Tuesday, September 23, 2008

Insider Interview: Scott Pannick of Metropolis Development

Scott Pannick, the founder and CEO of the Metropolis Development Company, is preparing to launch his fifth and largest condo project on the 14th Street corridor - the Metropole - and find out what he thinks of his latest project, how having a Harvard MBA helps give perspective on market fluctuations, and what would happen if he had to do it all over again.

How did you break into the development game?

I was a commercial broker for almost 20 years. The last 10 of which I spent acting as a representative for large institutional and corporate users in the development of corporate headquarters. Though I was a broker - I was in fact representing people in their real estate transactions and not the principle - nevertheless, I was actually acting in the role of a developer.

Was that here in the District or out of state?

I did projects here in Washington and elsewhere. I built the headquarters for the Educational Testing Service in Princeton and the headquarters for Bristol-Meyers Squibb in Princeton. I built the headquarters for Core State Bank of Delaware, close to Princeton in Lawrence. I also did the American Red Cross Headquarters here. The last project was to represent the federal government in the development of the headquarters of the Department of Transportation – although in that case I didn’t act as a developer, I acted as a representative for the government and, at the end of the day, hailed the competition to name the developer.

You started with Langston Lofts on 14th and then built three more on the same street. Was there an initial vision to stay on that corridor from the beginning, or was it just serendipity?

The two first buildings were almost simultaneous. One was Langston Lofts on the corner of 14th and V Streets and the other was Lofts 14 on the corner of 14th and Church. If you look at District zoning from Georgetown across, for the most part, you see fairly low density zoning and 3 and 4-story maximum buildings. The first time that you see zoning that pops up higher than that is 14th Street. That was also incidentally just where the development line was, where the renovated versus the un-renovated was. So, 14th Street was a very logical place to look to pursue development.

If you knew now what you knew 8 years ago, what would you do differently when developing a project in the District?

In all honesty, if I knew then what I know now, I never would have done this. From my perspective, the biggest obstacle has been construction. Construction is an enormously difficult business in its simplest times. It has turned out – and everyone has experienced this – that condominiums are, frankly, more complex than virtually anything. I had a construction manager who worked for me for a while who had built BWI Airport and made the comment that condominiums were more complicated that airports. It’s a building that has enormous density in it – in other words, there are kitchens, baths, independent mechanical units and every unit has its own plumbing system and its own selection of finishes. So you’re building a building with 80 or 90 individual units, all of them different, all them having complexity.

If contractors can do one thing and do it repetitively, it’s great. But because of the fact that this is urban in-fill development, it’s very very space constrained. And because of those space constraints – and lot lines limitations and Historic Preservation Review Board input - you end up building with 90 units using 35 different floor plans. If you’re out in the suburbs and you’ve got no lot line restrictions, you can work it out so all the units are the same. But when you are building in the city, literally every side of the building is constrained by height and lot lines, so you are trying to fill that box with usable space. It becomes impossible to just take something and repeat it.

Is your newest building, the Metropole living up to your initial vision?

I think it’s actually better than I had anticipated. I think it’s a beautiful building, it sits magnificently on the site and I think – I’m a developer so I have prejudices – if you’re going to live downtown, where better would you want to live? It’s kind of where the action is. There are two premier axes – one would be 14th and P and U Street being the second because it’s another street that goes all the way across town.

What sets the Metropole apart?

I think a number of things. One of my criteria working with the architects [RTKL] is that I want all of the units to have some kind of ‘wow factor.’ There are lots of units with 18 foot ceilings or floor to ceiling glass – lots of very exciting space. We were fortunate to be able to negotiate a contract with Vida for a major fitness facility in the building, which obviously in today’s world is something that people are interested in. We put 70 extra parking spaces into the building that will be available to the public, but will also be available to residents if there mother-in-law comes for a stay.

Lastly, I’d say that the architecture of the building is more dramatic than most others. If you look down the north side of P Street, there are 4 new buildings. We built the 2 buildings on the west and the east end of the block and if you look at the architecture, I think it’s more exciting. Higher end finishes and higher end materials.

