David Versel - Greater Greater Washington

Private-private partnerships may hold key to revitalization

Wed, 22 Aug 2012 15:18:00 EDT

With local governments exercising more caution about investing public dollars in development projects, partnerships among diverse private interests have become increasingly important the financing of the infrastructure improvements needed to support development.

Photo by sfdc.org on Flickr.

The most prevalent form of public-private partnerships for urban redevelopment has long been tax increment financing (TIF). A TIF agreement sets aside a portion of the future property tax stream from new development activity to fund the public improvements needed to support the development.

TIFs, which we have extensively discussed here, have helped finance many high-profile developments in the DC area, including DC USA, the Mandarin Oriental Hotel, and National Harbor. In Fairfax County, where local leaders have been hesitant to make use of TIFs, recent partnerships in Tysons Corner and along Richmond Highway highlight new possibilities for future urban redevelopment.

Although TIFs have proven to be successful in a variety of situations around the country, they have long been criticized as corporate welfare for wealthy developers, politically motivated giveaways, or risky propositions that wager public funds on an uncertain real estate market. In the wake of the national recession the latter argument has come to the forefront. Since TIFs only work if the valuation of the properties within the district rises, declines in property values could lead to financial disaster.

Fairfax County has long been reluctant to use TIFs. The Community Development Authority approved in 2009 for the Mosaic District in Merrifield represents the county's only TIF to date. Although Fairfax County's Board of Supervisors enthusiastically supported the Mosaic deal, county leaders have not expressed enthusiasm about replicating the Merrifield model elsewhere.

The ongoing saga of how to pay for the improvements needed to fulfill the county's plans for Tysons Corner demonstrates county leaders' ambivalence. Though the Tysons issue is not yet resolved, the proposal currently on the table calls for a mix of private developer "contributions," a special tax district, and other as-yet-unidentified public funding. While the public and private sectors will be technically sharing the costs for building the infrastructure to support the new Tysons, this arrangement cannot really be called a partnership, as the public sector is not sharing in the project's risks.

In response to the county's activities, landowners and corporate interests in the Tysons area came together in early 2011 to form the Tysons Partnership. This "private-private partnership" includes representatives from some of the largest development interests in the region, including Lerner, Macerich, AvalonBay, B.F. Saul, General Growth Properties, and Federal Realty. The members of the Tysons Partnership will be coordinating efforts to fund their share of Tysons' future infrastructure improvements.

Elsewhere in Fairfax County a different sort of private-private partnership model is coming to the forefront, as developers team up with longtime landowners to undertake revitalization projects. This trend directly responds to rising land costs for parcels along older suburban corridors, which presents a strong challenge to redevelopment. For example, the asking price for redevelopment parcels in the Penn Daw/Groveton area along Richmond Highway is in the range of $3 million per acre. At this price, the land acquisition cost of an apartment development with a relatively high density of 50 units per acre would average $60,000 per unit, even before considering infrastructure and site development costs. Current rents in the area simply do not justify this sort of investment in the acquisition of a property.

A proposed revitalization project in this section of Richmond Highway presents an excellent test case for this new partnership model. Developer Capital Investment Advisors LLC has signed a joint venture agreement with the longtime owner of a small strip retail center at the corner of Richmond Highway and Shields Avenue in the Penn Daw area. The proposed project, The Grande at Huntington, will include about 300 apartments and 30,000 square feet of ground level retail and dining space. While the developer will not realize as great of a return on its investment due to its partnership agreement, its level of risk will be far lower.

The emergence of these partnership agreements represents a shift in how revitalization is being achieved in Fairfax County. If these models succeed they will likely lead to the formation of additional private-private partnerships for future revitalization efforts.

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Turn Richmond Highway back into a string of distinct places

Tue, 26 Jun 2012 12:43:00 EDT

by David Versel

The 9-mile stretch of Richmond Highway between the Beltway and Fairfax County Parkway traverses an extraordinarily diverse swath of Fairfax County. There are many informal names that locals use to describe the various sections of the corridor, such as Penn Daw, Beacon Hill, Groveton, Hybla Valley, Gum Springs, Mount Zephyr, Woodlawn, and Accotink.

Photo by DEV58 on Flickr.

