Washington Business Journal by Michael Neibauer
The District and Safeway have cleared a last legal hurdle that threatened to derail the long-planned, Wal-Mart-anchored Skyland Town Center development in Southeast D.C.
The D.C. government has agreed to pay Safeway $900,000 a year for four years, beginning in 2019, in order to rid Skyland of a restrictive covenant and advance the project. The town center will be located at the intersection of Good Hope Road, Naylor Road and Alabama Avenue SE.
“We have finally cleared a path for a transformative Ward 7 project,” Mayor Muriel Bowser said in a statement. “With this agreement, we will bring much-needed amenities to an area that has long been underserved, put hundreds of District residents to work, and create more pathways to the middle class.”
It took roughly seven months of negotiations and one last eminent domain filing, but the development team behind Skyland is finally ready to kick off its $220 million project. Site work, led by contractor L.F. Jennings, will take about eight months. Vertical construction is expected to be underway by June 1.
"No real horizontal work has begun," said Brian Kenner, D.C.'s deputy mayor for planning and economic development. "This will allow real horizontal work to begin. You will actually begin to see big stuff happen now."
Mayor Vincent Gray broke ground on the 18.5-acre town center project in March 2014, after his administration settled the last of the eminent domain battles with Skyland Shopping Center businesses. Wal-Mart, the key to the development, signed its lease in December 2014.
The final hurdle centered around a nearly two decade old restrictive covenant, held by Safeway, that limited competition around its store at 2845 Alabama Ave. SE. While the Skyland Wal-Mart was purposefully located outside of the restrictive zone, the Wal-Mart parking lot was not. And Wal-Mart’s legal team was concerned that Safeway could launch a court challenge.
In early June, the District used its eminent domain power to condemn the covenant, and Safeway had a decision to make: Let it go, challenge the District’s valuation of the covenant (it was worth nothing, per D.C.), or fight in court, potentially scuttling Skyland entirely. The two sides ultimately talked it out and reached what Kenner called a "good deal."
"What we really tried to achieve was not going through another long court settlement process," he said.
Skyland's first phase, scheduled to deliver in 2018, will include 200,000 square feet of retail (including the Wal-Mart) and 267 residential units. At full buildout, Skyland will host 476 mixed-income residential units and 342,000 square feet of retail. Funding for the initial phase includes $55 million in EB-5 foreign investment, $40 million in tax increment financing and a $7 million D.C. grant.
The development is a joint venture of The Rappaport Cos., WC Smith, Skyland DC LLC, the Marshall Heights Community Development Organization and the East Washington LLC, an affiliate of the Washington East Foundation.