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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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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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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Philz Coffee Coming to Navy Yard

The Arris DC. Image courtesy of The Yards.

The Arris DC. Image courtesy of The Yards.

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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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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Dupont Underground Gains Traction with Partnership, Branding, Liquor License

Entrance to the Dupont Underground. Photo by David Wissman.

Entrance to the Dupont Underground. Photo by David Wissman.

The Dupont Underground, a proposal to transform the former streetcar tunnels beneath Dupont Circle into an arts and event space, is gaining traction this summer, first with its above ground branding, more recently with its partnership with an area hotel and soon with a review of its liquor license request.

The Arts Coalition for the Dupont Underground (ACDU)–the arts group leading the charge on the reinvention of Dupont’s long-forgotten subterranean space–used a splash of color to remind people of what lies beneath the busy Dupont Circle. The painted red entrance at New Hampshire Avenue (next to 11 Dupont Circle) was deigned and executed by ripe.com.

ACDU also recently announced a partnership with the Embassy Row Hotel.  The Washington Business Journal reports:

“The collaboration is a strategic partnership in which Dupont Underground will be able to use the hotel’s rooftop and/or other event spaces free of charge for fundraising events, and the hotel will in turn be able to use the underground for some of its own events once the space opens.”

Wednesday the Alcoholic Beverage Control Board will review a request for a liquor license from Dupont Underground. Filing under the name DCenter, the Dupont organization is seeking a CX license, which are granted to museums, universities, art galleries and the like, “for the performance of sports, cultural, or tourism-related activities.” With such a license ACDU could host entertainment and dancing.
ACDU hopes to have the east platform’s 14,000-square-foot space open to host an Art All Night event Sept. 26, according to the Business Journal.
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Hilton and Hyatt Pair on 413-key Hotel at The Wharf

Hilton and Hyatt Pair on 413-key Hotel at The Wharf

Hotel brands Hilton and Hyatt are partnering to bring a 413-key, nearly 300,000 square-foot hotel to The Wharf in Southwest D.C. With the previously announced 275-room InterContinental Hotel by Carr Hospitality, the Hyatt-Hilton proposal marks the completion of The Wharf’s Phase I hotel deals.

The dual-branded venture will include both a lifestyle brand hotel (a 120,000-square-foot, 175-key Canopy by Hilton) and an extended-stay hotel (a 145,000-square-foot, 238-key Hyatt House ) with 30,000 square feet of street-level retail and restaurant space between Maine Avenue and Wharf Street. There will be two levels of underground parking.

“We are excited about introducing our Canopy by Hilton brand to the Washington region and believe this is a perfect addition to The Wharf’s long-term vision of creating an urban neighborhood on the D.C. waterfront,” said Christopher J. Nassetta, president and CEO of Hilton Worldwide, in a press release.

SmithGroup JJR is designing the hotels. Current estimates are for a Fall 2017 opening.

Phase I of The Wharf is creating 200,000 square feet of retail, 435,000 square feet of office, a 140,000 square-foot cultural/performing arts project, 520,000 square feet for 648 units of apartments, 275,000 square feet for 240 units of condos, 500,000 square feet with 680 keys for rooms in three new  hotels, and 1,600 parking spaces.

Featured Image: Rendering of the new Hyatt and Hilton dual-branded hotel at The Wharf. Image courtesy of The Wharf. 

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Bardo’s Navy Yard Beer Garden is On

bardo beer garden

Proposed plans by Bardo Brewpub.

Bardo Brewpub is advancing plans to create a new outdoor beer garden complete with lawn games, food trucks and dog park south of Nationals Stadium, setting its sights on opening day 2016.

Last we heard, the concept for a lot on the banks of the Anacostia River had not gained sufficient traction on its $200,000 Indiegogo campaign to make the  a 100,000 square-foot development a reality. Instead of relying on crowd-sourced financing,  Bardo owner Bill Stewart told HillNow he went the traditional route, securing a loan from a bank.

Stewart said he is waiting on permits from the District government.

The beer garden concept would be a temporary presence on the site, which is ultimately slated for a larger plan called “RiverFront On The Anacostia.”

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27-unit Condo Proposed for Historic 9th Street Shaw Building

1851 9th St. NW formerly the Odd Fellows Hall. Image from DCRA PIVS.

1851 9th St. NW formerly the Odd Fellows Hall. Image from DCRA PIVS.

Plans for a new 27-unit residential building on 9th Street in Shaw stumbled coming out of the block during a Board of Zoning Adjustment hearing Tuesday, with commissioners questioning the necessity of a proposed fifth floor and exactly what relief was required for the project because of new “pop-up” regulations impacting its location in an R-4 zone.

The building at 1851 9th St. NW was originally built  as Odd Fellows Hall, serving a fraternal organization for African Americans, and was most recently used as a school. The hall was built in 1932, designed by architect Albert I. Cassell, according to the U Street historic District application.

Now Hollow Creek Investment Group, LLC with plans by Arcadia Design proposes to convert the structure into a condo building.

The developer proposes to provide 10 parking spaces at nearby parking lot for a term of two years. The building will include a mix of units from a studio to several three-bedroom units:

  • one studio
  • 3 one-bedroom plus dens
  • 5 two-bedrooms
  • 9 two-bedroom plus dens
  • 9 three-bedrooms

During a hearing Tuesday, BZA members took issue with the fifth floor addition, which will allow the fourth floor units to become duplexes and to gain rooftop access. The BZA was confused as to whether the project should have the old or new R-4 zoning regulations applied.

“We’re gonna have to have some regrouping,” said BZA Chairman Lloyd Jordan, who opted to delay further review of the project until the R-4 question is answered.

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