Douglas Gets Opportunity Zone Investment, $100M Loan For Buzzard Point Project
An office-to-residential conversion project in D.C.'s Buzzard Point neighborhood has just scored an investment from an opportunity zone fund alongside a construction loan.
Douglas Development reached a deal with PTM Partners, an opportunity zone fund management firm founded by former LeFrak executives, to invest in its 1900 Half St. SW project.
The partners did not disclose the exact size of the investment, but said they are 50-50 partners and the total project cost comes to roughly $190M. The development team also secured a $100M construction loan from United Bank and $44.5M in preferred equity from Bethesda-based EB5 Capital. The financing documents were posted Wednesday to the D.C. Recorder of Deeds.
"It all went smoothly, but it was a lot of people at the table and it took a long time," Douglas Development principal Norman Jemal told Bisnow. "It's complicated, but everybody was rowing in the right direction, and we brought it across the goal line."
PTM Partners last year launched a $125M fund to invest in opportunity zones, areas designated by local governments that offer tax breaks through the program formed with the 2017 Tax Cuts and Jobs Act. This represents PTM's second investment, following a January deal with EIG for a $100M multifamily project in Downtown Miami. PTM President Michael Tillman said it is seeking to invest in areas that promise solid returns while also providing a social impact.
"Buzzard Point is a phenomenal submarket. You can see it's poised for growth with two stadiums nearby," Tillman said. "The building is truly one of a kind, it sits right on the water, and we have a developer partner who has a great feel for the market."
Douglas began work on the project in September, funding the initial construction out-of-pocket before closing the financing deal. The developer is converting the nine-story office building, formerly occupied by the Coast Guard, into a 453-unit apartment building with 17K SF of retail. Jemal said he expects the project to deliver in fall 2020.
The construction will reduce the building's size by 185K SF, carving out two large sections to make it more suitable for apartments. The development's public benefits will include an extended portion of the Anacostia Riverwalk Trail and a 200-foot cycle track along T Street to connect the trail to Water Street.
The project sits two blocks from the 20,000-seat Audi Field, where D.C. United began playing its home soccer games in July, and within a half-mile of Nationals Park. Several other developments are under construction or planned in the Buzzard Point neighborhood, including another conversion of a former Coast Guard building into 470 apartments and 60K SF of retail, a 110-unit condo project and a 154-room hotel. D.C. United is in talks with developers to partner on a $200M mixed-use project next to the stadium.
Jemal said he believes the opportunity zone program will help spur development in areas that would otherwise not receive the investment, but he does not think that is the case with the Buzzard Point project.
"Our project is one where I don't know that it was absolutely essential that it be in an opportunity zone to go forward, but obviously it was, and it is," Jemal said.
United Bank Regional President Kurt Marx said the bank's decision to extend the loan came down to its trust in the developer and its general contractor, Davis Construction, to execute the project, in addition to the attractiveness of the location.
"It's a tremendous riverfront development that's unique to the city," Marx said. "It's very obvious to the bank that this location and product on the Anacostia River, with all the things existing there and to come, it's going to be a spectacular community. We think they will be very successful with attracting tenants for that property."
UPDATE, MARCH 7, 10:45 A.M. ET: This story has been updated to include more details on the project's financing.