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Steven Pearlstein

Let Economics, Not Politics, Steer Skyland Project

By Steven Pearlstein
Friday, December 10, 2004; Page E01

A fascinating drama involving economics, the Constitution and the politics of race and class is now playing out at Naylor Road and Alabama Avenue SE in the Anacostia section of the District.

Today, you'll find there a hodgepodge of retail stores that make up the Skyland Shopping Center. These include fast-food joints, a grocery, a liquor store, a pharmacy, two nail shops, a beauty parlor and two laundromats. While the center lacks aesthetic charm, it's all leased up with profitable enterprises that now pay as much as $30 a square foot to do business there.

_____Past Columns_____
. . . And Another Thing (The Washington Post, Dec 8, 2004)
A Culture Of Subsidies Inflates Costs (The Washington Post, Dec 1, 2004)
A Prescription For Antitrust Violations (The Washington Post, Nov 24, 2004)
Column Archive

Skyland was originally developed in the 1940s by the late Fred S. Kogod, who founded the District Grocery Store and later the K-B cinema chain. (Fred, as far as I could determine, was not closely related to the much wealthier Robert Kogod of Charles E. Smith fame.) Today, three Kogod descendants control about 40 percent of the center, with most of the rest in the hands of three other investors.

The shopping center straddles two mostly black neighborhoods, one of comfortable middle-class homeowners (Hillcrest) and another of poor and working-class renters (Skyland). The shopping center now draws more heavily from Skyland, while Hillcrest residents complain that absentee white landlords have allowed it to become a blight on the neighborhood that ignores their purchasing power and insults their economic success.

Although a small neighborhood, Hillcrest punches above its political fighting weight -- the "Draft Williams for Mayor" movement began there. Now the city has responded to its plea with a plan to take the entire center by eminent domain, along with another six acres of undeveloped land, at a cost that could reach $35 million. Then the city plans to sell it all for $5 million to a team headed by Gary D. Rappaport, a first-class Virginia developer, who promises to build a newer and bigger center that will include a Target, a Shopper's Food Warehouse, a CVS and several sit-down restaurants. To provide political cover for the deal, Rappaport's minority partners are a firm headed by a former deputy mayor and two local nonprofits, none of which will put in any cash.

As you might expect, Skyland's landowners and tenants oppose the redevelopment plan.

The existing tenants fear, with some reason, they won't be invited to rent space at the new center and couldn't afford to even if they were.

The owners complain that property they've held through many bad years is now going to be taken away from them at below-market prices just as it is about to become valuable. They've already sued in federal court to stop the taking. And they could get a big boost next spring when the Supreme Court decides whether the Constitution allows cities and towns, in the name of economic development, to take land from one private party and simply to give it to another.

The controversy at Skyland is one of those in which everyone is half right.

While the city is right to want to spur development in this corner of Anacostia, the degree of subsidy -- more than $30 million -- is excessive and raises a red flag about the project's financial viability.

Hillcrest residents are right when they say the neighborhood could support a better class of retail stores. But they probably overestimate the extent of their purchasing power, or the ability of a new center to attract shoppers from other neighborhoods.

As for the landowners, while they are right about the unfairness of having their land taken from them at a price that doesn't reflect its potential value, they have only themselves to blame for not realizing that value by investing in the property themselves.

The solution here is for the city to do what it should have done in the first place, if economics rather than politics had driven the process: Scale back the size of the project, at least in its first phase, and let it evolve from there. Jettison the minority partners and allow the landowners a chance to swap their property for a stake in the project. And give existing small tenants a fair shot at leasing space in the new development, even if it requires a few years of below-market rent.

Steven Pearlstein can be reached at pearlsteins@washpost.com.

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