Half Street's Hole Story

Washington DC's Monument Realty seems to be on top of their game at the ballpark, delivering a 275,000-s.f. office building by the end of the year, owning several other parcels of prime real estate near the stadium, and now having settled their lawsuit with WMATA and Akridge to acquire even more - namely, much of the Half Street real estate they don't already own. So why has Monument left its most visible site empty for 18 months? Monument began digging the nearly 2-acre hole across from the ballpark entrance, at the corner of N and Half Street, SE, back in January of 2007. The cavity is the future home to the residential portion of Monument's Half Street project - a 340-unit residential development. According to the developer, financing for the project is still, well, in a hole, but will soon get built. Russell Hines, Executive Vice President of Monument Realty, said the timing of the dig had to coincide with Monument's adjacent office building. "When we excavated the hole, we did it as part of the office building. It was more efficient to dig both at the same time. We knew we weren't building the residential portion at the time because we weren't done with design or pricing. So we got GMP pricing bids earlier this summer and have been working with and talking to lenders. We are still working on financing for the residential buildings. We started construction but haven't advanced it; we are down at the bottom of a hole. We are looking to be back under construction this year and then complete the project 20 months out," he said. 

Half Street, however, is just one part of the developer's ballpark holdings. The developer has three other sites. Monument owns 50 M, on the Northeast corner of M and Half Street, across from the metro, a site which they are marketing as a build-to-suit or a free lease development. "We have been getting interest from tenants on that - smaller buildings and smaller associations," he said. Monument's other holdings are the product of their June settlement with WMATA. The developer will create two more large office buildings on the hotly debated sites that will replace the old Domino's on the corner of M and South Capital Street and the BP gas station at the corner of N and South Capital Street. According to Hines, Monument will soon begin the zoning process for these buildings. "One of the things it (the settlement) did was finish off a puzzle; there were a bunch of pieces we owned that have come together. Over the next year, we'll be taking both through the zoning commission approval process and that process takes from 6-10 months, maybe as long as a year," he said. Hines added that the developer will spend most of next year designing and marketing the properties, but will keep an eye on the market. "At that point when we have zoning, we will see where the market is and what we want to do. We have no immediate plans. We have a whole office building to lease on the Metro - we wont run out and build another until we get the first one going." Half Street's office building is "nearing completion," but has not yet signed any tenants. The entire 775,000 s.f. Half Street project, being built by Clark Construction, will ultimately deliver a 200-room hotel, 50,000 s.f. of retail space, and about 340 residential units designed by Shalom Baranes. 

Monument has remained steadfast that despite some challenges, the company is overall healthy. Founder Michael Darby recently told the Washington Business Journal, which had published an article highlighting financial setbacks of the developer, such as its conversion of several condominium projects into apartments, that "we are not in trouble," and that "we have not had trouble finding construction financing for the residential building in the first phase at our Half Street project." (WBJ, June 6, 2008). But with so many impecunious developers stung by the twin evils of lower consumer expectation and heightened financing restrictions, many industry watchers are spooked by any apparent sign of distress. Not so, Monument insists; the show will go on.

Washington DC commercial real estate news

Half Street Digs Itself Out of a Hole

After weeks of speculation, construction is underway at Monument Realty's Half Street residential project. The prime real estate sits directly across from the Nationals' ballpark, was dug in the first months of 2007, with Monument's 275,000-s.f. office project rising on the northern portion of the crater. But when the remaining 2-acre hole sat vacant as the market was free-falling and funding of residential projects evaporated, speculation ensued about its demise. The hole became metaphorical as well as literal once it was revealed that Lehman Brothers, in a hole of its own, had an equity stake in the project.

But after 18 months without activity, construction is now underway on the site. Workers now seem to be assembling a subterranean parking garage at Half and N Streets SE - presumably a component of the hotel and 340-unit residential buildings planned for the site. And while the developer will not be able to hit their original target of a 2009 completion date, it does seem that rumors of the project's death have been greatly exaggerated.

"Monument is pursuing financing for the residential projects at the corner of N and Half Streets, SE. Clearly the changes in the market have made that task more difficult, but we have not made any plans to refill the excavated hole," says Monument Executive Vice President Russel Hines. "In addition to the office building [55 M Street SE], which will finish up in January, we are also building a portion of the garage that extends under the residential buildings – so, yes, there is some construction underway at this time."

In a related item, some portions of the Half Street project could be getting a new address, if a measure before the DC City Council goes through. According to the Washington Examiner, a vote next week will determine if a three-block portion of South Capitol Street (that also happens to border locale célèbre, Nationals Ballpark) will be renamed “Taxation without Representation Street.” Among those most directly affected by the switch would be Camden USA – which just happens to have a $105 million mixed-use project in the planning stages that fronts the avenue in question. We can see the signs now: Taxation without Representation Street Lofts now available! Have fun with that one, marketeers.

