Mortgage finance giant Fannie Mae said yesterday that it has pulled out of a deal to develop an office complex in Southwest Washington -- a move that sparked concern among city planners and business leaders who expected the company's presence would help generate more development in the area.
Fannie Mae signed a letter of intent last April with the developers of Waterside Mall to build a roughly 2 million-square-foot building that was expected to cost between $500 million and $700 million, according to developers. But the company killed the deal late Wednesday, saying it needed to save money and raise capital.
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The plan to move to Southwest was pushed strongly by Franklin D. Raines, the Fannie chief executive who was ousted last month after federal regulators concluded that Fannie had violated accounting rules, which the company said could wipe out $9 billion in previously reported profit dating to 2001.
For Fannie Mae, which was chartered by the government to ensure the flow of mortgage money, the planned move was more than a real estate deal. It was also meant as a symbolic gesture to show its corporate commitment to revitalizing American communities. The company, now headquartered in a stately brick mansion in Northwest Washington, was to give a $5 million grant toward building affordable housing in Southwest as part of the deal.
The collapse of the deal throws in doubt plans for a broader revitalization of the neighborhood around it. City planners viewed Fannie's arrival in Southwest as a linchpin, along with a planned baseball stadium on nearby South Capitol Street, of a building boom in a part of the city that has struggled through 1950s-style urban renewal, followed by decades of decay. Unlike the ballpark, which will attract people to the area only when there is a game, Fannie would have put thousands of highly paid office workers in the neighborhood daily.
Mayor Anthony A. Williams (D) said he was concerned about Fannie's decision. "I can understand what they're trying to do as a company. But as a company that's committed to the health and vibrancy of our cities, I'm sorry they weren't able to come through with this investment." Williams said he is going to work with federal officials and Fannie to try to get the project back on track. Others involved in the project said that was unlikely.
Fannie spokesman Charles V. Greener said pulling out of the deal is designed to lower the company's costs, adding to its capital.
Earlier this week the company announced it was cutting its quarterly dividend in half, and it recently sold $5 billion in preferred stock to build up its cash reserves.
Although final details of the contract hadn't been signed, developers said they were expecting to buy 13 acres at Fourth and M streets SW for $17 million from the National Capital Revitalization Corp., a quasi-public government agency that owns the land. They then planned to knock down the existing building and erect a new one paid for and ultimately owned by Fannie Mae.
"It is disappointing for us because Fannie Mae would have been such a great tenant for that site," said Gretchen Dudney, project executive for Kaempfer Co., a developer on the project along with Rockville-based Bresler & Reiner Inc. and Forest City Enterprises of Cleveland. "It would have kicked off the project much faster with one tenant. Now we have to go find another one."