Developer John Shooshan On Leasing Arlington's First Vertical Mixed-Use Tower During A Pandemic
The 4040 Wilson Blvd. project, built by Shooshan Cos. and Brandywine Realty Trust, features 12 stories of residential above eight stories of office and two stories of retail, the first vertically stacked mixed-use building of its kind in Arlington.
Shooshan Cos. Chairman John Shooshan said on Bisnow's Town Hall webinar Thursday the company was fortunate that the project finished construction before the pandemic, even though it has created challenges for the office leasing market.
"Thank God that we finished the project before the onset, because people that are building or anticipating building have got supply chain issues and health issues," Shooshan said. "We're glad that we finished the project at the end of February."
The development team has leased about two-thirds of its 250 apartments, Shooshan said. He said new apartments are leasing better in today's market because renters feel more comfortable about the cleanliness and air quality.
"There's a general theme in the market about newer [apartments], because people feel more comfortable," he said. "It's a unit no one's lived in before. It's a LEED Gold building."
The team has leased about 60% of its 187K SF of office space. Shooshan said it has been challenging to sign new office leases during the pandemic, but he is hopeful the market will pick up next year.
"The office leasing market has certainly slowed," Shooshan said. "It's a tough time to make decisions. We hope that when springtime comes, people will be more confident to try to make some of those decisions. We'll get it leased up in due course."
The Northern Virginia office market experienced negative absorption of 1.4M SF in Q3, according to JLL, and the Ballston submarket experienced 14K SF of negative absorption. Ballston's office vacancy rate stood at 22.3% as of Q3, according to JLL, compared to 18.9% for all of Northern Virginia.
Shooshan said the pandemic came at a bad time for the D.C. region's office market, because it was already facing a supply-demand imbalance and high vacancy rates.
"We started in a tough place," Shooshan said. "Arlington was just coming off the Great Recession, so we had higher vacancies than historical norms. The District has seen an unprecedented amount of new development, so they've seen the highest vacancies on record. We came in with a bit of a headwind against us already."
While it started off with headwinds, Shooshan said the D.C. market is well-positioned to weather the storm because of the presence of the federal government and the sectors that benefit from its spending. He said the change in administration gives him comfort in the stability the federal government provides for the market.
"In good times, we want to disavow our dependence on government, but in bad times we lean on the government because of the stability," Shooshan said. "I think we will be more insulated than many [markets]."
One of the office tenants Shooshan has landed thus far at 4040 Wilson is AvalonBay Communities. The multifamily REIT signed a 73K SF pre-lease in 2017 to move its headquarters to the building, a deal Shooshan sees as a validation of the project.
"AvalonBay was critical, because they are one of the largest in our industry, one of the largest multifamily providers in the country," Shooshan said. "Having them come into this project, which is the first of its kind with the vertical integration of retail, office and residential all in one tower, when AvalonBay could adopt that, that certification gave us a great deal of comfort that we had made the right decision."
The project's retail space is fully leased to two tenants, Shooshan said. Vida Fitness opened a 29K SF health club at the building in July. The Salt Line, which first opened near Nationals Park in 2017, signed a lease last year to open another location at the 4040 Wilson building. The restaurant is planned to feature a 100-seat outdoor patio.
The landlord has provided flexibility on rent to the retailers as the pandemic has devastated the fitness and the restaurant sectors, Shooshan said.
"We love both operators, they're good people, they're knowledgeable, and they're in a tough place right now, so we're having to work with them," Shooshan said. "Any prudent owner would do that because we think we got the right guys, they're just in a tough situation. That's what the relationships are all about, you work through those things together, because we're very excited about them as things normalize."
Shooshan said he hopes Virginia doesn't fully shut down restaurant dining despite the rise in COVID-19 cases, and he thinks people should find safe ways to support local businesses.
"The impact is going to be felt for years," Shooshan said. "Already they're predicting maybe one-third of restaurants will not come back, and maybe as high as half. I think a second shutdown could be the death knell for maybe even the majority of them. Restaurants are the largest employer in retail, so we've got to be cognizant of that."