D.C. finalizes deal for development over I-395 entrance

By Jonathan O'Connell
Monday, May 24, 2010

D.C. Mayor Adrian M. Fenty's economic development team is finalizing a deal to sell the rights to develop three new city blocks above the entrance to Interstate 395 south of Massachusetts Avenue NW.

In the deal, D.C. would sell the rights to New York-based Louis Dreyfus Property Group. How much the deal will be worth to the city has not been determined -- it could vary widely depending on various factors, such as construction costs. In the past, the city estimated it would net $63 million.

Louis Dreyfus representatives declined to comment pending required approval by the D.C. Council of legislation needed to complete the deal, but according to zoning documents, Dreyfus plans to build a deck over the highway stretching from Massachusetts Avenue NW at the northern end to E Street at the southern, all between Second and Third streets.

Atop the deck, the developer plans three blocks of 2.2 million square feet of development. The northern-most block would be a 12-story building with 1 million square feet of office space above 35,000 square feet of retail with greenspace running through it.

The second block, between F and G Streets, would have a 12-story, 280,000-square-foot office building and a 13-story, 150-unit residential tower. The southern-most block is slated to have a 688,000-square-foot office building.

Louis Dreyfus also recently completed a deal with the Jewish Historical Society of Greater Washington that will allow the religious group to move the historic 1876 Adas Israel Synagogue onto the southern-most block. The brick synagogue was rolled down the street from Sixth and G streets to Third and G in 1969 to make way for the headquarters of the Washington Metropolitan Area Transit Authority. It will have to be temporarily moved again when construction starts, and then brought to Third and F streets permanently.

Louis Dreyfus specializes in developing high-end downtown office buildings in major U.S. and Canadian markets. In Washington, the company has built offices on K and M streets downtown and recently developed the new headquarters for the Securities and Exchange Commission near Union Station.

The city has long planned development for the site. In 1989 it awarded the rights to another company, Washington Development Group, which later sued the city and won an $8.4 million judgment that has not been paid. With interest, D.C. now owes close to $11 million, which will be provided using proceeds from the sale. The current legislation, submitted to the D.C. Council last week, would create a payment-in-lieu-of-taxes agreement that would give the company greater certainty over its ownership costs.

The I-395 entrance road, known as the Center Leg Freeway, has frequently been called a "scar" running through downtown, which Richard H. Bradley, executive director of the Downtown DC Business Improvement District, said would be good to have erased. F Street would also be reconnected over the highway. "It won't cover up the entire space, but it will certainly move us away from the sense that we have a divide," he said.

Building a deck for that level of development requires sophisticated, costly engineering and approval from multiple federal agencies. But Bradley said purchasing air rights, as Akridge has also done for space over the railroad tracks leading to Union Station, was a natural next step for developers now that nearly all of downtown is built out. "This area of downtown will run out of sites," he said.

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