While some of these names go back hundreds of years, their identities have largely become lost amidst the corridor's swirl of suburban sprawl. The Postal Service further obscures these identities by using mailing addresses of "Alexandria, VA," despite their location well outside the City of Alexandria's boundaries.

A revitalizing Richmond Highway will benefit from people seeing a set of individual, distinct places instead of one undifferentiated stretch of sprawl. Arlington achieved this along the Rosslyn-Ballston corridor, but had Metro stations to help. Can Fairfax achieve this without Metro?

The corridor's north end is directly adjacent to Old Town Alexandria and includes high-rise office, apartment, and condo buildings, several hotels and the Huntington Metro station. The next segment of the corridor largely consists of large-scale retail centers anchored by national big-box tenants.

Richmond Highway then narrows and becomes an uneven amalgamation of low-density commercial, residential, and retail uses, culminating with the historic area around Woodlawn plantation and the rough mix of commercial uses just outside Fort Belvoir.

Revitalization depends on making many places again

Photo by DEV58 on Flickr.

Efforts to revitalize Richmond Highway emphasize remaking the corridor as "pearls on a string," with several central nodes along the way, instead of a homogenous corridor. Recent changes to the Comprehensive Plan around several key nodes have increased the allowable uses, heights, and densities to open the door to higher scaled, mixed-use developments.

Fairfax is installing a series of gateway and wayfinding signs along the corridor. When these signs are installed later this year, travelers will be more aware that they are arriving in Penn Daw, Groveton, Hybla Valley, and other locations.

Will these attempts to restore local identities actually get people to refer to them as anything other than "Richmond Highway," "the Fairfax section of Alexandria," or the "Alexandria section of Fairfax"? The best example of this effect in the region is the Rosslyn-Ballston corridor, where a generic Wilson Boulevard differentiated into distinct names like Clarendon, Virginia Square, and Ballston.

The key ingredient in this case was the Metro, which used these names on stations. It restored historic names and created some new ones that hadn't existed before.

Can Penn Daw become a distinct place?

As Richmond Highway evolves into a string of urban nodes, it is possible that people could eventually think of it as several distinct places. The best chance is at Penn Daw, the historical name of the intersection of Richmond Highway with North and South Kings Highways.

Recent and ongoing changes to the Fairfax County Comprehensive Plan envision about 2,000 multifamily housing units with ground level retail around this intersection, giving it the scale and density of a distinct urban place.

It will be interesting to see what names developers of mixed-use projects in Penn Daw choose. The buildings themselves may shape what future residents call the area. The preliminary name of one of the proposed projects is "The Grande at Huntington," suggesting that the developer wants to trade on the site's proximity to the Metro station located more than ½ mile away.

Given this, Penn Daw might never be considered a distinct place apart from Huntington, until and unless the Yellow Line gets an extension that includes a Penn Daw Metro station. Barring that, Fairfax will have to work to create a sense of place for each community.

45 comments

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Condos are missing from Fairfax County's revitalization story

Wed, 06 Jun 2012 12:38:00 EDT

by David Versel

Apartments are becoming a tough sell in revitalizing areas of Fairfax County. Market support for rental units appears tepid, and the community is often opposed. Condominiums may be an attractive alternative, but so far nobody is talking about the them.

Photo by DEV58 on Flickr.

In January 2011, Redbrick Development Group announced a mixed-use development with 290 luxury apartment units in Fairfax County, just south of Alexandria. In the intervening 17 months, a parade of other developers has come forward with proposals for similar rental projects.

In all, 2,200 apartments are in the works between the Huntington Metro station and Fort Belvoir. All of them are proposed to be rentals.

This wave of apartment development in a long overlooked corner of Fairfax County mirrors the regional trend. According to Transwestern's 2012 Trendlines report, the Washington Metro area set an all time local record in 2010 when the number of occupied apartment units (a measure called "net absorption") increased by more than 12,000. In response, in 2011 apartment developers began work on more than 14,000 units.

Unfortunately, the region's net absorption fell to just 3,300 units in 2011. This suggests that many of the new luxury apartment buildings in the development pipeline may struggle to fill their units. The report cites a slowdown in job growth for the lack of absorption.

Although affordable apartments remain in high demand, very few are being built because new buildings tend to be expensive. They become affordable over time as they age, but for the first couple of decades after construction almost all buildings are expensive. This means that while there is plenty of demand for apartments, there is a growing danger of a glut of luxury apartments.