What is your take on the current crunch that the housing market is undergoing?

I think it has two ways in which it affects us. One is that across the board for buyers of everything – whether it’s housing or corporate financing or whatever – money is more difficult to obtain. Therefore, lending criteria are more difficult and it strains some buyers. Many buyers have equity from previous homes and have no problem with it, but clearly, the credit crunch is a factor certainly for first time home buyers and people with poorer credit.

Secondly, the overall real estate and general economic news just makes everybody nervous and causes them to pause. The fact of the matter is that if you look at the DC condominium market, there are no more than 2 or 3 projects at most that we would consider to be comparable to our own without really looking at significant compromises on location or finishes. There’s really a very, very limited supply. It’s not like New York where there’s 25 buildings or even 50 that you could look at. In Washington, if you’re planning on living in a really high quality building, there’s really only 2 or 3 buildings that you can look at.

But the problem we have is that you turn on the nightly news and you hear the generalized problems in the housing market. Housing prices may be continuing to fall in Des Moines, but they did not ever fall in downtown DC. We didn’t lower our prices and I don’t of any high quality product that has either. Yet at the same time, the condominium inventory over the last 18 months has diminished dramatically - both because there continued to be sales and because projects have converted from condominium to rental.

I’ve been through this for 25 years and there is an absolute pattern that occurs every single time. The market gets soft – whether it’s by over-supply or credit crunch or poor economy – and everybody stops building. The market tightens and prices go up. Now whether that occurs in 6 months or 18 months is always hard to predict, but the fact of the matter is that I would bet that 3 years from now – and it could be 6 months from now – that prices go up and they’re going to go up fast. All of the sudden, people are going to say, ‘Whoops, there’s no more supply’ and grab for the last units. Then we’ll go into a 3 year period where there will be no product. Nothing. And people will say, ‘When are you going to build another building?’ And that’s the way the cycle goes.

Do you ever see yourself tackling a Metropolis project outside of the District?

You know, I’ve been asked that question many many times and I always say no. I did a lot of commercial projects in other jurisdictions, but real estate is a very local business –in terms of knowing the markets, knowing the players and knowing products. I’m not a guy who is interested in developing a big company with a big staff, so that we can do this on kind of a formulaic basis. I’d be more inclined to do projects that feel comfortable to me because of my own knowledge base.

I also am – for reasons of global warming and urban sprawl – ultimately an urbanite. I believe that cities are healthier for our planet. I could go to other cities and know nothing about them. I could go to the suburbs and feel like I was contributing to the decline of the planet.

What would consider your proudest accomplishment?

Probably the Metropole and I say that seriously. The earlier buildings I think came out beautifully, but they were, to some degree, learning experiences. Many of things that I saw in the earlier buildings that I was not as comfortable with we’ve now overcome as obstacles. Now I look at the Metropole and it’s a beautiful building. I’m very excited about its delivery in the next couple of weeks.

What is your dream project?

I’m going to contradict everything I just said. I think it would be really exciting to build a skyscraper. What happens when you build a really big building like that is – because of the magnitude and scale of it – you can put all sorts of amenities in it. A thousand unit complex can afford to support many more amenities. I’ve always been much more excited by big projects.

But that is going to be impossible to do on 14th Street. I do have some future projects, but they’re going to be on the same scale as we’ve worked on so far.


Justin from ReadysetDC on Sep 24, 2008, 9:23:00 AM said...

Very cool guy!

Anonymous said...

I agree with Scott that there is very limited competition with the Metropole. The question: Is that because there is limited supply in DC for very high-end condos? I don't think so, but it remains to be seen.

Also, how does Scott's MBA give him insight into market fluctuations? It's not mentioned anywhere except to introduce that he has a Harvard MBA.

Colin on Sep 24, 2008, 9:46:00 PM said...

Funny that he cites the construction aspect as his biggest frustration. Isn't the Metropole like a year overdue?

