Buyer Of 14th Street Retail Property Planning Dozens Of Affordable Units
A retail property on the upper portion of 14th Street Northwest, just north of Petworth, has traded hands in a complex deal that could pave the way for roughly 100 new residential units, with a majority of them affordable.
Heleos, a D.C.-based affordable housing developer, last week acquired the property at 4618 14th St. NW from Raymar Corp. for $4.2M, with Feldman Ruel Urban Property Advisors brokering the deal.
The property consists of a retail storefront along 14th street and a large area behind the property extending to the middle of the block. Heleos is in talks with The Menkiti Group, which owns the adjacent retail properties to the south, to partner on its planned development.
The developer plans to build 99 multifamily units, with 66 of them set aside to those making up to 60% of the area median income, and it would include roughly 20 three-bedroom units designed for families. Heleos also plans to include solar panels as part of its goal to make the project a net-zero energy building.
The project, branded as Dance Loft at 14th, would also include up to 16K SF of ground-floor space for Dance Loft, a dance studio that currently occupies part of the property. The studio, a nonprofit organization, is partnering with Heleos on the project and would own its portion of the property after it delivers, Heleos principal Chris VanArsdale told Bisnow.
"One of the goals of the project is to preserve performing arts in the neighborhood," VanArsdale said. "The way we're able to do that is by building residential above the dance theater and studio space."
The other existing retail tenant on Heleos' property, Jerusalem Furniture, has a lease that would expire by the time the project begins construction, VanArsdale said. He said he is planning to bring the project through D.C.'s planned-unit-development process, which gives the potential for more density in exchange for public benefits, but subjects projects to the risk of extensive delays.
The PUD process requires Zoning Commission approval, and dozens of approved PUDs have been delayed by appeals, and in some cases the federal court charged with hearing those cases has stripped a project's approval, setting it back years.
Feldman Ruel Urban Property Advisors Managing Principal Josh Feldman told Bisnow that the team marketed it as a multifamily development site, and he said it consulted with a land use attorney who said that given the site's existing zoning, a project would likely require a PUD.
He said the seller, a group of six sisters who inherited a real estate portfolio from their father, wanted to close on the sale before going through the PUD process. It was the last property the family owned, and Feldman Ruel has sold several other properties for them, including a Takoma property where Jair Lynch Real Estate Partners is planning a 129-unit affordable housing project.
Developers often put a property under contract and wait to close until after entitlements are secured, so closing on it prior to the PUD process passes that entitlement risk along to the buyer. Some of the prospective buyers, including the adjacent property owners, didn't want to take on that risk, Feldman said.
"We got a range of offers, some at higher prices but that required the seller to wait and close upon entitlements," Feldman said. "Since this was the last property the ownership owned, their goal was to sell it and go their separate ways. They weren't looking for a long contract process. They decided to take slightly less money and essentially put the PUD risk on the buyer."
VanArsdale said he was willing to take on the PUD risk because he has confidence that his project, with the affordable and family-sized units, will be supported by the community. He has already had one community meeting and has another scheduled Thursday night with a local neighborhood association. He also said it is in line with what land use plans for the area have envisioned.
"It's a bit of a risk obviously, any PUD is a risk," he said. "But we felt like, given the benefits of the amenities package, the consistency with the planning in the city, all those things make closing on the project prior to PUD approval a little less risky in our view."
After it completes the PUD process, Heleos then needs to secure public financing to achieve the level of affordable housing it is proposing. VanArsdale said it is planning to apply for Low Income Housing Tax Credits and for money from the District's Housing Production Trust Fund. He expects it will take about two and a half years from now before the project can break ground.
The deal was further complicated by the configuration of the property, requiring the developer to partner with the adjacent landowner.
The property consists of 25K SF of land area, extending into the middle of the block, but it has just 31 feet of frontage along 14th Street.
The adjacent property owners have more 14th Street frontage, but they don't have the lot size to allow for this type of multifamily development. Menkiti Group owns several retail properties directly south of the site, and a joint venture of Maven Cos. and Marcus Asset Group owns several retail properties to the north. Both adjacent property owners confirmed they were prospective buyers for the site.
Marcus Asset Group President Ernie Marcus said it doesn't appear that his JV will be involved in Heleos' project, but he said he supports its plans.
"From our perspective, any new development of the project is good for us by adding more people on the street and more activity," Marcus said. "We think it would improve the level of business for our retailers."
Menkiti Group founder Bo Menkiti confirmed he was looking at potentially buying the site and that he is now in talks to partner with Heleos.
"We've had some conversations with them, and we love the opportunity and what they're working on to bring additional housing for the neighborhood and create space for Dance Loft," Menkiti said. "We look forward to continuing that conversation with them and supporting their effort in any way we can."
Heleos' renderings for the project include Menkiti's parcels, which extend from the property to the nearby alley, and VanArsdale said he is confident that he will reach a deal to bring the developer on as a minority partner in the project.
"To have more access along 14th Street, there are a couple advantages," VanArsdale said. "One is we can get a larger footprint to the building and push more of the density toward 14th and away from the residential on the back ... It also makes it easier to build the building, with staging and construction accessibility, and it gives us more flexibility to provide space for the Dance Loft as well as additional parking."
VanArsdale said he is also looking at ways to include additional retail space in the project, potentially for a coffee shop. In addition to the existing retail strip on the western side of the 4600 block of 14th Street, there are also plans in the works to bring new retail directly across the street.
"Our hope is that whenever commercial retail comes in at the bus barn, that will be additive to our project and will create more vibrancy for residents," VanArsdale said. "The residential component will help support any retail or restaurants along that strip. That's been a challenge for the commercial properties along the strip is just having more foot traffic and more people to patronize those businesses."
Menkiti also said he thinks the development would help support the area's retail.
"I think there's a real opportunity to bring some additional units into that neighborhood that can really help support that retail strip," Menkiti said. "It's a really important retail strip with some great local businesses there, and having some additional residents there will add to that mix."
The project sits in the 16th Street Heights neighborhood, just north of Petworth, and Feldman said the surrounding area has experienced a relatively small amount of multifamily development.
"The neighborhood has a lot of single-family homes, but it doesn't have a ton of multifamily stock, certainly not larger projects and certainly not much with an affordable component," Feldman said. "This is going to be great for the neighborhood."