Building Slowdown Turns Grand Visions Into Vapor

By Paul Schwartzman and Dana Hedgpeth
Washington Post Staff Writers
Tuesday, December 2, 2008

Bustling streets around the Washington Nationals' ballpark. Thousands of new homes along the Potomac River in Virginia. A new community on what was once a rolling Gaithersburg dairy farm.

The economic boom of recent years promised to deliver gleaming homes and high-end retail to struggling and newly forming neighborhoods across the Washington region. But that quest is running headlong into a withering economic slowdown and paralyzed credit markets, bringing new construction to a virtual stop and fueling anxiety among those who dreamed that their neighborhoods were the next frontiers.

"There's a question mark over every site in the D.C. area that is or was in the process of seeking financing," said Samuel Simone, managing director of Trammell Crow Residential, which is trying to obtain a construction loan for 600 apartments it had hoped to start building in NoMa, the industrial neighborhood north of Washington's Union Station.

Civic and business leaders contend that the region's long-term prospects remain strong if only because Washington is home to the federal government. But local governments are bracing for a further loss of revenue as they devise tax abatements and other incentives to keep development creeping along.

At the peak of the building boom, low-interest mortgages fed a seemingly insatiable appetite for new housing. Office developers erected buildings without having signed up tenants. Now banks are increasingly wary of taking risks, depriving developers of an essential engine to drive construction.

Greg Ossont, Gaithersburg's planning and code director, stood on a former dairy farm and recounted the high hopes prompted by a developer's plan to turn a couple of hundred acres into a home for nearly 5,000 people. For young families, Gaithersburg, in the Interstate 270 corridor, was becoming a geographically attractive alternative to Bethesda, Rockville and even Washington.

The developer has suspended the project, costing the city, at least for the time being, $2 million in construction fees, $1 million for a seniors center, renovations to eight major intersections and land for a school. Buzz about the city's future has faded.

"This was going to be a home run, and now it's not going anywhere," Ossont said as he checked on an abandoned barn on the property.

Nor is developer Bob Kettler's vision of paradise on the Potomac: 4,000 homes, offices, hotel rooms, a marina and a golf course designed by Jack Nicklaus, all of it on nearly 2,000 virgin acres in Prince William County.

The developer and his partners have sunk more than $200 million into buying the land and building roads and other infrastructure. Yet only the golf course is nearing completion. The rest remains mostly woods, a casualty of the depleted demand for housing.

Fred Bramell, 59, a retired truck driver who lives next door, had hoped the developer would buy the modest clapboard house his father built in the 1940s. But Kettler's inquiries ended last year, Bramell said.

"This place was going to be our gold mine," Bramell said as he raked leaves. "Now we're stuck."

Along Route 1 in Hyattsville, Prince George's County officials for years have talked about turning a strip dominated by car dealerships and warehouses into a version of SoHo, an arts-driven enclave with 500 homes and restaurants and shops on 25 acres.

The developer, EYA, initially planned to complete about 130 homes by early 2009. Although it has built 75 of those units, the developer estimates that its timetable could be delayed by a year. EYA has signed up the restaurant Busboys and Poets and a Thai eatery, but another prospective tenant, Starbucks, dropped out this year.

Aakash Thakkar, an EYA vice president, said company officials are evaluating "how long the economic downturn will take before we put a shovel in the ground" on the commercial component.

The real estate slump was almost unimaginable three years ago, when the number of housing units authorized across the region reached 41,221, the highest level since 1988, Census Bureau records show.

The picture has changed sharply. The number of authorized housing units fell to 16,434 this year, the lowest level since 1991. Commercial building has plummeted as well. Two years ago, construction crews started building 17 million square feet of office space, compared with 4 million this year.

Even projects in flourishing neighborhoods are struggling. In May, Mayor Adrian M. Fenty (D) announced plans for CityCenterDC, a swirl of shopping, condominiums and offices on one of the last vacant parcels in downtown, the site of the former Washington Convention Center, at Ninth and H streets NW. A groundbreaking was slated for January 2009.

But the developer, Hines/Archstone Smith, has pushed back the date and hopes to start construction by July, and maybe not until the end of 2009. That is, if a bank will lend $500 million for construction. "We're putting off looking for financing until after the new year because of the state of the market," said William B. Alsup III, senior vice president in charge of Hines's Washington office.

No neighborhood is immune from the pain, but the stakes are higher in emerging areas, which counted on the boom to lift them to prosperity.

