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Renting the Hill: Developers (and Millennials) Favor Apartments

Renting the Hill: Developers (and Millennials) Favor Apartments

Developers building the nearly 6,000 residential units in the greater Capitol Hill pipeline are betting big on rentals. Why?

This article appears in The Hill Rag’s September issue, available at newsstands now.

Greater Capitol Hill is poised to add nearly 6,000 new residential units: more than 600 units near the Potomac Avenue and Eastern Market metros and more than 5,000 in the Capitol Riverfront are either planned or will be under construction in the next few years. The vast majority of those units will be apartments.

Financing, market forces and unique qualities about each development lot are driving the skew towards rental units both on the Hill and across the District.

Mary Mottershead, executive vice president at EastBanc, says developers look at several critical factors when deciding whether to hold onto a project as an apartment or to sell it and move on:

  • Financing markets
  • Tax issues
  • Market demand for units
  • Marketing risk

Apartments for the Hine School

EastBanc, Inc. the developers behind the Hine School project in Eastern Market recently secured construction loans for an apartment development across from the Eastern Market metro on Pennsylvania Avenue. Surely a condo project literally steps from the metro could sell quickly–why go the rental route?

For starters, the move to rentals is not set in stone for the Hine project. Mottershead says the project is financed as apartments, but is being built with high-end finishes and larger unit sizes the leave a window open for condo sales at a later date.

“We have the continued flexibility at any point in time to decide whether the units will be marketed as rental apartments of sold as condominiums or any combination thereof,” said Mottershead.

Millennials Rule the Roost at the Capitol Riverfront

At the Capitol Riverfront nearly 4,700 new rental units are either under construction or will be within a year (as of the second quarter of 2015), compared to about 650 for-sale units.

Following the recession financiers have favored rental units, in no small part due to the demand for rentals and delay in first-time home buying among Millennials, according to Michael Stevens, the president of the Capitol Riverfront Business Improvement District.

The Capitol Riverfront is second to only Dupont in the District for its share of Millennials. 41 percent of the neighborhood’s residents fall within the demographic and the average age in the Capitol Riverfront is 31.4, according to data from the 2013 American Community Survey.

“Due to large student debt and other factors, [Millennials] have decided to delay purchasing homes or condos and have opted to rent for several years,” said Stevens.

Return on Investment

In addition to a strong rental market and the corresponding preference for financing rentals, Mottershead said another factor driving the construction of apartments is the demand for purchasing completed apartment buildings.

Mottershead said institutional buyers have been paying “incredibly high” prices for completed buildings, as high as $800 per square foot. Condo in the same neighborhood were also selling for $750 to $800 per square foot, but the return is less due to expenses for marketing and closing costs, etc.

The tax rate is higher on condos because you are paying tax on each unit’s sale. Selling an entire apartment building falls under capital gains taxes, Mottershead explained.

“Why would you take the risk to market anything if somebody is buying the vacant buildings for basically the same price?” remarked Mottershead.

That return on investment is a big factor for developers when they are weighing sale versus condo, according to Phil Guire, a Capitol Hill real estate agent with Compass*. Guire said developers start by looking at what their break-even point is and then compare that with what is happening in the market to help them determine a price for condos or if they should ultimately go rental.

Insight on the Hill

Insight Development recently did that calculation for two properties just a stone’s throw from one another on the Hill and came to two different conclusions. The group recently received approval to developer for-sale condo and townhouse units on the site of the former Buchanan School between D and E Streets on 13th Street SE. Around the corner Insight is putting together a zoning application for propose to build 160 rental units on the Bowie’s trash (1337 E St. SE) and Signature Collision (1355 E St. SE) lots.

The Buchanan School site has significant street frontage a historic building that needs to be incorporated into the new development. Townhouse units would work well with the street frontage available and will meet the demand for family housing on the Hill. Larger, townhouse units like that do not typically rent well said Trent Smith a partner at Insight during a recent community development meeting.

