In Columbia Heights, Room for the Little Guys

By Alejandro Lazo
Washington Post Staff Writer
Monday, October 1, 2007

The shells for what will be some of the biggest big-box retailers Columbia Heights has ever known are rising along 14th and Irving streets and Park Road NW. They include Target, Best Buy, and Bed Bath & Beyond.

Yet below these retail giants, space has been reserved for the little guys.

A Peruvian restaurant has signed a lease, as has a local African American franchiser of the Quizno's sandwich chain. A Vietnamese grocer is negotiating to bring a Pho restaurant to the development. A locally owned spa may also come.

The $149.5 million DC USA project is being developed by Grid Properties of New York. President Drew Greenwald said the firm will reserve 15,000 square feet, or about 11 percent, of ground-floor retail space for local and minority-owned businesses, under an agreement with the District to buy and develop the land. He will reduce rents by 30 percent to encourage smaller tenants.

"With all the projects, it is going to be a nice mix," Greenwald said. "It kind of has a little bit of everything."

Throughout the District, developers are carving out space for locally owned or small businesses. While small businesses tend to be riskier bets than their better-financed corporate counterparts are, mixing local and national retailers is a goal of city officials when selling or leasing public land.

Mayor Adrian M. Fenty has made these set-asides for small and local businesses a priority in many negotiations with developers who seek to build on public land.

At the site of the former convention center on New York Avenue and Ninth Street NW, the city has struck one of the biggest of such agreements. The development team of Hines and Archstone-Smith has agreed to set aside 82,500 square feet, or 30 percent, of retail space for local or "unique shops." It defines unique shops as operating fewer than six locations nationally. The development team will adjust rents accordingly to meet the mandate, said Howard J. Riker, a vice president in Hines's Washington office.

"Local doesn't necessarily mean small or local doesn't mean new; it doesn't necessarily mean 'put at a disadvantage,' " Riker said. "The way that we will approach the leasing is that we want to make sure that all the retail tenants will succeed."

Yet questions remain as to whether small and local businesses can compete in an environment of national brands.

"We may want to support the little guy in the neighborhood, but if his coffee doesn't taste as good as Starbucks, if his clothes fall apart when you wear them or his furniture is out of fashion, are you going to go his store? You're not," said John A. Asadoorian, founder of Asadoorian Retail Solutions, a District brokerage firm.

Asadoorian added, "They should be viable businesses, and if they are viable, the property owners will want to put them in their projects anyway."

Others question whether driving up the cost of these projects is worthwhile. In the short run, a few small businesses benefit from a program, but the cost is distributed across the entire tax base, said David H. Downs, a professor of finance and the director of the Kornblau Institute at Virginia Commonwealth University.

"If the taxpayers aren't properly monitoring what is going on with these programs, they can be inefficient," Downs said.

Mixes of national and small retailers already exist in the District. When Horning Brothers sought to renovate the Tivoli Theater, the original 1998 request called for the inclusion of at least one local business, said David Roodberg, chief executive at Horning Brothers. The project is also in Columbia Heights.

The project, anchored by a Giant grocer, includes several minority-owned and local businesses, including the Rumberos restaurant, Mayorga Coffee cafe and the Destiny De've hair salon and spa. Ruby Tuesday and Wachovia are the other national chains that are part of the mix.

"There is some risk," Roodberg said. "But you have to evaluate the individual retailers and their experience."

In the case of the DC USA development, the Development Corporation of Columbia Heights has played the role of recruiter for neighborhood businesses, overseeing an application and selection process and making recommendations to Grid. Robert Moore, chief executive of the group, said start-up costs for small businesses can be one of the biggest hurdles, particularly for businesses that are not franchises.

"When you walk down the street, the smells that you smell are the smells of the neighborhood: Ethiopian food, Peruvian kitchen, so I really think it's going to give cachet to the place, and you'll know you're in someplace special," Moore said.

Alejandro Lazo covers commercial real estate. His e-mail address islazoa@washpost.com.