Half-empty Shops at Georgetown Park headed to auction next month
Wednesday, April 14, 2010
A brawl between two titans of Georgetown real estate over the Shops at Georgetown Park, a mall that sits on some of Washington's most prized real estate, may come to a head next month when the property goes to auction.
Western Development Corp., led by developer Herbert S. Miller, purchased the property in 2006 for $84 million with plans to reposition it with Bloomingdale's as an anchor. But Western defaulted on a loan worth at least $70 million held by Capmark Financial Group, a commercial real estate lender that filed for bankruptcy protection last fall.
The 300,000-square-foot mall has struggled to extend leases or ink new ones. It lost the deal for Bloomingdale's and is slated to go up for bid with Alex Cooper Auctioneers on May 5, in what would be one of the region's largest commercial real estate foreclosures in the economic downturn.
The source of the problems, according to Western, lies with a legal claim to the property made by another well-known Georgetown developer, EastBanc President Anthony Lanier. The two developers, whose offices sit blocks apart on either side of Georgetown Park, had a deal to buy the mall together as far back as 1998, Lanier said Tuesday. After Miller opted to purchase the property on his own, Lanier filed suit in D.C. Superior Court.
Western has sued EastBanc and Lanier personally for more than $50 million in damages, citing a malicious legal filing and other causes.
Western attorney Scott Morrison said that in claiming a right to the property Lanier prevented the owners from refinancing it for redevelopment or from signing leases with retailers.
The mall, in the heart of one of Washington's most affluent neighborhoods, struggled to hold on to the kind of high-end fashion retailers that began lining M Street and Wisconsin Avenue as the lawsuit festered. Only about 10 percent of the property was vacant at the beginning of last year, according to data collected by CoStar Group. Now 56 percent of the property, or 168,000 of the 300,000 square feet, sits empty, according to CoStar.
"He's destroyed that property," Morrison said of Lanier. "He's driven down the value on that property by probably $30 million."
Lanier, known for building luxury condominiums in Georgetown and the West End, could try to purchase the property at auction. He declined to say whether he would bid and added that "nothing good can come out of commenting" on his lawsuit against Miller.
Paul Cooper, a principal at Alex Cooper Auctioneers, said he has not received inquiries from potential bidders because the auction will not be advertised until later this week.
Morrison said he expects Western will retain ownership, but Georgetown still will be stuck with a mostly empty building. "You have a trophy building that is very important to the development of Georgetown that is effectively being allowed to die on the vine," he said.
Until there is certainty about the property's ownership and possible redevelopment, potential tenants are likely to be skittish, according to Georgetown-based broker John Asadoorian of Asadoorian Retail Solutions.
"You need concrete plans in front of you to make a decision. If they're in a lawsuit, they probably aren't putting their best marketing foot forward," Asadoorian said.
Staff researcher Meg Smith contributed to this report.