OPINION: Action Needed at Northgate Site

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ASK FALLS CHURCH TIMES: Status of Hilton Garden Inn?

A reader asks:

I noticed there’s been little, if any, statement on the Hilton Hotel project (next to the Flower Building). Is it possible to find the official status?

If by official status you mean does it have all necessary approvals by the City, the answer is yes. City Council granted a special exception in June and the Planning Commission approved the site plan in October. The City approvals are available here.

Many readers will recall this as the project vehemently opposed by some parents of students at St. James School, two blocks away. Ultimately, however, the pastor of St. James Catholic Church, the Rev. Patrick L. Posey, gave his blessing for the hotel in exchange for development proffers including a tall fence around the school playground. Details of the deal can be found in the archives of the Falls Church News-Press.

We’ve heard that a rumor is circulating among some of the opposing parents to the effect that the hotel project is dead in the water. So we asked the developer, Robert Young, to provide readers an update. Young responded:

With respect to the Hilton Garden Inn:

– It has taken many months to get the site plan approved but that process now is essentially completed.  We have only to post bonds and obtain building permits to begin construction.

– We are working hard to obtain financing for the hotel, which is difficult at best in this economic environment.  However, we are encouraged by a couple of institutional lenders and hope to have reasonable financing in hand in the next 60-90 days.  No guarantees, but we are hopeful.

If that doesn’t work, we will simply have to wait out the market and move forward when the economy improves.

Young’s company most recently built 800 Broad (the “Flower Building”) and 400 Broad (the Read Building).

Have a question about the City that might be on fellow residents’ minds as well? Send your question to the Falls Church Times and we’ll try to get an answer. When you write, please consider using your real name. We give preference to requests from “real people.”

NEW! Ask the Falls Church Times: Questions about Northgate

Have a question about the City that might be on fellow residents’ minds as well?

Send your question to the Falls Church Times and we’ll try to get an answer.

One of the advantages of our “small town” structure is that individual voices actually can be heard. We’ve been pleased the way City officials have responded to requests. But most residents don’t have the time or inclination to call officials whenever they may have a question or concern. That’s why we thought Ask the Falls Church Times might be just the thing.

When you write, please consider using your real name. We give preference to requests from “real people.”

John Reimers asks:

What is the status of the Northgate project? For example, status of funding, have building permits been issued, construction plan approved, status of demolition, target dates, etc. And is the City taking action on the dilapidated condition of the Pearson Funeral Home and grounds?

We directed that question to Rick Goff, Economic Development Director for the City. He responded:

Hekemian Company, the Northgate developer, has obtained site plan and other approvals needed to commence the project.  In March I spoke with Chris Bell of Hekemian and then reported to City Council that the project remains on hold due to the frozen credit markets for new development.

Hekemian is very much interested in moving the project forward and continues to explore financing options, but today lending sources are limited and those who would lend are greatly restricting their underwriting with extremely stringent criteria, including loans to value generally not exceeding 50-55 percent. 

A loan is also complicated by the land lease status of the developer.  Hekemian has not yet found terms for borrowing that they can live with to proceed with the project.

Construction financing is as difficult to obtain as permanent financing, so demolition of the structures on the Northgate site has not commenced.

To report or inquire about unsafe conditions at the Pearson Funeral Home site, please contact the city’s Building Safety Division at 703-248-5087.  Doug Fraser is the city’s buildings official .  I walked the site and have reported to Doug some conditions of concern that I noticed.  Thanks for bringing this to our attention.

Development News: Brewery Owners ‘Crazy Like a Fox’

What is it about the front corner retail space in the new Spectrum condominium?

The original rendering displayed at the site showed an “Anne Baylor” shop scheduled to open in Fall 2006.

Of course, that was merely the architect’s musing. Later, much later, Not Your Average Joe’s restaurant had concrete plans to open in the spot.

The recession killed that. Then we got the news that Mad Fox Brewing Company was all set to go. Mad Fox signed a letter of intent with Spectrum developer Waterford in February.

It turns out that the Mad Fox folks are crazy — like a fox. They’re ready to build the brewery as soon as they can find someone else to pay for it. Someone called an “investor.” We hear they’re not even asking at the banks, looking instead for individuals with deep pockets.

According to the City’s Economic Development Office, Mad Fox reports it’s “making great progress” in its search for those kind of people. Assuming investors come forward, Mad Fox plans a November grand opening.

Looking for somewhere to invest that inheritance? Contact Director Rick Garvin:
rick@madfoxbrewing.com Read more

Mixed-Use Projects: Less Tax $$, More Kids Than Planned

 

Falls Church City’s analysis of three mixed-use development projects indicates they are netting the City slightly less money and more school children than originally estimated.  Presented to the City Council last month, the analysis looks at the impact of The Byron and The Spectrum, both on Broad Street, and Pearson Square at 410 S. Maple.

