverage
federal institutions for private sector investments will strengthen the economy. For this to
happen, a full commitment to private sector success is required. Businesses must not be
seen as an afterthought; the County must wholeheartedly embrace the success of its
private sector. This must involve existing businesses, ensuring that they are satisfied with
the County's commitment to them and to their expansion.")
6
Q I 2017 JLL Report - Suburban, MD Vacancy Rates, http://www.us.jll.com/united-states/en-us/Research/US-
Suburban%20Maryland-Office-Insight-Q1-20 l 7-JLL.pdf?705bc663-0f4c-4 l 70-8ce8-5a8d7b0cc94d
7
Ql 2017 JLL Report- Suburban, MD Vacancy Rates, p. I
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 PDF to HTML - Convert PDF files to HTML files
STRATEGY 1.1.4. Tax and Regulatory Policies: Ensure County Tax and
Regulatory Polices are Supportive of Business Attraction and Expansion, Especially
as They Affect Targeted Markets.
SOBERING NEWS
State of the Commercial Real Estate Market in Montgomery County
Excerpts: Montgomery County Planning Department's June 2015 Office Market Assessment
"High vacancies also threaten the financial viability of individual buildings.
They pressure
each landlord who has vacant space to lower rents or increase concession packages in order to
lure tenants, undercutting the building's cashflow and thus its market value.
As more buildings
are affected, these depressed values could have negative implications for the property tax
base of the county, the City of Gaithersburg, and the City of Rockville."
Page 1.
'Projected occupancy rates do not suggest any near-term relief in these problems.
Only
significant increases in office-based employment, office building demolitions or conversions to
other uses could make a dent in the county's nearly 11 million square-foot vacant office
inventory." Page 2.
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