“He is a visionary,” Coppola said. “There was nothing but cows here.’”
Now Lerner is a direct competitor.
Coppola, chairman and chief executive of Macerich, broke ground last week on his own major Tysons development with financial partner the Alaska Permanent Fund. When completed in 2014, the more than $500 million project would be the largest mixed-use complex in Tysons Corner, comprising 1.4 million square feetnext to the Tysons Corner Center shopping mall.
Coppola has brought in top developers as partners. Kettler, based in Tysons Corner, is set to build a 395-unit, high-rise apartment tower. Hines Interests of Houston plans a 524,000-square-foot office building, Tysons Tower. Woodbine Development Corp. is to build a 310-room, four-star hotel. A source familiar with the project, who spoke on the condition of anonymity because the operator has not been named publicly, said it will be a Grand Hyatt.
The project constitutes an incredibly bold bet in that Macerich and the Alaska fund are footing the more than half a billion dollar bill themselves. Not only have they not offered any of the new partners ownership stakes or secured a bank loan, they have also decided to build all three buildings at once.
Coppola said short-term risks didn’t faze the team because it takes a long view of the project. Macerich, a real estate investment trust based in Santa Monica, Calif., acquired the property’s previous owner in 2005, and neither Coppola nor the managers of the Alaska fund, 50-50 partners, is looking for a quick return.
“Macerich and Alaska have been long, long-term owners of real estate,” he said.
Following Lerner’s lead
In a number of ways, Coppola follows Lerner’s lead in beginning the project.
Looking to build on the attraction of its own mall, Lerner Enterprises has also begun constructing a speculative office building, 1775 Tysons Blvd. The two projects — directly across the street from one another — are seeking rents beginning at $50 a square foot. Both are marketing close proximity to the Silver Line Metro stop being built in between them, Tysons Corner station.
While most other Tysons developers must get approval under new zoning rules, Lerner Enterprises and Macerich are mostly alone in enjoying massive development rights they acquired under prior rules. Starting their projects now could provide a head start before banks are willing to finance other buildings.
Coppola said owning the entire project would also create advantages that competitors, including Lerner, could not match. “I think the primary determinant is that we have common ownership of all of the elements here,” he said.
A proposed 50,000-square-foot plaza is intended to allow easy connections between the mall and the new buildings, and Coppola envisions promotions and incentives linked by all four. Fans of the American Girl store, for instance, may be offered discounts on hotel or restaurant bills. Employers in the office building may use the AMC theater for corporate video conferences. The plaza may host weddings or events in conjunction with the hotel.
Charles K. Waters, Jr., senior managing director at Hines, said he repeatedly attempted to negotiate an equity position in the deal before agreeing to develop the offices for a fee. “That’s how much we liked this project,” he said.
Maintaining ownership also allows Macerich and the Alaska fund to protect their interest in the mall, which Coppola said still brings in nearly $1 billion in annual sales and is one of Macerich’s most prized assets nationwide. “We don’t want the development of the other aspects of the project to have any kind of deleterious or adverse effect on the mall next door,” Coppola said.
The Washington area apartment market remains strong, with a vacancy rate of just 3.5 percent in the second quarter, third lowest in the nation. Robert C. Kettler, chief executive of Kettler, said 65 percent of the apartment tower will have one-bedroom or studio units and 35 percent will have two-bedroom units. Kettler, whose office overlooks the mall, said he has scoured every opportunity in the area. “We’ve got the best site in Tysons,” he said.
Most banks continue to be reluctant to finance new office buildings that tenants have not committed to lease, as evidenced by the JBG Cos.’s difficulty attracting financing for its planned Central Place officer tower in Rosslyn. Even Lerner is focused on finding a construction loan, according to Brian F. Tucker, of the real estate services firm Cushman & Wakefield, who is leasing the building.
Coppola would not say whether the team might seek financing down the road, but he was not concerned: “I am absolutely positive it will succeed.”