 

The three projects were originally estimated to have a combined net positive fiscal impact of $1,711,939 per year, but as of February the actual figure, assuming full occupancy of commercial and residential units, was slightly below projections, at $1,672,601.

The percentage of school children living in the three is slightly higher than projected, at 19% as opposed to the original estimate of 15% of units.  The percentage is higher at Pearson Square and The Spectrum, with a ratio of 22% pupils to units.  Overall, there are currently 61 city students living in the three developments.  That number will likely rise as Pearson Square and The Spectrum gain occupants.

Full occupancy has been achieved only at the Byron, which has 90 condominiums and 22,000 square feet of commercial space.  Pearson Square, orginally planned as condos but converted to apartments due to slow sales, has occupants in 200 of 230 units.  The Spectrum has filled only 27 of its 189 condos.  Updated figures on commercial occupancy for Pearson Square or The Spectrum are unavailable at the time of this writing.

The city’s mixed use fiscal impact chart is available here.

Northgate Development Jeopardized by Credit Crunch

As a follow up to a piece I posted on February 27 on the Status of the City Center Development, I was asked to comment on the status of the Northgate/Hekemian Development. This is the planned mixed-use development, in the 400 block of North Washington Street being undertaken by Hekemian & Co. It consists of some 95 apartments, 10 rental townhomes, 22,000+ sq. ft. of ground floor retail space, and 14,000+ sq. ft. of office space.

After going through the public vetting/approval process for the better part of 2007 the project was finally approved by all the appropriate boards and commissions and the City Council in 2008. This project, like the City Center project, would appear to be in jeopardy as well, victimized by the current credit crunch. The lending environment for new developments is virtually non-existent at this point in time. To the extent Hekemian can find financing, the amount of equity required (of the investors/developers by the lenders) will be a lot higher than the amounts required one or two years ago, making the project’s economic viability (the investor’s internal rate of return, or IRR) more questionable.

Hekemian has all the approvals needed to proceed and is apparently anxious to do so despite the difficult economic environment. But they must make a decision about whether to wait for more favorable borrowing conditions or go forward under these much less favorable terms, assuming they can even get them at all. Today lenders are demanding far greater equity in a project for a construction loan and permanent financing is extremely difficult to obtain. Even if the current economic crisis abates, lenders are still unsure how to value a property in the future which is how they calculate their risk/reward making the negotiation of terms very difficult for all parties. Projects such as this are valued using a set of assumptions about rental prices, occupancy rates, and “secondary market” prices (what institutional investors would pay for a fully mature property some years down the road) and all of these assumptions are in a state of flux and uncertainty today.

Meanwhile, Hekemian continues to absorb burdensome carrying costs for the project as they already own the land and/or options, tying up their own capital. The value of the land is probably less in today’s market than what they paid for it. And the value of the entire development, when/if completed, is most certainly less today than a year or two ago the combined impact of lower net operating income (lower rents) and higher capitalization and discount rates (to account for greater perceived risk).

All this being said, they continue to shop the project around to potential lenders, still believing that the market for higher end apartments is very strong at their N. Washington St., Metro-walkable location. I understand they have hired a broker to work with them to fill the ground level commercial space with tenants that reflect a theme of healthy living. For example, they will target health food stores, spas, yoga and Pilates studios, weight loss centers, along with cafes and restaurants. But, another hurdle, Hekemian will most likely have to include tenant improvement dollars to “turnkey” the retail space because retailers, large and small, have been shut out of the market due to the inability to obtain loans for FF&E (furniture, fixtures and equipment), inventory, and working capital.

The overall project design and mix of component uses for Northgate remain the same as originally planned and approved. It was enthusiastically supported by the EDA and, I think, most of the boards and commissions when it went through the approval process. Personally I think it would create an impressive gateway to the city from Arlington. And it certainly would add considerable net tax revenues to the city. As bad as the current recession is right now, turn-arounds can come quickly and unexpectedly. Hope springs eternal.

I hope this adds some clarity to an admittedly cloudy situation, and as always I welcome any corrections if I have mis-stated something, more facts, updates, and feedback from all.

Pearson Square Request to Broaden Retail Targets on City Council Agenda Monday

The Falls Church City Council will consider on Monday the request by Pearson Square Apartments to broaden the types of retail establishments it may add.  (For background, see, “Pearson Square Owners Lament ‘Less-Desirable’ Location.”)

Documents pertaining to the request are now available from the City Council. The documents demonstrate an extensive list of restaurants and other business establishments Pearson Square has attempted to attract.

The city’s retail consultant supports broadening the targets, stating in a memo to city officials, “Examples of ‘elegant’ dry cleaners, nail salons, hair salons, tailors and day spas are plentiful throughout Metro DC.  These retailers should be targeted by Pearson Square’s marketing efforts.”