In addition to the lot size and layout, the historic building was another factor that pushed them to a for-sale project.

“It’s difficult to make the math work on the historic building as a rental,” said Smith.

Meanwhile the lot on E Street is unusually deep with very little street frontage.

“The site really lends itself to a more efficient apartment complex,” said Smith.

In the Same Boat

The decision to sell or rent can also come down to the developer’s business model: do they want to deal with the hassle of owning and managing an apartment building? Is it worth the tax savings?

“We like to hold things long-term. If you sell off condominiums you’re not holding them forever,” said Mottershead.

Developers, really, are making the same determination Millennials are when it comes to housing. Rent or own? It just depends.

*Compass is the sponsor of District Source. 

Featured image is a rendering of the townhouses proposed for the Buchanan School site. Image courtesy of Insight Development. 

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Featured Properties by Compass

330 Units Proposed for Ball Park Neighborhood

View of 1000 South Capitol St. SE looking north. Image from Zoning documents.

View of 1000 South Capitol St. SE looking north. Image from Zoning documents.

Lerner Enterprises recently filed plans for a new 330-unit, 13-story residential building on South Capitol Street, SE between K and L streets, SE. The building will be designed by Shalom Baranes and will include 225 parking spaces.

Lerner filed plans with the Board of Zoning Adjustment (BZA) for the new development on a lot currently utilized as surface parking.

The project calls for 330 units, plus or minus 10% (so 300-360), of apartments. The site is zoned to allow a maximum height of 90 feet, but because the developers secured “transferrable development rights” the maximum allowable height is increased to 130 feet. The application does not state where the rights were transferred from.

The building will contain a large, 91-foot open court that faces east towards an existing alley.  To include the court, the building is shaped like an “E” missing the middle bar. The shape also necessitates two sets of rooftop mechanical equipment to accommodate the different “wings” of the new structure; the separate mechanical equipment is one of the reasons the case is going before the BZA.

Previously, Lerner had considered constructing a a 320,000 square-foot office building at the same location, according to the company website.

The hearing is scheduled for Nov. 24.

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Raze Request Readies NoMa Site for 400-Unit Building

Raze Request Readies NoMa Site for 400-Unit Building

The Wilkes Company  recently filed a request to raze the existing two-story warehouse structure at 1215 3rd St. NE to make way for the recently-approved, 416-unit, 110-foot mixed-use building just blocks from the NoMa Metro.

The new project, which also plans to bring more than 10,00 square feet of ground floor retail, will replace a surface parking lot often used for MPD cruisers and the existing two-story warehouse and office building. The new development will provide 187 off street parking spaces located in a below-grade parking garage.

The project team includes architects from Hickok Cole.

The developers agreed to a transportation demand management plan that includes providing bike parking, a transit screen, bike share subscriptions to initial residents and several of the first retail employees, and other transit offerings. Another transit benefit promised as part of the development is funding for two additional fare turnstiles at the M Street exit of the NoMa metro.

The project went before the Zoning Commission in July and received approval at a July 30 meeting.

As part of its approved zoning case, Wilkes will offer the following community benefits:

a. Spend up to $50,000 for the installation of public art on M Street at the terminus of Abbey Place;

b. Contribute $20,000 to Two Rivers Public Charter School for the relocation of concrete benches and sidewalk repair;

c. Contribute $10,000 to Planned Parenthood of Metropolitan Washington for the purpose of purchasing furniture and equipment for the organization’s community room;

d. Contribute $25,000 to Playable Art DC, a play and place-making initiative in partnership with OP and the District Department of Parks and Recreation (“DPR”), which brings innovative art-based play spaces to neighborhoods with underserved park space in the District through a design competition. The $25,000 contribution will be made to a new Playable Arts DC site at one of the following locations: 1200 block of 4th Street, N.E.; the corner of N Street and Florida Avenue, N.E.; or along the Metropolitan Branch Trail between M Street and L Street; and

e. Contribute $50,000 to WMATA for the installation of two additional fare gates/turnstiles at the M Street exit of the NoMa Metrorail station to increase capacity during rush hour.

