Investor interest has surged in the area around the Minnesota Avenue Metro station, where D.C. is relocating a 700-person agency, and the owner of an apartment property with significant development potential is now looking to sell.
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Greysteel is preparing to bring to market the 83-unit apartment complex at 4069-4089 Minnesota Ave. NE on behalf of the owner, a group of private investors operating under 4069 Minnesota Ave. NE LLC.
The property sits one block from the Metro station and one block from the Minnesota Avenue-Benning Road intersection, which some developers have begun calling "downtown Ward 7."
The intersection in 2014 welcomed Park 7, a 376-unit apartment building with retail from Donatelli Development, and CityInterests continues to move forward with its 3M SF Parkside development across from the Minnesota Avenue Metro station.
In May, D.C. announced plans to move the Department of General Services to anchor Cedar Realty Trust's new mixed-use development, branded as Northeast Heights, on the site of a shopping center just south of the intersection. The DGS move has been viewed as a "tipping point" for the area that has sparked a new influx of interest from investors and developers.
"Everywhere you look up and down Ward 7 and Ward 8, you're seeing cranes and construction going on," Greysteel Senior Associate Nigel Crayton said. "Folks are starting to see the beauty of Ward 7 and Ward 8, and there's a lot of investor interest."
The site at 4069-4089 Minnesota has the potential to be the next development in the area's pipeline. The three-story buildings on the property were constructed in 1942 and acquired by the current owner in the early 2000s, and the site's zoning now allows for higher-density development.
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The lot, with an area of 52K SF, is zoned MU-7, allowing for buildings up to 65 feet and a floor-area-ratio of 4.8 with inclusionary zoning. Greysteel said this existing zoning would allow a by-right redevelopment to reach up to 250K SF, and the buyer could surpass that with a planned unit development application.
With the 83 units on the site currently producing rental income, Greysteel Senior Managing Director Kyle Tangey said a buyer may want to hold onto the asset for the near future while waiting to realize the greater development potential.
"There's more and more development in the submarket, so I think right now operating as an 83-unit multifamily property is probably the immediate business plan, with more strategic planning down the road to maximize the full density of the site," Tangey said.
The site is also located within a qualified opportunity zone, giving potential buyers the ability to benefit from the federal program's tax benefits. The Parkside development's latest phase, a 191-unit market-rate apartment building, broke ground in May with opportunity zone equity. The Greysteel brokers expect the program could help draw investor interest to the site they are marketing.
"I think it's certainly large enough, with the existing 83 units and as a development parcel, to attract a national buyer pool," Greysteel Director Herb Schwat said. "The fact that it’s in Washington, D.C., in an emerging corridor is going to make it attractive for not only buyers and investors in our market, but also those just becoming familiar with our market. I think it's going to be a broad buyer pool."
Whether the property ends up with a local or an out-of-town investor, Schwat noted that it is going to have to go through the Tenant Opportunity to Purchase Act process, requiring the buyer to work with residents to complete the acquisition.
The Greysteel team has sold a series of apartment properties in Ward 7 over the last several years, and they say there has been a noticeable pricing bump. One property in 2015 sold for around $75K/unit, another property in 2017 sold for $85K/unit, and now they say most properties in the area sell for more than $100K/unit.
"Investors like to be around development because there's going to be more retail and also rent growth," Crayton said. "It seems like there has been a cap rate compression in the area because everything happening and all of the revitalization has been a boon for investors, who are now willing to pay a little more money than they were before."
Contact Jon Banister at jon.banister@bisnow.com.
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