Washington DC commercial real estate news

Neighborhood Report: Capitol Riverfront Southeast

"Our neighborhood is no longer emerging," said Michael Stephens, Executive Director of the the Capitol Riverfront Business Improvement District. "It has blossomed." Stephens cites 35,000 people who commute to work in the area every day and the rising number of residents to buttress the growing retail imprint just north of the Anacostia River.
Retail, restaurants and office space leases are filling in at a more rapid rate than counterpoint emerging neighborhood NoMa, where the snap-up of square footage has been dominated by office leases. Sexier retail - even indie tenants such as as Pound Coffee have defected to Capitol Hill, while Capitol Waterfront is a hot commodity for retailers.
It helps that temporary projects draw the young and artsy to the water - Trapeze School Washington, Sensorium Dining and Art at the Yards generate buzz. Then there's the developing Canal Park that's scheduled to open in May 2012, Yards Park which opened last year, and Diamond Teague Park that was completed in 2009. In the meantime, enter the bridge to connect the two parks. And of course there's the ball park.

Many completed office buildings have lassoed tenants. Monument Realty's 55 M Street S.E. is 86% leased, with tenants such as the FAA and DDOT. Several D.C. government offices plan to move to the neighborhood in the second quarter, and this month Booz Allen Hamilton moved into 20 M Street, bumping the building to 97% leased. And 1015 Half Street, the former Opus East LLC and Prudential Real Estate Investors partnership that was resuscitated by Skanska this past May, is slated to open in July.

Both Lumber Shed at The Yards Park Pavilion and The Yards Boilermaker Shops are among the most anticipated retail projects. Both buildings - the Lumber Shed at 100 Water Street and Boilermaker Shops at 200 Tingey Street - are part of the National Register of Historic Places, with Forest City Washington as developer and Gensler shepherding construction and design. Among other tenants, Neighborhood Restaurant Group has signed a lease for a restaurant that's expected to become a brewpub. According to Ramsey Meiser, Senior Vice President of Development at Forest City, 50% of the Lumber Shed and 70% of the Boilermaker Shops leases are tied down. Estimated opening date is early 2013.

Over at 400 Tingey Street S.E., Michael Stevens confirms that "a major health club" is signing a lease for 30,000 s.f. of this Forest City cite; sources tell DCMud that said major health club is VIDA Fitness, and that the lease is a done deal.

Also destined for the block at 401 M Street is a 50,000 s.f. Harris Teeter, above which will rise two residential towers with 220 units, with 20% affordable housing, also by Forest City. Environmental remediation will continue through the year with construction is expected to begin in the spring of 2012.

The big news as far as grocery stores in the area has been the potential for a Whole Foods at 800 New Jersey Avenue, S.E., however, the developer William C. Smith + Co. and the grocer are looking for tax abatement to the tune of $8 million over ten years. The groups have apparently been discussing a store for the site since 2002. With a city handing out tax breaks to far less game-changing endeavors - but now strapped for funds - the plan is still given better than even odds.

Among residential options, of Capitol Quarter's EYA development of 113 homes, phase I has sold out, and the 130 homes of Phase II are on the market now, with a move-in date of June 1. Construction had started in 2008, with Phase I construction completed in May of last year.

Other apartments include the off-then-on Foundry Lofts project at 201 Tingey Street S.E. which will offer 10,000 s.f. of retail and 170 market rate units. Forest City was able to resume building in September of 2010 as a result of President Obama's New Issue Bond Program (NIBP) that allowed for the D.C. Housing and Finance Agency (DCHFA) to fund the project and kick it forward. Leasing will begin this summer, with move-in likely in October.

In a holding pattern are several other projects awaiting financing. They include Factory 202, the SK&I-designed building that had been home to Federal Protective Services which was to have become a condo building. Forest City is still entertaining other plans for the site, but as of now it is considered a building for a later phase of development.

Though Monument Realty's 55 M Street is filling up, there is no start date for the hotel or residential buildings at Half Street since funding has not been secured since Lehman Brothers' exit. The grand plans for this property tanked with the fall of the economy, leaving a crater sized hole in 2008.

Akridge's Half Street mixed use office, residential and retail tower is also on hold, as developers are in the process of securing an office tenant. "We've just picked things up again in regard to design," said Kathy McDaniel, Project Administrator for Akridge. "Three months from now, we will have more progress to report."

Still on the boards is the CSX plan to widen its rail lines that run under Virginia Avenue, which is not marketed as loudly, partly because it will be some time before the location will be affected. A $98 million TIGER grant will raise the clearance in 38 locations in three states; 23 more need to be funded and amended before the bigger clearance allows for taller trains. The Virginia Avenue tunnel is among the largest and the most expensive pieces of the project.

