AOL: Prince William County
Tax breaks and not spilling the beans snares AOL deal

At first, Northern Virginia didn’t seem a likely contender for what any economic planner would consider a dream property — a $520 million American Online data center that would employ 250 people.

America Online's new data center in Prince William County employs more than 200 people. Photo courtesy AOL

AOL’s requirements were extremely strict. At the center would be hundreds of highly sensitive network servers that would power the online service used by more than 28 million customers. Needed were 25 acres in any of the lower 48 states. Sounds simple enough, until you look at the other criteria. A low probability of earthquake, tornado or other natural disasters eliminated California, Florida and several other states. A need for multiple high-bandwidth fiber optics networks to connect the data center to the Internet knocked out much of the country. Since areas with a low telecommunications tax were a must, that crushed the Chicago area. A reliable, clean electric source nixed brownout-prone areas. And the center couldn’t be in the same electric or fiber grids as existing AOL operations.

Since AOL’s headquarters was then at Dulles, things didn’t look good for Northern Virginia at least in the early stages. "Many areas even in Northern Virginia didn’t have the fiber optic capabilities required," says Mark Larsen, who along with former partner Cathy Delcoco at CB Richard Ellis, represented AOL in the hunt for the perfect site.

Armed with economic, transportation and telecommunication models, the real estate team pared down possible sites. What it found heartened them. Suburban Atlanta and Charlotte could handle AOL, but so could Northern Virginia. Putting together that kind of market intelligence "was a tremendous amount of work," Larsen recalls, but it seemed to pay off in the fall of 1998 when AOL was undertaking its search.

Larsen’s buoyed spirits didn’t last long. Without warning, Atlanta economic development officials publicly announced that AOL was locating its 220,000-square-foot center in suburban Cobb County. But the Atlantans were too quick to the draw and angered AOL officials by violating a secrecy agreement. AOL worried that premature disclosure might spike local real estate prices. While Atlanta talked, "Charlotte and Northern Virginia didn’t open their mouths," says Larsen.

After Atlanta self-destructed, the horse race became a matter of tax breaks. "The states would do almost anything for AOL. That was very apparent," says Larsen. "They would modify almost any rule because with AOL comes a lot of other users."

Worried that losing the new AOL center might mean that highly paid AOL workers would leave the Old Dominion, Gov. Jim Gilmore and leaders in Richmond scrambled. They quickly endorsed tax exemptions worth $18 million. And the deal didn’t just cover the new data center. Gilmore agreed to a telecommunications tax break targeted specifically to benefit AOL’s original headquarters in Dulles, which later moved to New York City following AOL’s merger with Time Warner.

Gilmore’s move put Virginians in high gear to snag AOL’s data center. With the prize looming so close, Martin Briley, economic development director of Prince William County, plugged away selling the county’s benefits and promising no permit snafus. Briley worked local connections, pressed the legislature and even got the local power company to build a new substation for AOL. The county threw in a $30 million tax-reduction incentive on computer equipment over 10 years.

News of the state’s incentive package obviously could not be kept secret because it required General Assembly approval. Though the site search only began in August 1998, the Battlefield Business Park at Route 234 and Route 66 in Manassas was selected by that November. The deal with state and local leaders was announced before television cameras in March 1999 amid a groundbreaking ceremony with Gilmore, AOL executives and other dignitaries. Bulldozers, working in the snow, began clearing land the next morning. "They wanted to come online very, very rapidly," says Larsen, who, since helping pull off the massive deal, has gone into business for himself.

AOL took occupancy of its building in February of 2000 and held a grand opening that May. What seemed an elusive opportunity early in the game more than paid off handsomely. An added extra: AOL announced last fall that it would build a second data center worth another $555 million in Prince William County on Linton Hall Road.

Evercel: Newport News
Battery of professionals close deal that almost got away

By all accounts, Kevin A. DiBona and Paul F. Miller should have been in a tizzy.

The real estate broker and the director of economic development and planning for Newport News had spent months trying to convince Evercel Inc. to locate its new manufacturing plant in the city.

Kevin DiBona refused to give up on the Evercel site. Photo by Mark Rhodes

But the deal had seemingly fallen apart when the battery manufacturer decided to go with a site in its home state of Connecticut. Yet the team lead by DiBona and city and state economic development officials pressed on. They continued to lobby Evercel to consider locating at a vacant 97,600-square-foot Philip Morris facility in Oakland Industrial Park.

