Housing Complex

First, Get Tax Break. Then, Flip Building for $60 Million.

A very, very good deal. (CoStar)

Here's one to make a tax break hawk's blood boil: The Costar Group, to which the D.C. Council granted $6.1 million in tax breaks over a ten-year period in exchange for moving to the District from Bethesda, announced today that it will flip the downtown D.C. building it then bought for a profit of $60 million. Talk about incentives!

On the one hand, who cares? CoStar, a real estate data company, made a savvy real estate decision and capitalized on D.C.'s robust office recovery by selling the building to a German property fund manager for $101 million. The District will even make another $1.464 million off the deal from the deed recordation tax.

On the other hand, a cynical person might wonder whether CoStar's pleas of financial hardship should it move to the District might have been a little overblown, if it could have forecasted such a windfall profit from the sale. D.C.'s corporate income tax might be high relative to surrounding jurisdictions, but CoStar would have had a much harder time coming by such a phenomenal real estate deal in the suburbs. One can hardly blame the company for being a smooth operator–it's the Council that ends up looking like the rube.

Oh, and did I mention that $6.1 million was only a little more than what it took CoStar CEO Andrew Florance to upgrade from Chevy Chase, where he sold a house for $1.9 million, to new digs in Cleveland Park?

Comments

  1. #1

    Actually, this makes it sound like an even better deal for the District! Taxes on this big real estate transaction, and the CEO's fat paycheck is going to be taxed in DC instead of Maryland.

    As long as the company is staying as the tenant (which it sounds like they are), then this is a good deal all around. Some German investors get a stable tenant in a high quality building, and everyone else reaps the extra profits and taxes from them probably paying too much for the building!

  2. #2

    Lydia, this is much better for the District. The cry was never "truly" financial hardship. It was jobs (non-gov) in the District. We need to do more of this, but let's get real, honest-to-god Fortune 500 companies and financial services companies. The blunt instrument of tax breaks for individual companies is the only tool we have since we'd never actually lower corporate taxes across the board (see our friends across the river for how this can help the finances and financial wellbeing of your jurisdictions).

  3. #3

    I don't get the ire. A company received tax incentives to move into the city, and moved into the city. It then profited from an essentially unrelated deal - it's not as though the District subsidized the move. And in the end the District receives not only higher property taxes from this property, but also from all the nearby properties, which will have their appraisals raised. Maybe the District should send Costar a bonus as a thank you for this move which seriously improves the long term health of the District. What have I missed here?

  4. #4

    The ire is that the tax-abatement clearly was not necessary. The District could have gotten the same without the help and invested that money elsewhere. Do you think the abatement made the real estate deal more valuable? They flipped the abatement not the building.

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