Downtown Renewal
Top area developers discuss downtown lofts
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M. JEFFREY MILLER
Senior Vice President
Lowe Enterprises - Real Estate Group
Jeffrey Miller is the senior vice president of
Lowe Enterprises Real Estate Group-East,
Inc., and regional director of Multifamily
Development. He oversees the firm's
multifamily and residential mixed use
development activities in the Eastern
region, with over 12 years of experience
including acquisition, finance, development
management and disposition. He was
previously a senior vice president at
The JBG Companies. |
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SHEILA SIMKIN
Chief Operations Officer
DCRealEstate.com
Sheila Simkin cofounded DCRealEstate.
com with Ken Johnson. She has seven
years of experience in residential sales
in Washington, D.C., and Chicago. She
specializes in identifying potential
development opportunities and defining
target markets and a project's intrinsic
market value. She directs marketing,
advertising and sales of DCRE's
residential developments to both
niche and mass markets. |
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SCOTT PANNICK
Owner
Metropolis Development Company
Scott Pannick founded Metropolis
Development Company in 1998, aiming to
create communities that are "Different by
Design." Since the company's founding, he
has overseen the development of several
new urban communities. His own focus is
on finding the right location for projects,
creating the right product concept and
executing his vision for great residential
living. Previously, he developed corporate
and institutional office buildings as
executive vice president and co-manager
of Julian J. Studley, Inc. |
MARK BISNOW: Scott, can you
give a bit of background on lofts
in D.C.
SCOTT PANNICK: In general, we
don't have many lofts. Washington's
primary business has always been "hot
air," not industry - meaning we don't
have many old factory buildings. A loft
is defined by the things a traditional
apartment doesn't have. Loft buyers
tend to want spaces that are more
open vertically and horizontally.
We offer a hybrid product we call
platform lofts. These properties have
a bedroom or study that is raised up
at a higher level and overlooks the
space. We also have mezzanine units
- two-story units that have some
sections of the floor removed making
them a two-story space.
BISNOW: Neither of those types
of units seems to follow the
traditional view of what a London
or New York loft is.
SHEILA SIMKIN: That's true, and
a problem we have is that people
from New York come expecting the
traditional loft. We have to explain
the differences. I would say that 25
to 30 percent of the DC market is
considered "lofts."
PANNICK: I would say that downtown
the average is about 50 percent.
M. JEFFREY MILLER: In lower
density areas such as 14th Street there
are more opportunities to create
bigger loft spaces in smaller buildings.
In areas like downtown where you
have height limits, you're trying to
squeeze as many floors as you can
into a building, forcing your ceiling
lower and creating a traditional
apartment building.
SIMKINWe see many D.C.
developers deal with height and
space restrictions by creating a "loftlike"
apartment with big open rooms
and large kitchen spaces.
BISNOW: Do a lot of people want
lofts?
PANNICK: The trend now is away
from lofts. In the past, people
wanted to follow New York and
London's lead but realized that not
having hard walls gave them big
problems with sound and bigger
problems with getting away from
their partners and roommates.
BISNOW: Jeff, are you finding the
same thing?
MILLER: Yes. When I worked for
JBG, we did what we described as a
very hard loft on 13th and N Streets
- one with concrete floors, very
high ceilings and all of the plumbing
and vent work exposed. We found
there was resistance to that product.
To draw an analogy to furniture,
there's the "apartment zero" style
unit and there's the Crate & Barrel
unit. People are drawn to the Crate
& Barrel unit. It's edgy enough to
give them an urban flavor, but still
has a sense of comfort.
BISNOW: What kind of properties
are you actually building and
selling.
PANNICK: We are in the process of
delivering our fourth building on
14th Street. Langston Lofts and Lofts
14 are both finished and occupied.
Lofts 14 Two is 90 percent turned
over. We also have the Cooper Lewis
on the corner of 14th and P, which is really not a loft building. The
Metropole is under construction and
is 15 months away from delivery.
BISNOW: How many units are
you talking about in the five
buildings and what can you get
for what price?
