The Washington Area Primps as Northrop Grumman Shops for a New Home

By EUGENE L. MEYER
Published: February 23, 2010

WASHINGTON — The announcement last month that Northrop Grumman would move its headquarters to the Washington area after 72 years in Los Angeles has set off a feverish competition among local governments to land the company, one of the nation’s largest military contractors.

The move will involve just 300 employees in a worldwide work force of 120,000. But apart from generating immediate benefits like business- and income-tax revenue, Northrop Grumman’s new headquarters is likely to draw subcontractors who want to be near the main office of a company that had $33.8 billion in sales last year, mostly from government awards.

The first group of 150 employees is scheduled to arrive by the summer of 2011, Northrop Grumman said. With the real estate consulting firm CB Richard Ellis, the company has focused on five locations in Virginia, three in Maryland and two in the District of Columbia that would provide 150,000 to 200,000 square feet, according to several people involved in the site search who were not authorized to speak publicly about it. It intends to make a final selection as early as next month.

“It’s incredibly good news for the greater Washington region,” said Matthew Erskine, executive director of the Greater Washington Initiative, a marketing arm of the Greater Washington Board of Trade. “A corporation as significant as Northrop Grumman doesn’t take this kind of decision lightly.”

The company is already a major presence in the region, with about 40,000 employees in Virginia (half at its Newport News shipbuilding facility), 20,000 in Maryland and 100 in the District of Columbia.

In announcing the shift, the company said it was moving its headquarters to be close to its “large customer base in the Washington, D.C., region,” referring to the military and intelligence agencies located there.

The District of Columbia first got wind that a large corporation was considering relocation sites in the area late last year, said Valerie Santos, deputy mayor for economic development.

“We got a call,” Ms. Santos said. “They wouldn’t tell us who they were calling for. They wanted to know if D.C. had an attraction-retention program.” Then came last month’s announcement from the company, along with its statement that financial incentives and geographical access to federal power centers would be the deciding factors in its site decision.

Company officials visited the state capitals of Richmond, Va., and Annapolis, Md., this month to discuss those states’ respective bids.

“Competition only works if everyone knows there is a competition,” said Gaston Kent, vice president for finance at Northrop. “Our process is open and transparent because that’s the way we do business.”

State officials in Maryland and Virginia have not discussed the substance of their offers. The District of Columbia, on the other hand, has put its bid out for public view, in the form of legislation now before the City Council, where it has seven sponsors and the support of Mayor Adrian M. Fenty. The city’s package includes up to $19 million in property tax abatements and $5.5 million to help defray relocation costs.

“D.C. is prepared to meet and exceed any financial benefits put forth by Maryland or Virginia,” said Councilman Jack Evans, the lead sponsor of the bill.

The incentive package is similar in form to what the district successfully offered to the CoStar Group, a commercial real estate information company, to lure it from Bethesda, Md., this year.

For the most part, officials have been running a publicly positive campaign. “You want people to come to you because you’re the best,” said the president of the Maryland State Senate, Thomas V. Mike Miller Jr., who gave Northrop officials a tour of the historic State House in Annapolis, “not because you trump a sister state or fellow jurisdiction. You like to compete on a friendly basis.”

But regional rivalries have surfaced.

“Would you rather be in downtown Washington or Crystal City?” in Virginia, Mr. Evans said. “Bethesda is just a hike. The bottom line is they want to be close to the Pentagon, Capitol and White House. It’s almost like a no-brainer.”

Mr. Miller said Northrop Grumman officials were impressed with Maryland’s AAA bond rating, among other factors. He said the company was looking at National Harbor and College Park, both in Prince George’s County, and locations in adjoining Montgomery County.

Montgomery County is home to the military contractor Lockheed Martin, which is larger than Northrop Grumman in total employees and sales. But Maryland’s corporate tax rate, 8.25 percent, is higher than Virginia’s, 6 percent. Washington’s is 9.97 percent.

Four major corporations have recently moved their headquarters to Fairfax County in Northern Virginia. These include Volkswagen of America, which received a total of $10.6 million in incentives from the county and state to move there from Auburn Hills, Mich. Gerald L. Gordon, president of the Fairfax County Economic Development Authority, declined to discuss Northrop Grumman.

“We brokers have our opinions of where and where not they may be going,” said Mark Larsen, president of Larsen Commercial, a brokerage firm in Fairfax County, who in the past has represented Northrop in real estate transactions.

Mr. Larsen said he was betting on Tysons Corner, the shopping and office hub in Fairfax County right off the Capital Beltway and where Northrop Grumman already leases space.

“Defense contractors generally prefer the Virginia side because that’s where many of the Department of Defense offices are,” Mr. Larsen said.

Whatever the outcome, said Terry Holzheimer, the director of economic development for Arlington County, Va., Northrop Grumman’s move has “brought out the competitive spirit, let’s say that.”