Skanska To Develop 1700 M Through Ground Lease With JBG Smith
Vornado demolished existing buildings, JBG Smith designed their replacement and now Skanska will take over the development of a Downtown D.C. office parcel.
Skanska announced Monday it signed a ground lease with JBG Smith for the development site at 1700 M St. NW. The 34K SF parcel, planned for an office building with ground-floor retail, sits within a half-mile of the Dupont Circle, Farragut North and McPherson Square Metro stations.
The project originally planned by Vornado and designed by Gensler called for 335K SF of office with retail. The developer tore down the buildings on the site to prepare for development, but then the merger of its D.C. business with The JBG Cos. put the site in the hands of JBG Smith. The newly formed REIT slightly reduced the plan for 1700 M to 315K SF of office and released new renderings from Studios Architecture.
Skanska plans to pursue a similar office-above-retail project, but it has not yet determined the design or exact specifications of the building, Executive Vice President Mark Carroll told Bisnow Tuesday. He said the Swedish construction giant is looking at the Vornado and JBG Smith plans and talking with tenants and brokers to design something appealing to the market.
"We're going to try to get a deeper understanding from tenants to see what the market's going to look for in the next couple years and in the long-term so we're designing to meet tenants needs not only today, but for 15 or 20 years," Carroll said.
Another important decision Skanska needs to make is whether to wait for pre-leasing or break ground speculatively. Skanska self-finances its projects and has the flexibility to break ground on spec, Carroll said, as it has recently done at 99 M St. SE and 2112 Pennsylvania Ave. NW. An influx of new supply has made going spec more challenging, but Carroll expects the project would not deliver for at least three years, at which point he foresees more demand in the market.
"The current conditions right now are more favorable for tenants," Carroll said. "We're looking at delivery time frames around 2022, 2023 or 2024, and based on what we see, we think there's a window of delivery around that time frame that will make sense with tenant turnover in the market."
For JBG Smith, the deal continues the REIT's stated strategy of generating money through sales and recapitalizations of assets in its portfolio. Cushman & Wakefield's Drew Flood, Bill Collins and Paul Collins represented JBG Smith in the deal.
"We continue to make progress on our capital recycling goals with the sale of a leasehold interest in 1700 M Street," JBG Smith CEO Matt Kelly said in a release. "The ground lease structure allows us to convert land immediately into an attractive income stream that is accretive to our long-term NAV and creates balance sheet capacity for future investment opportunities."