They also agreed to improve the streets and sidewalks with new sidewalks, additional trees, new lighting and to make additional off-site improvements of a similar nature up to $140,000.

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Laser Beams and Lions: Corcoran Renovations Underway

One of the Canova Lions at the Corcoran is cleaned. Photo Credit William Atkins for GW Today.

One of the Canova Lions at the Corcoran is cleaned. Photo Credit William Atkins for GW Today.

A George Washington University team has spent the summer upgrading and renovating portions of the Corcoran Building (1700 New York Avenue/500 17th Street/1701 E Street NW), a recent addition to the Foggy Bottom school’s real estate portfolio, including a much needed cleaning for the iconic Canova Lions and a laser scan to prepare for exterior restoration.

George Washington University (GWU) acquired the Corcoran building about a year ago as part of an agreement with the Corcoran College of Art + Design, the Corcoran Gallery of Art and the National Gallery of Art. The Corcoran College of Art + Design became a part of GW last academic year.

GW recently sold the Fillmore School, a second former Corcoran property in Georgetown, to the non-profit S&R Foundation for $14 million. Some of the funds will go towards the Corcoran renovation.

As the University began evaluating how to improve and maintain its new 17th Street asset, GW’s team of experts faced a not insignificant challenge:  there are no existing detailed architectural plans, according to GW Today.

Before Leo A Daly, the architecture firm charged with planning the renovation, and construction manager Whiting-Turner can begin work, they need to know what sort of infrastructure and pitfalls might be waiting in the historic building.  This summer the project team performed interior and exterior investigations of the historic structure and scanned the exterior with a laser to create a three-dimensional model.

“This extensive process lays the groundwork for the planned renovations, and we are committed to taking the care needed to get it right to ensure long term success in the planning and construction processes,” said Alicia O’Neil Knight, senior associate vice president for operations at GW, in an interview with GW Today.

A more visible sign of progress is the recent cleaning and conservation work performed on the Canova Lions– purchased by Corcoran’s namesake William W. Corcoran.

In March the D.C. Historic Preservation Review Board determined that most of the gallery’s interior space should have historic landmark designation–the school had hoped to have a smaller portion deemed historic to allow for expanded classroom space and upgrades to the building’s infrastructure.

The exterior renovations and work on historically-designated interior areas necessitates ongoing review and input from the D.C. Historic Preservation Office.

GW has not announced a timeline for completing its planned renovations.

“We continue to evaluate renovation needs for both the first phase of renovations and total renovation,” Kurie Fitzgerald, Media Relations Specialist at GW, told District Source.

 

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What the New WWI Memorial Could Look Like

What the New WWI Memorial Could Look Like

The U.S. World War I Centennial Commission winnowed down possible designs for the new World War I Memorial proposed for Pershing Park to five after receiving more than 350 entries from around the world. Pershing Park is located on Pennsylvania Avenue between 14th and 15th Streets NW, near the White House.

“Stage I of the design competition was the first step in a long development process,” Robert Dalessandro, chair of the World War One Centennial Commission, said in a prepared statement.

The remaining teams will spend the next few months refining their designs and meeting with stakeholders, to include the National Park Service, the U.S. Commission of Fine Arts, and the National Capital Planning Commission, among others.

“We hope to present the final design concept selection of this competition to the full Commission early next year,” said Dalessandro. 

The five finalists are:

“Plaza to the Forgotten War” submitted by Brian Johnsen, AIA; Sebastian Schmaling, AIA, LEEP AP; and Andrew Cesarz, at Johnsen Schmaling Architects, in Milwaukee, Wis.

 

"Plaza to the Forgotten War" detail image.

“Plaza to the Forgotten War” detail image.

 

“World War One Memorial Concept” submitted by Devin Kimmel, Principal at Kimmel Studio, llc in Annapolis, Md.

