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Here's the path forward for Skyland Town Center, minus Wal-Mart

Thursday, September 15, 2016

Washington Business Journal by Michael Neibauer

Wal-Mart’s abrupt January withdrawal from the Skyland Town Center project served the long-planned Southeast D.C. development a near death blow. But the District and the development team have negotiated a way forward without the world’s largest retailer — or a big box of any kind.

D.C., which seized the 18.5-acre shopping center a dozen years ago and fought a near decadelong eminent domain battle to gain clear title, has agreed to back the development of Skyland Block 2, anchored by 260 residential units and 80,000 square feet of retail.

An internal view of the Skyland Town Center, as currently proposed by the development… more

To do so will require D.C. Council approval of a renegotiated tax-increment financing package worth $18.75 million — less than half what the District was prepared to pay to support a 135,000-square-foot Wal-Mart in Skyland Block 1. The legislative package is expected to be submitted to the council on Sept. 16.

The revised deal, per District officials, requires extra equity investment from the development team, executed contracts with contractors, and a fully executed lease with a junior anchor before the TIF funds are released.

“We have literally snatched victory from the jaws of defeat, from the ashes of Wal-Mart’s exit,” said Brian Kenner, D.C. deputy mayor for Planning and Economic Development.

Assuming the council approves, the development team, led by The Rappaport Cos. and WCSmith, is expected to go vertical with Block 2 in March 2017. Ground was ceremoniously broken on the $220 million project in March 2014, 20 days before Mayor Vincent Gray’s Democratic primary defeat to current Mayor Muriel Bowser.

The only retailer locked in for Block 2 is a 10,000-square-foot CVS. The pharmacy is a longtime Skyland tenant that has already moved to clear the way for construction.

Located at the confluence of Good Hope Road, Naylor Road and Alabama Avenue SE, the Skyland Town Center is approved for 468 apartments and 325,000 square feet of retail. The council previously approved a $40 million TIF package, largely to secure the Wal-Mart and subsidize horizontal development, but that amount of support is no longer necessary, at least for this phase.

Until January, Wal-Mart was key to the project — CEO Gary Rappaport had said on numerous occasions that Skyland could not move forward without the retail giant on board. Then Wal-Mart backed out, not only of its Skyland lease, but also of its lease at Capitol Gateway, another Ward 7 project. D.C. leaders were irate, but they had little choice but to move forward.

Bowser had committed to get Skyland moving, and that meant setting the idea of a big box in Block 1 aside, for now. The goal has since shifted: Build a residential and retail community in Block 2, and let a grocery-type anchor follow, once the foot traffic is in place.

Henry Fonvielle, president of Rappaport, would only say that the developer is “excited” to get underway. Rappaport said in June he was optimistic of landing tenants to backfill the Wal-Mart space. But for now, he said, “We are going to get this built. We are going to get this restarted.”