Cranes Are Ready, Financing Isn't
Thursday, March 5, 2009
Not a single office building has been started in the District since October, a sign that the slowdown that began in the far-out suburbs has now reached prime city locations.
"Things are frozen. Nobody's doing anything," said Gerry Widdicombe, director of economic development for the city's Downtown D.C. Business Improvement District. It is the first time in nine years that there's been such a long period with no groundbreakings, according to the brokerage firm Cushman & Wakefield.
The construction cranes that still thrust above the skyline belong to buildings financed before the money for commercial construction disappeared. A few small deals are still getting done, but they often require owners and investors to put more money into the project than before.
The construction slowdown is rippling through the region, where many depend on commercial development for work. Ambitious revitalization plans have stalled, and tax revenue is likely to dry up soon, too.
Longtime developer Douglas Jemal has tried to get $400 million in financing to turn several blocks next to the new convention center into restaurants, shops, offices and housing, but says he can't get a loan. "I went to everyone out there," he said. "It's ugly."
Developer Jim Abdo is scaling back the size of his $1 billion, long-term plans to turn a run-down area of auto-body repair shops, a taxi cab company and a strip club along New York Avenue into a mix of shops and housing after not getting $150 million from two large equity institutions, which he refused to name. The partners backed out because of their own financial troubles and were reluctant to put money into new deals, he said.
For a project to move forward, it has to get money from investors and lenders. In contrast to past downturns, it's not just over-the-top projects in far-out suburbs that are hurting. Well-located projects with deep-pocketed developers are having trouble getting financing, according to analysts, brokers, lenders, investors and developers.
At 17th and H streets NW, developer Vornado and PNC, the bank that will occupy part of a roughly $200 million office building that's under construction, have put more cash into the deal after the terms of a loan became too onerous. And at Connecticut Avenue and K Street NW, one of the city's premier corners, the owners had to go to multiple lenders to find money.
"If anything could get money, it is trophy projects, but now you're seeing projects at Main and Main in good locations that aren't getting money," Widdicombe said.
Well-heeled Hines, and its partner, Archstone-Smith, may have to reach out to twice as many investors as usual to try to get equity for their $800 million mega-project at the old convention center site -- the last huge piece of undeveloped land downtown, at Ninth Street and New York Avenue NW. "We're trying to do this in a tremendously challenging market," said Bill Alsup, who runs the Washington office of Hines.
Even with the Department of Justice -- a gold-plated tenant -- signed up for part of a 2.2 million square-foot project at First and N streets NE, it took Bethesda-based developer StonebridgeCarras more than seven months to close on a $193 million construction loan.
Cities in particular depend on commercial and residential property taxes to pay for roads, schools, fire trucks and other services. On average, such properties account for 70 cents out of every dollar that a city brings in, according to the Real Estate Roundtable.