Perhaps no area is more central to the District's long-term ambitions than the streets around Nationals Park. At every opportunity, Fenty talks of a cosmopolitan destination featuring new parks, offices, stylish apartments and restaurants, all of it along the Anacostia River.

Yet, how soon that vision materializes is fraught with uncertainty.

A half-mile from the ballpark, the Corcoran Gallery of Art and developer Monument Realty intended to turn what was once a public school and then a homeless shelter into an art school and apartments. But Monument withdrew in August, as its equity partner, Lehman Brothers, collapsed, leaving Corcoran to find another developer.

Along Half Street SE, the block leading to the stadium's entrance, Monument hung slick black banners promising "a whole new playground" -- new apartments, new dining, new hotel rooms and new shopping. Behind the billboards is a crater that is more than half a city block long and three stories deep.

Monument had planned to complete several hundred apartments and a hotel by the end of 2009. But construction crews are working only on an underground parking garage, while the developer searches for financing for the buildings. "Could it be completed by the end of 2010? Yes," said Russell Hines, a Monument executive, while acknowledging that "it could be longer."

Three blocks east on M Street SE, William C. Smith & Co. put up a red, white and blue billboard announcing that an office building, Federal Gateway II, would be completed in 2008. But unable to sign a major tenant, the developer is using the land as a parking lot, a decision that threatens to defer more than just construction on a single street corner.

The project's anticipated tax revenue was slated to help the District finance $24 million worth of sewers and sidewalks nearby, infrastructure needed to serve 500 homes and revive several now-barren blocks once occupied by a public housing complex.

"If the infrastructure isn't there, you can't build the town homes," said Larry Dwyer, the District Housing Authority's projects manager. Crews were to begin excavating for that phase of the development in mid-2009, Dwyer said, but "if this market doesn't correct itself, it could easily be delayed."

The Rhode Island Avenue Metro station in Northeast is at the center of another area the District has long cited as ripe for investment. A developer, Urban Atlantic, was negotiating a loan with Citibank to build 274 apartments, but the bank abruptly withdrew in recent weeks. The developer's quest for a new lender has met with a "very tentative reception," said Harry Sewell, executive director of the District of Columbia Housing Finance Agency, which is assisting with the project. Sewell estimates a delay of at least six months.

Two stops north on the Red line, residents of Fort Totten, a working- and middle-class neighborhood on the Maryland border, were thrilled when a developer swept in with talk of condominiums and rentals, a supermarket, shops and restaurants. Lowe Enterprises even took residents on a bus trip to Pentagon City and Bethesda to show them what their neighborhood could become.

Now, Lowe executives talk of affordable housing. The chances of a supermarket seem more remote. Meanwhile, two plots of land in the middle of the community sit lifeless, surrounded by a chain-link fence.

"They've created an eyesore," said Willie Jenkins, a retired bus driver, standing outside a KFC, among the neighborhood's only restaurants. "Where's the economic development they promised?"

Local governments have sought ways to keep projects moving. Montgomery County officials might allow builders to defer paying construction permit fees up front. In Fairfax County, an epicenter of new construction in recent years, officials for the first time are considering granting a subsidy to a developer, this one for $40 million to a project in Merrifield.

The Fenty administration, in at least two cases, has agreed to issue bonds to help finance infrastructure at the start of a project. The timing is intended to help developers attract lenders. District officials are also considering tax abatements to spur residential construction and leasing in such areas as around the ballpark and in NoMa.

For decades a neighborhood of warehouses and light industry, NoMa is promoted by civic leaders as a future extension of downtown Washington. A total of 29 projects have been slated for the area, which comprises 35 blocks extending from Massachusetts Avenue NE and Union Station to just north of New York Avenue. In recent months, National Public Radio and the U.S. Justice Department have announced plans to move to the neighborhood. Five office buildings have been completed, and five more are under construction. Two hotels are also being built.

But developers are slowing down. MRP Realty, for one, is delaying two office buildings that are part of its Washington Gateway project, at New York and Florida avenues. At least two residential projects, which include nearly 1,000 apartments, are also behind schedule.

Khalil Ghannam, 45, opened Pound Coffee in April because he expected thousands of office workers and residents to move to NoMa. From his cafe window, he can see the bare ground where Washington Gateway is to rise.

Ghannam has patience, but he is not sure how much. "If I had a nickel for every time someone tells me I'll be wealthy, I'd be wealthy," he said. "Having the vision and the hope is one thing. Paying your bills is another."

Staff researcher Julie Tate and newsroom intranet editor Jacqueline Dupree contributed to this report.

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