Washington, D.C. real estate development news

Interview: Michael Darby on the Watergate Auction and Monument Realty

A day after the Watergate auction, Michael Darby, principal and co-founder of Monument Realty, spoke with DCMud about the nation's most publicized foreclosure auction. The Watergate went to auction after lender PB Capital foreclosed on Monument and its former financing partner, Lehman Brothers.

DCMud: Tell us what is happening with the Watergate and where does Monument Realty fit in?

MD: The foreclosure auction happened and there were no bidders except for the bank, who purchased the property. Going forward we... have already put in an offer to the bank. We believe they should accept [the offer]. Whether they do or not - I can’t control what other people do, but they should accept it because we have the ability to pay more than what the bidders bid at the auction yesterday.

DCMUD: How did you feel when the gavel fell yesterday? There must have been a sense of relief.

MD: When I realized there were no legitimate bidders, bidding on the property? Yes it was a relief. I’ve spent 6 years working on this project, going through some turmoil and some unfortunate and unusual situations. So to lose it with all the knowledge and all the work we’ve done on it would have been frustrating It certainly would have left a bad feeling with me, because I know I can finish it. I’ve grown very fond of the building and the potential building.

DCMUD: You said you put in an offer - did you have an opportunity for extensive conversations with the bank previously about your future with the project?

MD: We didn’t have many conversations because previously we were partnered with Lehman Brothers. Because of Lehman Brothers's financial situation, the bank wasn't able to work with the lender to do anything. I have, through another investor that I am working with, informed the bank that we have the ability to move forward with something. But they didn’t want to talk to anybody until after the foreclosure sale. So we had to wait for that to happen before we could come back to talk to them.

DCMUD: How does monument see the development of its other large projects? Projects like Half-Street, do you feel that everything that happened with the Watergate affects them?

MD: Each one is really independent of the next. Different projects suffer in different ways depending on the financial structure, depending on what type of product they are, depending on where they are in the development cycle or process.

The Watergate, since it had a third party lender, and the lender was not Lehman Brothers, there was the potential that Lehman and we could lose [the property] to the lender, should the term of the loan run out. We were not able to pay off the loan and that is what happened. So in that situation, [the] goal was to be ready to come in after that event and try to negotiate a purchase price for the lender with whomever would be the logical partner....

The ballpark deals: Lehman and our other partner McFarlane are very heavily invested and we don’t have any firm timing yet, except of course on the office building; that’s going though the normal construction process, we don’t look at that the same way. We aren’t so involved in that aspect as the management of that development project... So that’s just an ongoing project that we have to look at in terms of what’s happening in the market today to work out the best way of creating value going forward. We’re looking at every day, trying to work out what we can do to create value going forward. As far as any of our other assets, again it depends on what the status of them are, who the lenders are, what they’re willing to do, who our equity partners are, what they’re willing to do and then whether we have other source of capital to do the best deal we can do.

DCMUD: So I hear you mention the office building on Half Street, that that was part of a giant project where there was a 2-acre hole in the ground, and had previously been told that construction would start in 20 months or so, what is the status of the project? You had said it depends on the financing on projects - was this one where you had third party debt...was it just you and Lehman or was it one of your other financiers?

MD: It’s Lehman, McFarlane and us. We dug the hole because it was cheaper to dig the hole while we were building the office building portion of the development with the thought that we would continue on at that point in time with the space available. At that point in time there was financing available-we were fine with financing. So when the world kind of stopped, the financing went away and obviously we had a hole in the ground. We managed to stabilize the hole, make sure it is at conditions satisfactory to the District of Columbia and obviously to us. At the right time we’ll begin construction again, with already having value from with what we’ve dug that ditch with. It’s stopped the project somewhat in midstream, [and] its a very visible space, which is a shame. But I’d rather stop it there rather than halfway up, or complete without any prospects of tenants. I’d rather be at this point in time than in the future. We own that property, free of debt, so we’ll sit on the property and wait for the right time to build the residential portion of the development. At that point in time, we will have created one part of the Half Street vision. And we can put in the retail that we expect to put in there and have whole bunch of great retail in line for the ball park.

In 1991 in the east end of DC we have the same situation where the Verizon Center is today, between there and 13^th Street, and north of Pennsylvania Avenue was pretty much a no-man’s land and you look at it today, it’s hard to believe that there were people who wouldn’t walk in those areas at that time. It’s a vibrant area that is great and everybody loves being down there. That would be the same thing with the ball park area, it will just take time to do that based on where the market is and where the economy is.