PANNICK: Three hundred twenty
units. Right now you can't get
anything. Four of the buildings have
long been sold. In the Metropole, we
sold our presale out a year ago and
don't plan on selling the remaining
30 percent until after the first of
next year. It will be ready for folks to
move in by the fall of 2007.
BISNOW: What is unique
about your image, Scott, which
differentiates it from other
developers in the market?
PANNICK: I specifically have not
pressed the floor area ratio, or FAR.
This has allowed us to have higher
ceilings in our properties. In every
zone you're allowed a certain ratio
of the building's footprint to the size
of the land. Most developers build to
the full floor area ratio allowed; we've
chosen the higher ceilings.
BISNOW: Jeff, what at City Vista
makes your property unique?
MILLER: We're a mixed-use project
with 150,000 square feet of retail,
including an urban lifestyle Safeway
and new restaurants. We think
that differentiates us, certainly in
the Mount Vernon Triangle a few
blocks east of the convention
center, where people have been
begging for a grocery store and
other retail opportunities for quite a
while. The area had been primarily
big parking lots and I think that
points to the inclusionary zoning
problem. Things have changed
for the worse. These new rules
have begun to whittle away the
developer's incentive to build
here in D.C. All of a sudden the
economics just don't work.
BISNOW: What is mandatory
inclusionary zoning?
PANNICK: Mandatory inclusionary
zoning is a requirement that
developers make a certain percentage
of the units they deliver available to
persons who earn certain incomes.
This often leads to a huge financial
loss for developers who, in order to
provide those units, must subsidize
the cost difference between what the
market will bear for real high-end
product and what the law forces us
to sell some units for.
BISNOW: Is this a law that's passed
or is pending?
PANNICK: The rule has been
approved by the Zoning Commission.
A preliminary map has been published
and we're now in the map comment
phase. On one project we've recently
looked at, the burden to the developer
was $8 million. On another the
burden was $12 million.
BISNOW: How are developers
expected to pay for this process?
PANNICK: I think the housing
advocates say, "Those rich developers
can just write checks." The truth is,
what it does is diminish the value of
the land. In general, the landowners
are not going to sell their land until
this thing gets resolved. That puts all
of us in a holding pattern for now.
BISNOW: Sheila, what are your
thoughts on the matter?
SIMKIN: One of the issues that this
ties into is that in order to make up
for affordable housing segments the
developers would have to increase
the price of all the non set-aside
units. If people are worried that the
present price of condos is too high,
it's bound to get higher.
MILLER: I don't think there is a
wholesale bubble that is bursting. I
think we're just seeing a hiatus. No
one wants to be the buyer that buys
at the top of the market before it
crashes. The fundamentals of demand
are still out there. D.C. is a vastly
improved place to live in than it was
ten years ago and with the multiple
neighborhoods that are blossoming,
like the East End, the U Street
Corridor, the 14th Street Corridor,
it's only getting better.
SIMKIN: People have just been waiting
to see what the market "does." The
marketplace has normalized. D.C. has
been so spoiled in the last few years
with people thinking that all they have
to do is open a sales office and it's going
to sell out over the first weekend. Or,
"I'm just going to stick a sign in my
yard and I'm sure I'll have ten offers by
Sunday." I came from Chicago. I had
to explain to my old friends what an
escalation clause is, because out there
the concept of people paying more
than asking price was unheard of.
The truth is, the market is not dead.
It has simply become normal again.
People can now actually go look at
property and think about it.
BISNOW: How many units does
D.C. develop a year?
SIMKIN: About three thousand units
are in the pipeline, but it'll take a
couple of years to deliver.
BISNOW: What's the price point
for square footage?
SIMKIN: In Petworth a developer
of a 40 unit building had originally
wanted $600 a square foot, which we
said was a little unrealistic. Most of
our developments are in the 400-500
per square foot range.
BISNOW: And for you Scott?
PANNICK: I generally don't like to
quote prices when I'm not actually
in the market. I would say you can
do a gradient between Georgetown
and the East End. In Georgetown
you could say $800 or a $1,000 a
foot and in the East End $400 to
$500. Since we're pretty much in the
middle of those two places, you can
get an idea of our prices. BISNOW: Jeff, how about you?
