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Betting big: A guide to development in Wards 7 and 8

Friday, August 4, 2017
Major projects could reshape neighborhoods east of the river

Washington Business Journal by Karen Goff & Michael Neibauer

It’s been more than three years since the old Skyland Shopping Center in Southeast was flattened to make way for a new town center — and it took well more than a decade just to get to demolition. Problem after problem dogged the project: Eminent domain proceedings, a covenant with the nearby Safeway, delays signing Wal-Mart. And, finally, Wal-Mart pulling out.

Now developers WC Smith and Rappaport swear they, along with newly tapped general contractor WCS Construction, will begin vertical construction by October on the first $115 million phase — 84,000 square feet of retail, including a CVS, and 263 residential units. Seventy percent of the units will be market rate, marking the first significant market-rate housing units built east of the Anacostia River in 40 years.

Scroll down to see the major development sites mapped out. Click here to see a gallery of the projects.

While the last two decades have seen the transformation of Penn Quarter, 14th Street, NoMa and the Navy Yard, development has been smaller and slower — and at times, stalled — in Wards 7 and 8, which count some of the city’s poorest neighborhoods.

People have been talking about potential development there for years — probably decades — but there are plenty of new signs that wards 7 and 8 are on the precipice of a development boom.

With most other development sites in the city already spoken for, more and more developers are turning their attention east of the river, and they are proposing large-scale, mixed-use projects. All eyes will be on Skyland to see how successful its market-rate housing is and whether the project at Alabama Avenue, Good Hope Road and Naylor Road SE attracts new residents to the neighborhood.

“It’s a matter of time,” said WC Smith CEO Chris Smith, whose company has developed subsidized housing east of the river for years. “We are gambling on that.”

The Washington, D.C. Economic Partnership counts 21 projects under construction in wards 7 and 8 right now. Seventy-two more are in the pipeline. To be sure, not every one will get built, but the names behind the projects are reminiscent of those who helped other neighborhoods see their potential: Jair Lynch Real Estate Partners, The Menkiti Group, Pennrose Properties, Donatelli Development, Redbrick LMD, WC Smith, CityInterests and Rappaport.

“I think that probably 10 years ago you would have seen two developers,” said D.C. Deputy Mayor for Planning and Economic Development Brian Kenner. “Now I think the diversity of interests east of the river means it is more attractive. When we put out a solicitation, we don’t just get the same two people bidding. We get four or six and we have a better competitive position.”

Office space?

Kenner’s comment raises the question of whether the market east of the river is strong enough to yield progress without the involvement — land or subsidies — from the city. That will depend on the strength of the economy and how much risk investors and lenders are willing to take.

“Capital markets have to stay attractive for investors to do their deal,” said Derek Ford, the economic partnership’s senior vice president of emerging and underserved neighborhoods. “If downtown gets a little cold, we [across the river] get pneumonia. You can buy the land, but to actually develop it is more difficult. We have got to get more people moving there with more money. More. Money.”

One key to that — and something prevalent in several of the proposed projects — is building mixed-use, which helps activate neighborhoods during the day and in the evening. For wards 7 and 8, that means office space. Major office space development is in the works at CityInterests’ Parkside (750,000 square feet with a federal tenant in mind), St. Elizabeths west (the Department of Homeland Security’s $3.7 billion consolidation project), and Redbrick LMD’s Columbian Quarter (1.6 million square feet) at Poplar Point.

But barring a large government tenant selecting a site east of the river — both ICE and the Labor Department have flirted with the area — major office uses may be unrealistic for now.

A new office user could lead to an increased demand for market-rate housing, as well as retail, but consider this caveat: There was a lot of hope that locating the Department of Homeland Security at St. Elizabeths would spur related retail and development, but there has been little to speak of since the Coast Guard became the first DHS agency to move there in 2013.

That could change, thanks to the new $65 million practice facility for the Washington Wizards and a home court for the Washington Mystics on the D.C.-owned St. Elizabeths east campus. Events D.C. is building the $65 million facility adjacent to the Congress Heights Metro station. The 4,200-seat arena is slated to open in 2018.

“No question, the arena will be an anchor that will spur commercial development, much like the baseball stadium did for Capitol Riverfront,” Events D.C. Chair Max Brown said.

But so far, Ward 8 has not seen an influx of applications for the kind of retail and restaurant spots that dot the Capitol Riverfront or line the streets near Verizon Center. For now, the area around the Congress Heights Metro station features mostly low-density small businesses and a cemetery, though Redbrick and Gragg Cardona Partners plan a $240 million, 1.6 million-square-foot mixed-use project for St. Elizabeths east. The team has estimated the redevelopment, expected to take more than a decade for buildout, will add 1,000 residents and generate $400 million in new tax revenue.

Kenner remains optimistic, estimating the arena will draw a half million visitors to the neighborhood annually.

A grocery store?

The deputy mayor recalls one Congress Heights resident who asks him every time they meet, “Brian, where is my store to buy pantyhose?” He still does not have a solid answer, and wards 7 and 8 still only have three full-service grocery stores.

Kenner and others emerged from the International Council of Shopping Center’s annual meeting last spring having enjoyed positive talks with growing grocers such as Aldi. Nothing has been signed, but city leaders are hopeful

“Sometimes you can only go where the money and interest allows you,” said Kenner. “So we have been very aggressive to push east of the river opportunities to grocery stores.”

Councilman Vincent Gray, D-Ward 7, said there have been very productive talks about bringing a full-service grocery to Jair Lynch’s remake and expansion of the Penn Branch Shopping Center, now called the Shops at Penn Hill. And Menkiti Group founder Bo Menkiti has plans to bring a small specialty market to his MLK Gateway project in Anacostia. But Wal-Mart’s pullout from Skyland and Capitol Gateway hurt, and there has not been a big retailer with big plans since.

“It was devastating,” Gray said.

A place to buy pantyhose aside, many longtime Ward 7 and 8 residents are opposed to, or at least skeptical of, redevelopment. The redevelopment of the Barry Farm public housing in Ward 8, for example, has been caught up in the appeals process since 2015, delaying the construction of 1,354 units, about half of them affordable.

Barry Farm residents, some of whom will be relocated beginning this summer, do not trust that the D.C. government will fulfill its promises to replace their public housing units one-for-one. Often times, their voice is Parisa Norouzi, executive director of Empower D.C., a nonprofit that engages lower-income residents in their communities.

“People have been displaced for more than a decade,” she said of not just Barry Farm, but several public housing projects. “When they can move in, they are treated like second-class citizens compared to the homeowners and market-rate renters. We are up against giants, of billions of dollars of capital through well-financed developers, the Zoning Commission and the mayor.”

Norouzi said her organization is pro-people: “We are not necessarily against new things being built. But we ask for whom? We want to make sure people are not displaced and that they receive the actual, tangible benefits that developers offer.”

 

https://www.bizjournals.com/washington/news/2017/08/04/betting-big-your-guide-to-development-in-wards-7.html