DCMUD: How do you think your story and the story of the Watergate compares to others in the industry and other projects in this climate?

MD: I don’t know how other people have structured their financial situation with their investment partners. We always structure it in a way where we try to minimize our liability on any project in case this kind of thing happens. And we do that so that we can hold cash and be available to fight another day when things happen. To tell you honestly, this downturn is certainly has been a good thing, from the standpoint that there’s a lot of people who have lost a lot of value, however as a developer you know we can’t make money unless there are opportunities out there to create value. Where the market was prior to this downturn, was at a point where there wasn’t much value to be created. It got so heated up that I wasn’t interested in doing a lot of deals because you were betting on something that was basically false inflation. And I don’t think that’s a good way of doing business.

So that fact that the market has been affected, gives us opportunity to go out and buy if it’s at the right price, and develop properties based on the right value, the right construction costs and be able to make money again. And that’s where we started from in 1997 when we started the company and that’s where we’re back to that situation. And some ways, again its taking a little while to sort things out, [for] those opportunities to become available- and they will become available and that’s great for us. We’ve got a great team here and we’re ready to go moving forward and buy stuff and develop. It’s a good thing from that standpoint. It’s not a good thing from standpoint on the value we’ve lost of the deals we do have up and going but it is good for the future as well.

DCMUD: So you think there is definitely a future for Monument Realty in development?

MD: Yes, absolutely. For the good developers in town that understand that there will always be recessions and slow downs, that understand what relationships are all about, and that building relationships early in your career is important so that there’s always capital sources available, there’s always people to do business with you going forward. Absolutely there’s always a bright future for those people.

For the people that are mired and stuck dealing with severe problems, they may not be able to buy new stuff in the near future while they get themselves out of these problems. For us, the problems started in the fall with [the] Lehman situation and we basically sorted through most of the problems even though it doesn’t look like it with the foreclosure of the Watergate. [It] was foreclosed financially [and] that was the culmination, so we could potentially move forward. [With regard] to our other assets, we are managing them and are able to look at other assets, that are becoming available on the market.

14th Street Project Altered, Moves Forward, After ANC Review

14th Street's newest residences have made it through community input, now a bit smaller, and with a new look. "The Irwin," a 6-story, mixed use building designed by Torti Gallas and Partners, will take the place of a 1960s-era warehouse at 1326-1328 14th Street, now with a new slightly shrunken design and new facade since it was first conceptualized six months ago, as a result of ANC, HPO and neighborhood input.

But in replacing the "hole in the urban fabric" on 14th, the Torti Gallas design team said that it has not been frustrated with the process. Conversely, they claim to have enjoyed working with the HPO (what architect doesn't want a committee to change their design?), the immediate neighbors, and the ANC 2F Community Development Committee in shaping the direction of the project.

The next step by owner/developer Irwin Edlavitch and architect Torti Gallas will be to take the revised design to the Historic Preservation Review Board for approval in December, and to the Board of Zoning Adjustment next spring with the request for a variance from parking and loading requirements and to allow multiple roof structures of varying height.



The initial design concept from June is seen below. The design was for 61 residential units, ground floor retail, 5.3 floor-to-area-ratio (FAR), 75' tall (size permitted by the Art Overlay zoning regulations).  The HPO requested a one story reduction, an increase in the "attic reading" at the top story, and that the "frame" of the building be brought to the property line. This design was taken to the ANC at the end of August, which requested that the design be presented to immediate neighbors and that the building "relate more to the historic context of 14th Street and be made to look more residential".

In light of the new directive, the building was given a new skin and distinct bays. The new version was submitted to the Board of Zoning Adjustment and presented to the ANC in September, which asked the design team to eliminate the "frame" and replace the terra-cotta rainscreen with masonry materials.


The end result of the participatory process is the current design, which will go before the HPRB in December, after a presentation to the full ANC. As described by Sarah Alexander, Associate with Torti Gallas, "This design incorporates a more traditional skin of red brick masonry with still keeping the playful 'artistic' moves [including the] entry canopy and rooftop stair towers." There will be an entry lobby visible from the street that will have an "art gallery feel."


With approximately half the ground floor space taken up by a lobby, garage entry and loading space, there will be around 4,000 s.f. left for use by a retailer. The project includes 53 residential units, 20 parking spaces (all covered or below grade), a small fitness room and roof terrace.

On the other side of the restaurant at Thai Tanic, located next to The Irwin, C.A.S. Riegler is in the process of creating a 5-unit boutique condo, at 1324 14th Street.

Next door, 1320 and 1318 are currently under construction, to be turned into The Pig, a "nose and tail, farm to table" creation by Eatwell DC, which should be open for business next spring, and more apartments by Tikvah Inc.

Washington D.C. real estate and retail development news