0037-2-detail 2-World_War_One_Memorial_Concept

“World War One Memorial Concept” detail image.

“The Weight of Sacrifice” submitted by Joseph Weishaar of Chicago, Ill.

Detail image.

“The Weight of Sacrifice” detail image.

“An American Family Portrait Wall in the Park” submitted by STL Architects in Chicago, Ill.

Detail image.

“An American Family Portrait Wall in the Park” detail image.

“Heroes’ Green” submitted by Maria Counts, of Counts Studio in Brooklyn, N.Y.

"Heroes' Green" detail image.

“Heroes’ Green” detail image.

More images of the proposed monument are available here.

*Featured image: “Heroes’ Green” submitted by Maria Counts of Counts Studio in Brooklyn, NY

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Construction to Begin on Dupont Mansion Micro-Apartments

Patterson apartments with proposed rear new addition.

Patterson apartments with proposed rear new addition in a rendering from 2014.

The conversion of a historic Dupont Circle mansion, the Patterson Mansion and former home of the Washington Club, should begin in the next month or so. The first stage of construction will result in the closure of P Street between 18th Street and Dupont Circle.

SB-Urban plans to bring about 90 micro-units to the mansion at 15 Dupont Circle. The non-historic addition at the rear of the building will be demolished to make way for a new rear addition. Much of the historic structure’s interior will be retained and used as common space for future residents.

The micro-apartments will come fully-furnished and allow leases as short as 3 months in length. The developers anticipate residents will consist of business travelers, visiting scholars and contractors in need of extended-stay apartments.

Developer SB-Urban purchased the property in 2014  after garnering approval for its plans to build 92 micro-apartments between the historic structure and a new addition.

The property sold by TTR Sotheby’s for $20 million and was the most expensive residential transaction in the city in 2014.

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Insight Aims for Fall PUD Application for 160 E Street SE Apartments

 

Future site of proposed Insight Property Group apartment building. Image from zoning records.

Future site of proposed Insight Property Group apartment building. Image from zoning records.

Insight Property Group, under contract for the lots that comprise Bowie’s trash (1337 E St. SE) and Signature Collision (1355 E St. SE), hopes to file its application for a planned unit development (PUD) for a new 150- or 160-unit apartment project some time this fall pending ongoing discussions with nearby neighbors and the wider community.

Trent Smith a partner at Insight said he believes there is demand for “Class A” apartments on the Hill, with a concierge and larger units with more bedrooms. Smith said there is unmet demand on Capitol Hill and that his team has been working to get the Bowie site for years.

Though the full proposal is still in the works, Insight is considering a 4-story, 150 to 160-unit project to include 1-, 2- and 3-bedroom units.

Recent meetings with Capitol Hill Village have the developer convinced that the demand for apartments on the Hill is not just from Millennials, but also older residents looking to downsize from a home and the work they entail.

“The Hill is tremendously under-served by this product type,” said Smith.

The property is currently zoned for commercial and light manufacturing uses, so the development team will need to seek a change in use to allow residential development. Smith said they will seek to be re-zoned as R-5-B, based on conversations with DC’s Office of Planning (OP). The proposed zoning change accommodates moderate development, with a maximum building height of 50 feet. 

Commercial use would be another potential option, but OP and Insight agreed that a residential use would do well on the south side of the street already occupied by low-density residential townhouses. Smith said the goal would be to “stabilize” the residential growth already happening in this end of the Hill.

As part of the project, nearby residents can look forward to upgrades to the alley that runs along the side of the property. Insight agreed to set back its proposed structure to allow a full 20-foot alley–wide enough for two cars to pass.

Speaking of cars, the plan includes a below-grade parking garage with about 95 spaces or around one space for every two units. The project will also close out several curb cuts, re-creating as many as six on-street parking spaces in the process.

There will be more community meetings to discuss community benefits as part of the PUD application before Insight submits a plan to zoning.