In southern Fairfax County specifically, which has long been a stagnant area for development, but where construction is picking up rapidly, there is a mounting citizen backlash against the prospect of Richmond Highway being saturated with hundreds of new rental units. During the recent debate over the redevelopment plan for the Penn Daw area many citizens spoke angrily against the expected influx of hundreds of new renter households. While some comments were anti-development in general, many were pointedly targeted at rental apartments and their occupants.

All of this begs a simple question: if both market support and public support are thin for luxury rental housing in revitalizing areas of Fairfax, could condominiums be the answer?

The same Transwestern report that documented a decline in apartment absorption went on to predict that the Washington region's condominium market was poised to come back strongly in 2012. New projects are selling well for the first time since 2008, prices are stabilizing, and the backlog of unsold units is at its lowest level since 2006. Market indicators are suggesting that that the condo market is finally ready to come back to life, and apparently developers are starting to agree.

Yet in Fairfax County not a single new condo development began construction or sales activity in 2011.

Oddly, even owner-occupied townhouse developments appear to be rare. KB Homes has an 85-unit townhouse development on Huntington Avenue that sold out earlier this year, and EYA is planning some in Merrifield. But most of the residential redevelopment action across the county remains for-rent rather than for-sale.

As Fairfax works to revitalize its aging commercial areas, for-sale housing is an essential ingredient. If the revitalization areas contain nothing but rental apartments they run the risk of becoming less stable in the long term. The next phase of suburban revitalization should broaden the mix of housing types to include condominiums.

11 comments

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Window shopping is becoming window dressing

Wed, 25 Apr 2012 13:13:00 EDT

by David Versel

According to industry experts, retail is rapidly evolving into little more than an amenity to enhance the value of housing and office spaces above.

Photo by NCinDC on Flickr.

The old retail model of traveling to a place simply to acquire goods is dying, thanks in large part to the Internet, they said at a panel on retail during ULI's April 17 Real Estate Trends Conference. Today's successful retail destinations are much more about entertainment experiences than shopping.

Developers want to attract younger and more affluent residents to mixed-use developments, but the kind of retail that these residents crave is very different from the retail that makes lenders want to finance a new building.

On the panel, moderated by Janis Schiff of Holland & Knight, mixed-use developer Grant Ehat of JBG/Rosenfeld talked at length about the decline of enclosed malls. The only mall to open in the US since 2006 is City Creek in Salt Lake City, which is adjacent to the Mormon Tabernacle and is heavily subsidized by the LDS church.

Tysons Corner is the only "super fortress" mall in the DC area that is viable for the long term, Ehat argued. In his view, even Montgomery Mall may not survive for another generation.

50% of the space at top-end retail destinations like Miami's Lincoln Road Mall is food oriented, said Ehat. Architect David Schwarz added that consumers are basically lazy, and that the most successful developments are the ones that contain the greatest number of attractive uses in the most convenient and concentrated places.

The economics of retail is shifting. According to Placemaker Michael Ewing, of Williams Jackson Ewing, retailers now rely on the "clicks and bricks" model, with their physical stores serving as venues for customers to see and learn about products that they later purchase online. Ewing said that people want to feel younger and more affluent than they really are, calling this "the psychology of aspiration."

From the developer's perspective, Ehat reported that he no longer even considers retail as part of the bottom line. Instead, in the context of mixed-use developments, the retail, dining, and entertainment offerings on the ground floor drive the image of the overall project and, hopefully, improves the financial performance of the apartments, condos, or office suites on the upper levels.

A final obstacle to retail developments is the balance between financiers and customers. Lenders still love "national credit tenants" (the big chains), the panelists agreed, but the younger and more affluent are not interested in such stores. Those are the shoppers and residents that developers want to attract, but they have little interest in living near the stores that lenders prefer.

Conversely, the independent retailers and restaurants that most appeal to target markets for new apartments often struggle to secure financing. For developments such as the 6 Walmarts planned for the District, the panelists concluded that this tension will be quite acute.