MILLER: Of the four or five
projects that are marketing in the
immediate neighborhood around
Mount Vernon Triangle, or Mass.
Ave. between 6th and 3rd it's in the
very high fours and low fives.
BISNOW: What are some of the
issues you run into with pricing?
SIMKIN: I think probably one of
the biggest pricing issues is trying
to educate customers to what the
future will look like. People drive
up and see a trailer, and they see
the Web site, and it looks as if it will
all be beautiful, but they're still just
seeing big empty parking lots.
PANNICK: To get over that hurdle
we started doing an informal survey
of idea people - a variety of real
estate and media people. We talked
to them about what it would take
for us to get our pricing where the
stuff is on the West End. We asked
these people if we took a West
End product and plopped it down
on our site, what would be the
difference in buyers? The answers
we got were very consistent. The
buyers are simply not the same sorts
of people. People interested in 14th
Street see the West End as being
too sterile and people interested in
the West End see 14th Street as still
too dangerous
BISNOW: So tell me about the
folks on 14th Street.
SIMKIN: It's a different mentality.
The 14th Street area is probably
the most "New York" of the D.C.
neighborhoods.
BISNOW: Is that because the
buildings are taller down there?
SIMKIN: Not just that. I think it
just feels like a real neighborhood
with a great diversity of spirit.
There is a wonderful mix of old
and new.
BISNOW: Jeff, what kind of buyers
do you see?
MILLER: Our people are more firsttime
home buyers who are a little
more adventurous. They have the
vision of what that neighborhood's
going to be and don't need it to be
spic and span immediately.
BISNOW: But aren't these the same
folks that want to walk down the
7th Street Corridor?
MJM: And they will. I think 14th
Street has a subliminal edginess and
coolness to it that the Penn Quarter
and Mass Ave corridor, because of
their relative newness, haven't yet
established.
SIMKIN: Mount Vernon has a real
city, gritty feel to it, yet there are
cool restaurants and shops.
PANNICK: I would argue slightly
differently. I am concerned that
Mount Vernon Triangle will end
up being sterile because it's all
new development and one of the
reasons that people are able to feel
comfortable in those projects is
because it is self-contained. They can
drive into the parking lot and go up
in the elevator. There will be retail
on the street but it'll all be new, and
so I have a sense that it's going to
be more suburban. Mount Vernon
Triangle is more like Arlington's
Wilson Boulevard.
SIMKIN: But that's what I mean
about Broadway in New York - an
area that had been incredibly seedy
all of a sudden became very family
friendly. It's going to feel like a city
but kind of a sanitized one.
MILLER: There are other examples
of new neighborhoods in D.C.,
especially in the East End, where
you've got a lot of new development,
where it doesn't feel like 14th Street.
It doesn't feel like a mix of old and
new. I think there will be a bit of a
Battery Park feel to it.
BISNOW: How is the person who
buys in today going to feel a year
or two from now?
PANNICK: That person is going to
be fine. The one thing is the world
always moves more slowly than
anybody imagines. Everybody
says, "Oh, it's happening fast." But
construction and deals take a long
time, and it takes a long time to
change. It's clearly moving in the
right direction, but patience always
is a good thing because real estate
doesn't happen very fast.
BISNOW: Jeff , where is the
market going to be a year or two
from now?
MILLER: I don't think we're going
to see a decline in price. I do
think, as Sheila mentioned, we're
in a normal market now and we're
going to see pricing increasing only
marginally on an annual basis. But
I think, overall, the lack of supply
will help drive the absorption in the
downtown area.
BISNOW: Sheila, what are you
advising your buyers?
SIMKIN: I think people are going
to be thrilled in a year or two
when this new construction comes
to fruition and the retail elements
have been filled in. It will open
up entirely new neighborhoods.
People who never considered
venturing to Mount Vernon will
say, "Saturday night, let's go down
there." I tell my clients that if they
are patient and have the vision,
they're going to love it.
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