Yes, Virginia (and Maryland and DC), Santa Claus does have a soft spot for the DC real estate community. After a big-deal drought over the last several months, a few transactions closed last week that are raising industry hopes that investment sales activity will pick up again early next year. The DC government as well as done its part to make a few developers very happy over the last several days.
In the private sector, the big news is J Street's play to do to the District's Florida market what it has done -- or helped do to -- in NoMa.
Today the company reveals it has acquired the DC Farmers' Market -- an 86,000 SF land parcel. More significantly, it has been quietly building up a beachhead of properties in this part of town, the city's northeast quadrant bounded by Gallaudet and the eastern edge of NoMa. In a JV with Columbia, SC-based retail developer and owner Edens & Avant, J Street has acquired 140,000 SF of space in this market including 401 New York Ave NE, 550 Penn St and two properties between 4th and 5th Sts. Plans for additional acquisitions are underway, says J Street CEO Bruce Baschuk.
And our special Bisnow tidbit? Bruce came to know Edens' head of Mid-Atlantic development Steve Boyle 18 years ago when both coached lacrosse in Montgomery County youth leagues, and they hatched their JV over a number of breakfasts at one of Bruce's favorite haunts, Bread & Chocolate near Chevy Chase Circle.
The properties give the JV a fine boost in its plans to build out mixed use project here, Baschuk says. They also give the companies a seat at the table in determining the area's development.
That table, for the moment, is headed by D.C.-based New Town Development LLC and parent company, Sang Oh, which received master developer rights from the District almost a year ago. According to Baschuk, some local tenants and businesses - including Baschuk himself - are not entirely pleased with the direction and approach Sang Oh has taken over the past year.
Baschuk says he is negotiating a meeting with Sang Oh through a third party now that he has gone public with his intentions. Beyond that, he won't say much more about his plans, largely because he won't know what they are until he sits down with Sang Oh, which currently owns 10% of the market.
And so does J Street now, Baschuk points out, although he isn't looking to pick a fight about it. "There's room for more than one person in this market - it's 24 acres," he says. Possible scenarios could include a joint development, separate developments or anything in between.
Baschuk says the JV has contracted with RTKL to help in the master planning process. "They will engage with us in interviewing other constituencies [in the market] and come up with conceptual plan in February and March."
Union Square's $262 million sale to the Los Angeles-based CIM Group was also welcome - more than welcome - in the market, which hadn't seen a major asset trade in several weeks. JP Morgan Investment Management sold the 609,540 SF building -- plus an accompanying entitled land parcel -- for $27 million more than it paid for it a year ago. The property is completely leased to the government, with some of the square footage set to expire in 2009. CIM, reportedly, will be taking advantage of the higher market rates to get back a little upside in its transaction in the short run. In the long run, it's eyeing a 256,000 SF development opportunity in land-constrained Capitol Hill. According to Jones Lang LaSalle Managing Directors John Kevill and Collins Ege, who represented JP Morgan during the negotiations, the deal originated just as the credit crunch got underway yet closed on schedule and at the original price targets.
Another happy buyer (or perhaps, given the ample use of adverse material clause conditions among lenders, a better word would be relieved) was Urban America L.P. The New York based private equity funds manager just acquired 7900 Harkins Road in Lanham for $106 million from a local partnership. The Los Angeles office of Holliday Fenoglio arranged $73.24 million in financing for the 325,000 SF class A office building, securing a seven-year, fixed-rate securitized loan through conduit lender UBS Investment Bank. According to the folks in the LA office at HFF, UBS -- unlike many lenders these days -- honored the terms of the initial deal and November locked rate, which is 6.85%.
Patriot Equities, a Wayne, PA-based company, entered the DC market this week with much fanfare: It has acquired the empty Hecht's distribution and warehouse center on New York Ave, from Macy's Inc. for an undisclosed price. CEO Erik Kolar, though, was more than happy to discuss pricing for its development plans for the 15.5-acres on which the 775,000 SF sits: Basically he might spend anywhere from $150M to $300M on a mixed use project that could include any use from office to flex to retail to -- what is the most likely scenario -- a combination of all three. The pressure is on from the local economic development community to go heavy on retail, but Kolar likes the distribution use case too. Stay tuned for next quarter when he will have a better idea of what he wants to do there.
The DC government is also finalizing deals that have been pending for a while. It has closed, for instance, on its deal with Hines/Archstone-Smith, to develop an $850 million retail, residential and office project on the site of the former Washington Convention Center. Hines/Archstone-Smith will break ground a year from now. [See our personality profile on the JV in yesterday's Bisnow Real Estate.]
DC has also picked One Vision Development Partners as its partner for Northwest One, a $700 million project to redevelop the neighborhood bounded by K Street to the south, New York Avenue to the north and New Jersey Avenue to the west. One Vision Development Partners is a partnership between William C. Smith Cos. and the Jair Lynch Cos. The plan that they pitched to the DC government earlier this year calls for more than 1,630 new units of apartments, condos and townhouses, a 21,000-sf clinic, more than 40,000 sf of retail and 220,000 sf of office space.
Speaking of which, Jair Lynch - who has been living in the Logan Circle area of the city for the last ten years with no plans to go suburban - has quietly and lately not so quietly been rehabbing and redeveloping housing in the District. "We've been on the front lines of revitalizing projects throughout the city for years now," he says. So he must have had some inkling that his firm was winning the mandate last week? "Not really. I found out like everyone else, when I walked into the press room and didn't see any of the other developers there."
MacFarlane Partners just closed its MacFarlane Urban Real Estate Fund II, which raised $1 billion in equity - a fair amount of which is devoted to projects in DC. Not to worry however; the firm is still in active investment mode for the city. Chuck Berman, managing principal and vice-chairman of MacFarlane Partners, was here a few weeks ago scouting new projects and vetting potential new partners. "We are looking at a couple of other potential developments with TC Residential and with JBG Monument," he says. Big picture, he says: the company wants to meet its goal of having $10 billion worth of DC-based assets in its portfolio over the next five years.