Their persistence paid off a month later when environmental problems caused Evercel to punt the home site. Even more amazing is that the team completed the deal through a package of perks and in record time. They managed to finance the $5.7 million sale of the building, provide a series of tax incentives and ink a 20-year lease agreement with Evercel all in 45 days to meet the company’s original time schedule. In January, more than 60 workers began manufacturing Evercel’s nickel-zinc Evertroll batteries used for boats. Another 180 positions are projected by the end of 2002 as the company seeks to tap an estimated $350 million market for its new battery.

Economic development experts say the effort shows what close cooperation can accomplish. Such efforts help diversify Newport News beyond being just a hub for the defense industry and shipbuilding. "It’s part of our desire to get companies that require higher skills and pay better," says Miller. The project is unique, officials say, because a large group of people worked quickly and successfully. "Everybody really acted together," says DiBona, who represented Robinson Development Group of Virginia Beach in the purchase/lease deal. "When a company has its headquarters set up in another state and they’re expanding rapidly, and as a developer and state you’re trying to convince them to set up shop in a new state, it’s very difficult."

The victory at Newport News may garner extra awards since it may convince Evercel to locate more of its functions to Newport News. Local officials got to know members of Evercel’s staff and board of directors last summer when they visited. Company board members were wined and dined as city officials touted the region’s skilled workers and infrastructure. As part of the Oakland Industrial Park deal, the city offered a big package of goodies, including tax incentives, a $1 million loan from the state’s Small Business Financing Authority for equipment purchases, a $250,000 small business loan, $500,000 from the Governor’s Opportunity Fund and $118,000 in enterprise zone money. The property itself helped close the deal. Completed in 1996, the building on 15 acres in the north end of the city between Fort Eustis and James City County was in move-in condition. The floor plans offered a perfect fit for Evercel’s production lines.

Persistence helped too. Members of the economic development team held out hope that Evercel might change its mind and were ready to resume negotiations when word came that the Connecticut site fell through.

Fairfax Hall: Waynesboro
History saved as Fairfax Hall gains new life as elderly housing

Fairfax Hall has survived a bumpy ride, not to mention a colorful history. After first opening its doors as the Brandon Hotel in 1890, it welcomed travelers who rode the train to Waynesboro. Along the way, it became a girls’ boarding school and training center for the Department of Corrections before sitting vacant and falling into disrepair.

Fairfax Hall Photo courtesy Fairfax Hall

Today, this 19th-century icon of the city’s railroad and industrial heritage thrives again as a restored housing complex for the elderly. It was saved from the rails by a developer who saw something worth saving and a neighborhood who rallied around his vision. The latest incarnation of the historic Victorian structure was financed with the use of tax credits for historic structures and those serving the elderly, which covered the building’s purchase and $6 million in repairs. "It certainly has broadened our horizons and given us a different perspective of what we could do," says Ed Delapp, executive director of the Waynesboro Redevelopment & Housing Authority.

Fairfax Hall was probably two years from falling apart when developer/broker Bill Hausrath approached the Waynesboro Redevelopment and Housing Authority about buying the property and converting it to senior housing. The forlorn property suffered from a host of problems: poor maintenance, water damage and asbestos. The problems had scared off potential buyers who would need deep pockets to upgrade the original hotel building, its 14 acres and three other buildings. Using it as a hotel again was dubious because Fairfax Hall sits on a hill on the eastern side of Waynesboro while most of the city’s growth has gone west. The surrounding area is now more residential, with no major roads nearby and an old landfill not far away. "The location of the property did not lend itself to a historic hotel," says Hausrath, who marketed the property unsuccessfully for two local residents who purchased the property at auction in 1996. "Nobody put any money back into it, so it just suffered from major depreciation."

Hausrath knew that anyone seeking to rehabilitate the property would need to rely on Virginia Historic Tax Credits. But even that probably wouldn’t be enough. Only by tapping into federal tax credits available to property owners serving the elderly could the building be saved. "Without those two tax credits it couldn’t happen," says Hausrath, a broker for Coldwell Banker Commercial, Barger Real Estate.

Not everyone saw something worth saving. Hausrath didn’t receive a warm welcome when he first approached the city council for $15,000 in seed money. "They couldn’t see that that building could be something," he says. Hausrath found an unlikely ally in Fairfax Hall’s neighbors. An open house helped convince them that the historic site probably would be torn down and replaced with small apartment buildings if nothing was done — and quickly. Two days later, neighbor after neighbor stood to support the project during a city council meeting, and the city got on board. Besides money, the city helped with rezoning.