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Facts trump emotion as Fairfax approves Penn Daw plan

Tue, 03 Apr 2012 12:55:00 EDT

by David Versel

In spite of fierce objections from some neighbors, the Fairfax County Planning Commission unanimously supported a plan to revitalize the Penn Daw area along Route 1. But vehement opposition suggests that future redevelopment in the corridor will continue to be difficult.

Penn Daw Plaza, January 2012. Photo by the author.

Penn Daw Plaza is a typical 1960s neighborhood strip mall, located about ½-mile south of the Huntington Metro. The one-story, 126,000 square foot center is set far back from the street, with a large surface parking lot, no sidewalks, and limited landscaping.

When the anchor tenant, Shoppers Food Warehouse, closed in 2010, the center became a target for revitalization. Developers Combined Properties and Insight Property Group came forward with mixed-use development plans for adjacent sites featuring 4-5 story buildings with ground level retail, apartments, and public spaces.

In response to these proposals, Fairfax County authorized a special study to examine the area's potential for revitalization. The county appointed a citizen task force and funded a market analysis and a traffic study.

Penn Daw's relationship to the Huntington Metro. Image from Fairfax County Department of Planning & Zoning.

The task force began its work in December 2010. They met monthly for the next 16 months, and staged 3 public hearings. As the process evolved, planners generated a binder full of data pointing to a series of related conclusions:

The community is concerned about the ongoing decline of Penn Daw and wants to attract better retailers to the area.
The retail market no longer supports either the volume or the layout of the area's existing retail space.
There is unmet demand for high quality, multifamily residential development in the market area.
Several intersections in and around the study area have existing traffic congestion and safety concerns.
Surrounding residential streets need to better accommodate pedestrians.

At the end of the process, the task force drafted a plan to replace the area's single-use, auto-oriented pattern with up to 735 apartment units and about 40,000 square feet of urban scale retail space.

Some local residents spoke out against the proposed plan with concerns about increased cut-through traffic and the potential loss of community-serving businesses. Others went a step further and openly challenged the veracity of the planners working on the project.

Some opponents simply did not believe the results of the market or traffic studies. They suggested that the consultants either didn't know what they were doing or were somehow compromised. This group seemed believe that there was demand for retail at Penn Daw, and that the applicants were holding out on signing leases with potential retail tenants in order to push mixed-use projects.

Proposed mixed-use development at Penn Daw. Image from Insight Property Group.

While the charge about greedy developers lying to make money is as old as planning itself, at multiple public hearings one resident after another stood up and made a number of other emotionally driven claims. But the facts refute each of the opponents' fears.

Fear: Residential development would cause worse traffic problems than retail development. Reality: Retail uses typically generate far more traffic per square foot than residential, a fact highlighted by the county's traffic study.
Fear: The apartments wouldn't really be luxury, and would actually attract large, low-income families, causing overcrowding in schools. Reality: The two proposed apartment buildings are conceived as consisting of urban-style units that expressly appeal to young professionals and empty nesters.
Fear: Development would gridlock neighborhood streets and lead to children being killed by speeders. Reality: It is directly contradictory to simultaneously claim that traffic will become gridlocked, and that there will be so many speeders that children's lives become endangered.
Fear: There isn't enough market demand for apartments, so mixed-use development will end up a vacant slum. Reality: In the current economy, it's extremely unlikely a non-viable project would receive funding from money lenders.
Fear: The developers would make more money by building fewer units. Reality: Given the high costs of demolishing existing buildings, preparing sites for redevelopment, and navigating such a lengthy and contentious planning process, a large number of units are needed to justify proceeding with the projects.

In the end, the county Planning Commission was not swayed by the dissenters' pleas and voted unanimously in favor of the plan.

In light of such a strong endorsement from the county, it may seem that future revitalization efforts along Richmond Highway will proceed smoothly. While this may prove to be the case, the battle lines are clearly drawn for the next skirmish.

Even if the developments at Penn Daw are successful and new residents do in fact choose to walk and use transit, the overall volume of traffic along Richmond Highway isn't going to shrink anytime soon. Future development proposals are thus likely to generate the same protests and angry reactions from surrounding neighborhoods.

While the commission voted based on the recommendations of a citizen task force and two technical studies rather than the emotionally charged opposition, planners can learn from the Penn Daw process in two key ways.