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Ontario 17 Welcomes First Residents, Hopes to Round Out Retail with Restaurant

Ontario 17. Image courtesy of the Peterson Companies.

Ontario 17. Image courtesy of the Peterson Companies.

Just more than a year after breaking ground, the mixed-use residential and retail Ontario 17 will welcome its first residents this month. The project at the intersection of Ontario and Columbia roads and 17th Street, NW takes the place of the former Ontario Theatre and brings with it Solid Core fitness, a recently-announced Ace Hardware outpost and, the developers hope, a restaurant.

The Peterson Companies is the developer behind the 80 residential units, 29 residential parking spaces and 8,800 square feet of ground floor retail. The residential portion is currently more than 50% sold, according to Angela Sweeney vice president and chief marketing officer at the Peterson Cos.

The first retail tenant, Solid Core fitness studio, will open in September.  Ace Hardware is under construction and is set to deliver by year’s end. The retail leasing team is seeking a full or quick service restaurant to take up the remaining 2,500 square feet of retail, Sweeney told District Source.

This is the Fairfax-based developer’s first residential project in the District.

Sales are by McWilliams Ballard. Open house tours can be scheduled by appointment at the sales office, 2550 17th Street, NW, Washington, DC 20009.

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11-story Hotel with Artist Studios Proposed Near Union Market

411 New York Ave NE rendering. Image from Zoning Documents. Design by BBGM.

411 New York Ave NE rendering. Image from Zoning Documents. Design by BBGM.

A new 11-story hotel with artist studios, classrooms and a restaurant/art gallery are proposed for New York Avenue, just a block north east of Union Market.  D.B. Lee Development and Construction, and Brook Rose Development are jointly developing the project at 411 New York Ave. NE.

According to an application filed with the D.C. Zoning Commission, the project will entail: “178 guest rooms, over 3,000 square feet of art studios and classrooms, a restaurant with mezzanine over the hotel lobby, a combined restaurant/gallery space on the 11th floor, as well as a roof terrace and roof lounge with a bar and a pool.”

The site is currently occupied by a four-story industrial building home to Union Arts: a communal arts space with studio and rehearsal space for painters, musicians, photographers, filmmakers and designers.

To continue the recent use by artists, the development team partnered with Cultural DC to “develop, operate, and lease the proposed artist/maker spaces.”

The existing building on the site was built in 1933 by the Bolgiano Seed Company as a storage warehouse and retail facility, according to the zoning case report. Though the structure was not deemed an individual historic landmark during consultation with the D.C. Historic Preservation Office, the developers plan to retain the existing facade to incorporate it into the new structure.

The project architect is BBGM.

The case does not yet have a date for zoning review.

 

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Philz Coffee Coming to Navy Yard

Philz Coffee, a San-Francisco-based coffee shop, will continue its D.C. area expansion with its second announced location this time at the Navy Yard. Pacers Running also recently signed on in the Navy Yard area opening its sixth D.C. area location in the Boilermaker Shops.

Philz–known for its wide variety of fresh, single-origin coffees and customized blends curated over the past 25 years by founder  Phil Jaber–has set its sites on the D.C. market for its East Coast expansion. As we previously reported, the chain is also signed on to occupy ground floor space at the Adamo in Adams Morgan.

The Navy Yard Philz is slated for the ground floor of the new 327-unit Arris apartment–the coffee shop will occupy 2,400 square feet, fronting on Tingey Street across from the Boilermaker Shops. The Arris is expected to welcome its first residents in early 2016– apartment pre-leasing will begin this fall. Philz could open by Spring 2016.

“Both Pacers and Philz Coffee are highly desired retailers by residents tenants and visitors of The Yards,” said Deborah Ratner Salzberg, president of Forest City Washington, in a prepared statement. “The array of retailers and services that are calling The Yards home continues to diversify in an impressive manner.”

The new coffee shop should be a welcome addition for Navy Yard area residents who recently saw the closure of D.C. area chain Buzz Bakery.

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