Anonymous said...

More than a year overdue, still not finished, and with some pretty questionable construction now being covered over by the fascade.

And, like all Metropolitan projects, there some very nice units, and some with very poor floorplans -- living/dining areas that are simply too small to be useful is a frequent problem. Scott may like his "Wow" factor, but often it is "Wow, how could anyone live in something that poorly laid out."

Funny how there is no mention of how he is selling the large unit in the Metropole that was built to his specs as his personal home. Rumor has it that this was required to raise funds to cover the construction overruns.

Anonymous said...

how many folks with contracts for the metropole are not going forward once (whenever) the building is finished?

how many are now not able to get financing and how many will not be able to sell their current metropolis development condo to buy the new one?

the dumont debacle (among others) seems to be some indication of what's to come in the short term. will the metropole go rental?

Ken on Sep 25, 2008, 4:14:00 PM said...

The Metropole Grand Opening party is tonight, and settlements are now being scheduled for October, so those that hate to see grand-scale condo projects succeed will have to finally concede on this one.

As for the Dumont, having the sales team walk off the project without first telling the developer is certainly a debacle of the highest magnitude, no doubt. We'll wait and see how they chose to handle it.

As for other high-end condos, there are very few, mainly because it takes so much to pull it off successfully, and you put much more at stake up front.

Those that count inventory, like we do, know that the normal chatter has been about excess supply for the past 3 years, but very few projects have started since then, so the supply has continually gone down. These stats are not reflected in housing reports, because reports are compiled through MLS listings, and large projects don't show most of their units there. Whether or not there is 'excess' depends on demand, but it is lower than it has been in over 4 years, and there is nothing come along behind it.

As for Colin's comment about construction frustration and delays, the two are of course directly related. Having the GC declare bankruptcy in the middle of a project is an event you cannot make up for, and is directly responsible for the delay. Fortunately most projects (like Metropole) are bonded as an insurance against this, others would simply collapse, but you cannot recover the time you lose in getting a new GC.

Anonymous said...

I love the Metropole. We wanted to buy a condo there for our girls, but we needed two bedrooms and our budget was $500,000/ We ended up finding that right behind the Metropole, at a small but full-of-character building on Church St. LOCATION is the most important factor in real estate, and these buildings definitely have it. We had been searching for a new/fairly new condo near Dupont for over a year, and finally we found it. I'm glad my girls are going to be neighbors with the good people at the Metropole.

Anonymous said...

Just so folks reading this are aware, Ken is with the company marketing the remaining units at the Metropole. Drop dead sexy? Not with those hideous orange signs all over the place!

Anonymous said...

I am sure folks reading this are aware that DCRealEstate.com is doing marketing, since it says right on the blog that DCRealEstate.com is the owner of DCMUD and said ugly Metropole signs say marketing by DCRealEstate.com.

In case you didn't put two and two together as I'm sure other readers are capable of - the signs, love em or hate em, will be taken down, but the building itself is stunning. I attended the grand opening tonight and I can honestly say that the finishes are very fitting, the hints of orange in 416 (which match the orange signs - funny, that's called branding - a thing marketing teams do) is, in fact, quite tasteful.

Call it over-priced, call the building long overdue - I think in the long run (as a buyer, which I am) it is far more valuable to have an attractive building with quality finishes and tasteful design than it is to have a rental building hastily converted or even a condo project finished by a less-than-sufficient GC.

Colin on Sep 26, 2008, 8:34:00 AM said...

I saw the bit about the grand opening -- is it finished? I walked by yesterday around noon and plenty of construction workers were still buzzing around the building.

Anonymous said...

Well, DCGal, I'm still looking for where Ken identified himself as being with the company doing the marketing. You shouldn't have to do research to realize that a proponent of the building has a financial interest in its success.

As for your snide branding comment, the branding for this building was "Drop Dead Sexy" with a sophisticated black and white campaign. The orange in not part of the branding -- it is just an attempt to scream "We're Dying Here, Please Buy!" It is an offense to the neighborhood (and probably not legal, but that's another story).