First, planners and developers need to be very proactive about engaging and educating citizens. And second, development projects should take place within the framework of a comprehensive transportation plan, so that residents cannot blame individual developers for existing and longstanding traffic problems.

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Richmond Highway revitalizing, but many challenges remain

Mon, 05 Mar 2012 14:21:00 EDT

by David Versel

Revitalizing suburban highway corridors in the Washington area presents a challenge, with small parcels, uncooperative property owners, opposition from neighbors, outdated plans, auto-oriented zoning, and identity issues. Route 1 from the Beltway in Alexandria to Fort Belvoir, also known as Richmond Highway, shows the good and bad of revitalization.

Photo by DEV58 on Flickr.

For many people, Route 1 conjures up black and white photographs of big American cars, roadside motels, and drive-in movies. It may also bring to mind a less lofty vision, where you could visit a souvenir shop, a fortune teller, a greasy spoon diner, or maybe even a flea market.

The economy that created all of this development dried up more than 50 years ago when Interstate 95 was completed, diverting most of the through traffic away from Route 1. Yet, remarkably, even in a thriving metropolis like ours, the past traces of the former highway are still visible.

Along Baltimore Avenue in Prince George's County, Rhode Island Avenue in Northeast DC, or Richmond Highway in Fairfax County, roadside motels, ramshackle retail buildings, and ancient diners still survive. Even Jefferson Davis Highway in Crystal City still bears some reminders of the motor age amidst its gleaming high rises.

As the executive director of the Southeast Fairfax Development Corporation (SFDC), my job is to promote revitalization along Richmond Highway, our eight-mile long segment of Route 1 from the Beltway to Fort Belvoir.

At first blush, revitalizing this area would seem to be a simple task. The area abuts Old Town, Fort Belvoir, and National Harbor, is quite affordable relative to other close-in areas, and is very convenient to Arlington and the District via Metro's Yellow Line. From the Huntington Metro station, located at the north end of the corridor, it is just a 20 minute ride to L'Enfant Plaza.

All of these assets have begun to catch the attention of the development community in the past few years. Three major retail developers, Saul Centers, Federal Realty, and JBG Rosenfeld, have collectively invested more than $100 million into modernizing dated suburban shopping centers.

The area's long-forgotten tourism industry is making a BRAC-related comeback, as Baywood Hotels and OTO Development have combined to open 4 new national-flag hotels with 364 rooms since 2009, with much of the demand coming from Fort Belvoir. Finally, and most importantly, the Richmond Highway corridor is drawing strong interest from developers of high density, mixed-use projects, especially near the Huntington Metro.

Recent projects like Kettler's Midtown Alexandria Station and Home Properties' Courts at Huntington Station have already added more than 800 units next to the Metro station. About a mile to the south, directly on Richmond Highway, Redbrick Partners is developing the 290-unit, mixed-use Beacon of Groveton that is set to open later this year. Looking ahead, more than 2,500 additional multi-family units are currently proposed by several other developers in the corridor.

And then there's the hard part.

Though this task may seem fairly easy given the area's many assets, any seasoned GGW reader knows well that revitalizing aging commercial areas is never easy, whether in urban or suburban settings. In addition to the common obstacles to revitalization identified above, several other factors make revitalization along Richmond Highway a challenge in spite of strong market demand:

Significant portions of the corridor have environmental constraints like floodplain, wetlands, or poor soils that make development very expensive if not entirely impossible.
Traffic congestion in the area, which was already severe, was worsened by the BRAC-directed employment growth at Fort Belvoir, the National Geospatial Intelligence Agency in Springfield, and Mark Center, none of which is located near Metrorail.
Fairfax County is committing both its funding and planning resources to the Silver Line corridor, and is not likely to be willing to invest heavily in transit improvements along Richmond Highway anytime soon.
Richmond Highway faces an enduring image as a lower-end, auto-oriented strip.
It lacks a distinct identify, underscored by the fact that the area's mailing address is Alexandria, but it is outside the city limits in unincorporated Fairfax County.

I plan to post occasional dispatches from Richmond Highway. If you haven't been here for a while I encourage you to revisit the corridor to see how things are evolving, via car, bike, or bus—Metro's Richmond Highway Express (REX) service is excellent. In the meantime, I'd love to hear from the Greater Greater Washington community with any ideas or cautionary tales on how to revitalize this area.

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