Developer Buys 'Blue Castle' in Southeast

The "Blue Castle," across from the Navy Yard, is home to three charter schools. The site is to be developed by Preferred Real Estate Investments. (By Larry Morris -- The Washington Post)
By Dana Hedgpeth
Washington Post Staff Writer
Monday, December 26, 2005

It's known as the "Blue Castle" in the neighborhood where it has been a local landmark since the late 1800s. Now the building with the purplish-blue paint and the turrets has been swept up in the renaissance of redevelopment in Southeast Washington.

Preferred Real Estate Investments Inc. recently paid $20 million for 770 M Street SE. Executives at the Conshohocken, Pa., developer said the location of the 100,000-square-foot building makes it ideal for retail stores such as a Barnes & Noble bookstore and a Whole Foods grocery. The upscale stores eventually would supplant three charter schools that now are in the building.

The Blue Castle, across from the Navy Yard, is barely a block away from a huge new residential complex that is being built at the former site of the Arthur Capper/Carrollsburg housing project. More development is coming nearby with the proposed baseball stadium; 2 million square feet of office, residential and retail at the Southeast Federal Center; and the headquarters for the Transportation Department, which is under construction and expected to bring more than 5,000 office workers to the area.

"This is such a good corner, and there's a real lack of services here," said Michael G. O'Neill, chief executive of Preferred Real Estate. "You see new glass office towers going up but no retail, and it's a prime spot for retail."

The Blue Castle will be Preferred's first development in the District. The developer specializes in redoing historic buildings and is converting an old car-door production plant in Philadelphia into a multimillion-dollar retail project. In the Washington area, it turned a former TV factory in Columbia into offices and a warehouse for pharmaceuticals.

The Blue Castle was constructed in the late 1800s and was used as a garage and staging area to repair cable cars, trolleys and buses, according to the developer. O'Neill said his company will preserve its tall arched windows and exposed brick interior. But it won't be the Blue Castle anymore: He said he plans on painting it a more restrained hue.

O'Neill said he found the Blue Castle building three years ago while driving around Southeast. He was in the area after he bid on another old building near the Anacostia River, but he lost it to a developer who was willing to pay more. When he saw the Blue Castle, O'Neill said, he saw an opportunity. One problem: It wasn't for sale, according to its owner, a nonprofit group that provides services to mentally challenged people.

"We kept badgering them," O'Neill said. "We felt that if we buy it and be patient, we could do something with it." They came to a deal in November.

The three charter schools in the building still have five to seven years on their leases but are starting to look for new space. The developer said it is working with the tenants to help them find new homes and hopes to start construction in 2007.

Floyd Gilmore, principal of the Washington Mathematics, Science and Technology high school, said he's looking for space now for his 370 students but finding it is expensive and difficult. His school has been in the Blue Castle for four years and uses half of the building. Two other charter schools -- Eagle Academy and KIPP DC: KEY Academy -- and the nonprofit group use the rest of the space in the building.

Gilmore said he wants the school to own its own building, if possible, so it can confidently invest in equipment such as science labs. "It would just be too expensive for us to do it here when we only have a limited amount of time on the lease," Gilmore said. "The rent is going to be to the point where we won't be able to pay it."

Gilmore said he hopes to acquire a surplus school building from the D.C. government, though he'll miss the Blue Castle.

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