Why Marriott Stayed | Page 2 of 7

Why Marriott Stayed

An inside account of the hotel giant’s decision to relocate its headquarters to downtown Bethesda, rather than move away

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Jim Young, Marriott’s vice president for corporate real estate, facilities and services, at the site for the company’s new headquarters in downtown Bethesda.

 

With Marriott’s lease on Fernwood Road due to expire in 2022, the conversation about a new headquarters began quietly in 2012, according to Jim Young, a 25-year Marriott employee who is vice president for corporate real estate, facilities and services.

Young first raised the subject with Sorenson, who had become president and CEO that year. “I said, ‘Our lease is up in 10 years. Given the magnitude of finding a site, developing a site, building out the interior, 10 years is really not that long. What are we going to do and when are we going to get started?’ ”

Senior leadership began considering whether to stay or leave and, if the latter, “where would we go and what would we be trying to accomplish,” Young recalls.
J. Willard “Bill” Marriott Jr., board chairman, being “as frugal as he is,” Young says, “favored staying, because he knew it was cheaper.” But it was more complicated than that.

“We were looking at a 35-year-old, soon to be 40-year-old building,” Young says. “If we were rehabbing, we’d want to make it have cutting-edge technology, appropriate for the next 20 years. While it may have been the least expensive [idea], it involved swing space. We’d have to move 1,000 people into somewhere in the business park. And then move those people back in, start on the second and third group, move those people out. Some people, because of department changes, might be moving each time. That’s a pretty disruptive exercise.”

Finally, Sorenson concluded, “We knew that the cost of bringing it up to modern-day standards was not that much different from building a new building.”

There was also the scattered nature of the headquarters’ workforce, which commutes from about 300 ZIP codes, as far away as West Virginia, Pennsylvania and Delaware. Two-thirds drive from Maryland north of Bethesda. A lot of millennials were commuting from the District and Northern Virginia.

Marriott began with a decided preference for Maryland—and didn’t even invite the other jurisdictions to apply. Still, as a public company, Marriott had to exercise due diligence and look at options. “I don’t think it’s unfair that every now and then you hit the pause button and make sure you are doing the right thing for your employees, shareholders, suppliers and community,” says Gill, the Maryland commerce secretary.

To sort it all out, Marriott hired JLL (formerly Jones Lang LaSalle), a real estate services firm. JLL started looking for 2- to 4-acre sites within a reasonable distance of Metro stops. It quickly came back with 84 potential locations. In a day, Marriott officials cut the list to 21.

Marriott’s prioritization of locations was influenced by a worldwide trend—a desire among young employees to live in urban areas. “Many more folks are coming to work from the city than we used to have,” Sorenson says. “A decade ago, I guess there were a number from Northwest Washington, certainly, but if you got down to the U Street corridor, Shaw or the waterfront, there would’ve been just a few. Today, my guess is about 1,000.”

Marriott and JLL used the Metro map as an overlay to evaluate sites, paying special attention to the Red Line because most of the workforce lived closer to it than to other lines. They looked at Rockville, Twinbrook, Grosvenor, right down into the District. They looked at other Metro lines and entertained a delegation from Prince George’s County that was promoting a location near Metro’s Orange Line station in Landover.

In Virginia, they focused on Rosslyn, home of the iconic Key Bridge Marriott, and on Reston and Tysons Corner. But west of the Potomac was problematic for most Marriott employees, for whom there would be “a certain level of lifestyle disruption,” Young says.

 

During an early, informal meeting in Annapolis with Hogan and Gill, Sorenson was “very up front on what the future home for Marriott would need to look like,” Gill says. “Metro and transportation easily accessible was an A-list requirement. Being in an environment that was truly about live, work, play, because they were driven by the whole continual millennial wave. They didn’t want to be the first house in a new neighborhood. They wanted a new house in a neighborhood there for a long time. Downtown Bethesda was checking a lot of the boxes.”

Representatives from the county, state and Marriott began meeting in late 2015 at the company’s offices, first in Sorenson’s conference room for introductions, then in another upper-level conference room, windowless to avoid distractions.

“This was not the G-8 summit meetings,” Gill says. “It was really sitting across the table and setting a number and agreeing to be there.” Usually there were eight participants, never more than 10.

Carolyn Handlon, Marriott’s chief negotiator, is a Virginia Tech and University of Virginia law school graduate who had risen to executive vice-president of finance and global treasurer in her 31 years with the company. With her were Young and T.J. Maloney, Marriott’s senior director of government and public affairs.

Across the table were Gill, Tim Firestine, chief administrative officer to County Executive Ike Leggett, and county development ombudsman Michael Smith. “It was game on,” Gill says. “I knew from the beginning they wouldn’t give me the secret code, but I knew all discussions would be honest and open.”

Also in the room at various times were an assortment of aides, lawyers and Bob Buchanan, a commercial developer who had just been appointed chairman of the county’s new economic development corporation.

Sorenson says he wanted to negotiate without “using leverage to extract the last penny. The fact there was a package was important to us.” But extracting “the last penny…was not.”

The state and county made the first move, presenting a proposal in September 2016. There were to be $62 million in subsidies advanced in five-year increments and dependent only on Marriott providing the 3,500 jobs it already had in its headquarters workforce. The county’s $12 million tax abatement—included in the $62 million—was a given, according to Firestine, “because it was a tax credit that they were eligible for under existing law.”

According to Buchanan, the process was more educational than adversarial. “They were interested in how they would apply [for the subsidies], how it would work and the ramifications,” Buchanan says. “Plus, this was a multiyear agreement. You have governors and county officials going out of office. So how does a company like Marriott know that commitments made will be enforced and adhered to if there is a big change in administration?”

Says Gill: “I wish I could tell you that negotiations were just knock down, drag out, but they weren’t. We got to a place pretty early where we had pretty much agreed on the incentive side of things. Now it was just a matter of continuing to move the ball down the field, getting the i’s dotted and t’s crossed. There was never a point in all the discussions where it became a little anxious.”

The negotiations were often tedious. It was left to Gill to lighten the mood. He came early to the initial session so he could set up an easel in a corner of the room. The first page was blank. When the parties arrived, Gill flipped it over and there was a picture of a football goal line with the upright goalposts he’d drawn. “This is what we have to do,” he said. “We have to get it across the goal line.”

That amused everybody, Firestine recalls. “It sort of set the pace in a very easy way.”

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