Money remained a major problem even with the city’s assistance. The housing authority, which would purchase the property through its non-profit arm, couldn’t afford the $290,000 price. "We were doing this on a promise because every step that was required to receive the tax credits was a step that we had to look at individually," Delapp explains. The architectural firm of Frazier & Associates, which reduced its fees, and First Virginia Bank came to the rescue by helping to finance the purchase. Getting the historic tax credits remained cumbersome. Eventually the city received 90 percent of the credits it requested. With the likelihood that the other 10 percent would be obtained at a later date, the project moved forward.

The new Fairfax Hall opened in January and about 50 percent of its 54 apartments are occupied. Two to three new residents continue to move in weekly. The project continues to receive strong support from the community with more than 600 people attending an open house in March. "It’s like stepping back in time," says Hausrath. The 2,800-square- foot Victorian dining room with a large glassed-in porch can host wedding receptions. A 1,200-square-foot lobby, corridors, and porches create an area large enough for parties of up to 300. Reproduced light fixtures add a vintage touch to the apartments, which are fully modernized with each unit having its own kitchen.

The restoration of Fairfax Hall, with its striking cupola towering five stories, has inspired the eastern side of Waynesboro and given the area and city an economic boost.

Long Bay Pointe Boating Resort, Virginia Beach
$10 million boating resort transforms Lynnhaven marina

Seven years ago when Paul Galloway first set his sights on the former Lynnhaven Waterway Marina, many agreed that it wasn’t much to look at. "It was a rat-infested dump," says Galloway.

Jerry Adams and Paul Galloway on a deck overlooking the boating resort. Photo by Mark Rhodes

Millions of dollars later, the renamed Long Bay Pointe Boating Resort off North Great Neck Road in Virginia Beach is barely recognizable. Gone are the broken down bulkheads. The yellow well water that used to leave boats dirtier after they were washed has been replaced by cleaner city water. Instead of beaten-up boat slips, boaters enjoy a shining, 215-slip marina complex complete with brick pavers leading to a fitness center, retail shops and restaurants. "It’s really just a cut above anything in the area," says Robert Rule, Virginia Beach’s business development and marketing director.

The $10 million boating complex on the Lynnhaven River, styled after marinas in South Florida, is a big draw for crowds. To get that cool Miami look, brick layers spent a year laying green brick pavers that line the driving areas and lead to the crushed oyster shell parking areas. Diners enjoy gourmet meals at One Fish-Two Fish or the more casual Worrell Market restaurant. There’s a beach-wear store, an upscale bait and tackle shop where boaters can purchase most boating supplies, a hair dresser and several sports fishing charter services. At Inlet Fitness, a California-style gym with breathtaking sunset views, more than 2,400 members have enrolled in the year since it opened.

The marina is also home to "Blue Moon," the city’s only dinner-cruise boat. Nearly 150 people can be served on the 80-foot boat owned by Galloway. "I think I’ve created something that’s really unique, not only in the city of Virginia Beach but in Virginia and the United States," he says. "What we don’t have is boats on trailers. We don’t have a repair yard. We don’t have a paint yard." In fact, Galloway insists it’s not a marina. "It’s more of a lifestyle."

Besides becoming a local or regional destination for a night out or a weekend, Galloway is trying to position Long Bay Pointe as a premier stopping-off point for boaters traveling North-South along the Atlantic or Intracoastal Waterway. It has already received positive reviews in boating publications, including Marina Dock Age magazine. Long Bay Pointe also draws positive reviews from the community for replacing the blighted Lynnhaven Marina, boosting area property values and increasing tax revenues generated by the property’s 14 retail businesses. "Anytime you take a $2 million piece of property and make it into a $10 million piece of property, it’s certainly a plus for the city," says Jerry Adams, a broker with S. L. Nusbaum Realty Co. who helped Galloway acquire the 40-year-old marina.

Though Galloway’s vision and tenacity win praise now, he wasn’t always popular with neighbors and planning officials. While city officials never opposed the project, they also didn’t support or help it along. Getting required wetlands permits proved cumbersome. Planned condos were abandoned after neighbors complained about blocked views. A proposal to allow the Sports Fish Co., a commercial seafood operation on the property, to sell to retail customers was also shelved because of local opposition. "It was an ugly experience. It’s fighting ignorance," says Galloway in one of the few comments he makes on the project’s hurdles. He prefers not to dwell on the difficulties. "The people at the city know what they put me through," he allows. "I kept pushing because I owned the land. I had a vision. A lot of people don’t share my vision."