Last week the Falls Church Planning Commission unanimously agreed that allowing some medical and dental space would be acceptable use of the space.  Pearson Square was originally approved by the City Council as a condominium project, but  slow sales persuaded the Council to allow its conversion to apartments.  Pearson Square is located at 400-412 S. Maple Street.

Monday’s City Council session starts at 7:30pm at City Hall.

[where: 400-412 S. Maple Street, Falls Church, VA]

Pearson Square Owners Lament “Less-Desirable Location”

In a surprisingly frank assessment of the prospects for retail development at Pearson Square, the new owners state that

 Pearson Square is a less desirable location due to limited street parking, lack of drive-by traffic, and few nearby office tenants to support retailers.

In a document apparently designed to convince the City to further ease the special exception zoning change from commercial to mixed-use, the owners state

What We’ve Learned

Retailers want to locate in high traffic areas with easily accessible parking, as well as other retailers that drive business and traffic (i.e. retailers prefer grocery-anchored shopping centers that draw significant numbers of customers). Pearson Square cannot provide this.

Specifically, its owners say, Pearson Square suffers from the following “Weaknesses”:

• Poor visibility
• Secondary retail location
• Limited on-street parking
• Limited drive-and walk-by traffic
• Limited access to George Bus
• Lack of nearby retail, housing and offices to drive local business
• The downturn in the economy and contraction of consumer spending

Background: Pearson Square is the name of the new apartment complex on Maple Avenue off South Washington Street. It was developed, along with the adjoining Tax Analysts office building, by Atlantic Realty, who also is developing the City Center South complex. The land previously contained a decrepit duckpin bowling alley, a large parking lot, and some warehouses. The property was the largest single commercial tract in the City available for development.

Although the property was not zoned for residential use, in 2003 the City made a deal with Atlantic Reality: They could build 230 condominiums on the site so long as the ground floor was reserved for retail stores, and provided they also constructed an office building. Subsidized space for “community arts” and 15 subsidized condos for “affordable housing” were thrown in to sweeten the deal. This would be the largest conversion to “mixed use” yet made by the City.

But by the time the project was nearly complete in 2007 the condo market had gone bust, and Atlantic Reality petitioned the City to change the terms of the deal. Instead of condos, the development would become rental apartments which, it was later discovered, would generate far less tax revenue for the City. That’s because condominiums are assessed on their value, just like a single family home, whereas apartments pay only a percentage of the income derived from the rent. The City had been banking on receiving $875,000 a year in condo property tax, but with the downgrade to rental apartments only about $495,000 a year could be expected.

In December 2007, Transwestern Multifamily Partners, a private equity firm, bought Pearson Square for $103 million with the intent of selling it off after 7-10 years when the condo market recovered. According to a Transwestern PowerPoint presentation prepared for the City, Pearson Square apartments are 80 percent occupied, with a 90 percent occupancy rate expected by May. But every bit of the 19,000 square feet of retail space remains vacant.

Of that retail space, 3,000 square feet will be occupied by a non-profit arts organization known as Creative Cauldron, planned to open this spring or summer. This subsidized undertaking is to provide educational workshops in the performing and visual arts for children and adults.

Transwestern states that despite contacting 173 potential retailers during the past year, no one has signed a contract. The list of firms approached includes full service restaurants, fast food joints, coffee shops, wine and cheese shops, “high-end salons and spa operators,” coffee retailers, and general retailers.

Transwestern now seeks further changes in the City’s special exception zoning to allow retail services and professional offices. This would open up the commercial space to such endeavors as doctors,’ dentists,’ and lawyers’ offices, learning centers, beauty salons, barber shops, day spas, and dry cleaners.

Transwestern’s proposal contrasts strikingly with City Council’s 2003 special exception which envisioned

a vibrant, pedestrian-oriented environment . . . with street level activity throughout the day and evening,” featuring “entertainment, art, recreation, dining, retail, and an array of consumable goods.

Some observers may ask how a dentist’s or lawyer’s office or even a learning center creates a “vibrant” community, “day and evening.” And indeed, Pearson Square seems to be moving farther and farther afield from Atlantic Realty’s 2005 groundbreaking press release, which stated, “Mayor Gardner has described the project as a ‘win-win situation’ for the city, which anticipates $1 million annually in new tax revenue from the project.”

On February 23, City Council will vote whether to further amend the special exception to allow retail service establishments. There is a precedent: In the case of the adjoining Tax Analysts building, also known as 500 South Maple, the City has allowed half of the ground-floor retail space to be used for retail services. And in fact, the only business to open so far is a dentist’s office. A pizza parlor is planned.

“Naysayers” are quick to point out that the original commercial tract of land was large enough to overcome many of the commercial “weaknesses” that Transwestern now complains of. For example, the site could have contained a shopping center anchored by a grocery store and plenty of parking. Such a concept, however, could not have included 230 residential apartments.
To read the Transwestern presentation (.pdf format), click here.

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