Anonymous said...

Went last night to the open, and it looked cool. But this morning on the walk to work I checked out the Church Street side and was amazed to see crumbling concrete and exposed rebar on two of the balconies that haven't yet gotten their metal cladding. That cannot be a good thing.

Anonymous said...

Orange, illegal! Ken, you mysterious, self-interested, deceptive man, take the signs down! Apparently orange is now both offensive and illegal!!

Perhaps a strategy change may have something to do with the fact that units are finally delivering and that it's time for passersby to know that they are in the homestretch. The public knows that they are Drop. Dead. Sexy., now they need to know that they are available. How do you do it? You draw attention to it.

Ken on Sep 26, 2008, 2:28:00 PM said...

Thanks for all the comments. The building is not yet complete; the lobby is done, the 2nd floor is 99% done, and the 4th floor is close behind. We hope to have completion by the end of this year, but no firm dates yet for total completion.

Yes, DCRealEstate.com (which includes me) is doing the marketing and sales, I thought it was obvious but my apologies if it seemed less than full disclosure. Sorry you don't like the colors; some love it. It wasn't really a strategy change, this is just the first opportunity to advertise in the new building, now that construction is near completion.

For those interested in seeing the inside, we will be open again tonight from 6-8pm, and again Saturday night 8-10pm during VIDA's grand opening celebration. Please feel free to stop by.

Anonymous said...

Why do defensive, dcgal? No one said orange signs were illegal. However, have you checked the appropriate DC code provisions regarding the permissible size of signage. Perhaps you should drop the know-it-all attitude and consider that others might actually know something that you don't.

Anonymous said...

the way you phrased your comment, it just seemed like you were saying that they were orange and therefore illegal. it didn't mention size.

i get defensive because dcmud never hides the fact that they are associated with a marketing company and i think they do a really good job of providing fair and accurate coverage of the industry despite the fact that they probably don't make money off this blog and still have to focus on their actual marketing.

it just seems to me that often times commenters on this blog take advantage of the fact that their comments aren't screened like they are on so many other blogs.

Anonymous said...

DCmud has always been one of the best blogs in the biz. Honest, funny and often times spot on the mark. I think the comments made about buyers flight are valid, considering other condo buildings in the area that have changed their focus from sales to rental.

What wasn't said in the interview is as enlightening as what was and Scott should be proud of the tone and spin of the interview. I personally don't think any condo should fold, but sales cooling off seem to be the norm.

Now about those orange signs that say "October 2008" as a move in date...it's tomorrow already, Annie!

Anonymous said...

The Metropole sucks!! I was one of the original purchasers of a unit and the place is close to 2 years off schedule! I want out of the contract but Metropolis Development is trying to illegally keep my deposit while they breached the contract. I am suing them and I know other people who have hired lawyers too. The place is such a rip off. I spoke to another buyer who got out of his contract because he complained the square footage was 20% off of what he was told. All Metropolis Development does is lie, lie lie! They are having a hard time selling despite what they are saying and they are not letting people out of contracts because they have no money left. This project is doomed. Mr. Scott Pannick was supposed to live in one of the units himself but when it is completed. He will no longer be doing that. Gee... I wonder why!!

Anonymous said...

I walked by the building last night after eating at Sushi Taro a couple of blocks west (yum). You can tell that they did some temporary exterior work to get the building ready for the opening but otherwise it's looking great. Vida was still open at ~10:30pm and there were people coming and going. It was weird to see cars parked on the building sides of 15th and P--the area looks normal again!

Anonymous said...

Scott Pannick is full of sh*t. If Metropole is so great why doesn't he live there as originally planned? The buzz I hear is that everyone who purchased a unit wants out of their contract. That place is all hype. It will never sell unless they bring prices down dramatically which would further screw everyone who purchased a place there. But it seems like Metropolis Development has no problem screwing people.


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