City officials, who don’t mention the earlier opposition, now sing Galloway’s praises. "They’ve put a design together that’s what you’d expect for a new-century marina design," says Virginia Beach Economic Development Director Donald L. Maxwell. "The scale and scope of what they have done is just tremendous." The challenges, he says, were in the site plans.

Any one of these fights could have been Galloway’s undoing. But none posed a greater challenge than completing the $2.5 million purchase of the 7.2 acres needed to start the project. Reaching a sale agreement took more than three years from when Galloway convinced the owners of the smaller of two parcels to sell in February 1995. Ownership of the larger parcel, needed to reach the smaller one, came next but was besieged by feuding among the four partners and legal challenges. Finally, four and a half years after he started, Galloway closed the land deal that led to one of the most dramatic "before" and "after" real estate stories Virginia Beach has ever seen.

Lowe’s, Virginia Beach
Lowe’s goes posh for resort city

The opening of yet another giant home improvement store is usually the talk of the neighborhood. People drop by to check out the giveaways, grand opening specials and how-to sessions on building your own deck. Yet, rarely does the opening of one of these cookie-cutter "big boxes," as they are known in the retail industry, score much interest among real estate professionals because chain home-improvement stores usually look the same.

Gary Ruffner assembled eight parcels for the Lowe's Deal. Photo by Mark Rhodes

Not at Lowe’s Home Improvement Center store planned for Virginia Beach, however. Although the 175,000-square-foot store is months away from opening, it is a hot topic of conversation among planning experts far beyond Hampton Roads. That’s because this Lowe’s won’t be the usual, drab rectangle. "They were going to build their typical cinder-block store — ugly," says Robert Rule, business development and marketing director at the Virginia Beach Department of Economic Development. But pressure from the city and planning commission led North Carolina-based Lowe’s to transform its typical store "into something much more beautiful and attractive."

Another reason the $8.5 million project is drawing glances is that it is so complex. It took Gary Ruffner, a broker with Advantis Real Estate Services Co. in Norfolk, three years to assemble eight prime parcels of land in the London Bridge area, a well-established retail corridor with no tracts large enough to accommodate a national retailer. Some of the parcels had long-term leases which meant buy-out and relocation negotiations. Besides the intricacies of assembling the land packages, Ruffner ran into wetlands and drainage issues, which required special permits. At one point, the Virginia Beach City Council voted against the project’s rezoning, with some members questioning whether another "big box" development was the site’s best use. The council eventually approved zoning, but as Ruffner points out, "When you have multiple pieces in a puzzle, it’s much easier for it to come unraveled. If one piece falls out, the whole puzzle can fall apart."

The puzzle held. What Lowe’s plans to open this fall represents a marriage between resort-city glitz and environmental correctness. The 13.5-acre site drains eventually into the Chesapeake Bay. The store’s exterior design includes three storm-water retention ponds, two at the rear and one in the front, to provide water collection and drainage. The ponds meet environmental guidelines and give the traditional chain store the more pleasing, aesthetic look the city wanted, says Chris Thalmann, senior site development manager for Lowe’s. A fountain and patio benches will dress up the front pond near heavily traveled Virginia Beach Boulevard. The building will have an all-brick storefront and raised walkways, providing safe and easy access from the parking lot to the store’s entrance. "The walkways will be landscaped on both sides, so you don’t have a great big expanse of asphalt," says Thalmann.

The design is costing Lowe’s more that it usually spends on a single store, plus the company is moving eight underground storage tanks that were leaking petroleum product on the site. "We’re spending a considerable amount more than on our typical, prototype stores. ... This is a case where we really wanted to be in this location. We felt it was the best location for our new store," says Thalmann. Lowe’s has one other store in Virginia Beach.

City officials hope the Lowe’s store will jump-start redevelopment in an area of old properties. The London Bridge market area, wedged between the upscale retail of the Hilltop region to the east and other classier properties to the west, consists mainly of auto repair shops, run-down retail and manufacturing sites. "It was just a pocket that hadn’t been touched by anything new in some time," Ruffner says. "Obviously this will be a major draw to this area."

The Lowe’s store is expected to be a model for the development of future "big box" stores. The city recently passed an ordinance requiring large retailers to force developers to work with the city on design plans that blend in with local aesthetics. "For anyone that wants to come in and build in this city, it’s in their interest to come in and work with us," advises Economic Development Director Donald L. Maxwell. The new Lowe’s store is expected to be good for city revenues, generating $700,000 to $1 million in anticipated annual tax revenues, 200 jobs and an annual payroll of $3.5 million.

Return to Virginia Business - June 2001