Several Washington area developers find new partners
Washington has its share of developers who drew up grand plans before the fall of the real estate and capital markets only to forfeit them -- whether by choice or foreclosure -- as the recession endured. Those who have hung on, however, are cutting deals to accelerate work now that the economy has offered glimmers of hope.
A slew of D.C. developers have brought in new partners in recent months, either as co-developers, co-investors or both to keep projects on track.
In May, PN Hoffman brought Madison Marquette and its $500 million development fund on board as a development and investment partner of the Southwest Waterfront, a project Hoffman was first awarded in 2006.
Across town, in August, Abdo Development sold a piece of a $200 million retail and apartment development it plans for Northeast Washington to a new venture created by the Bozzuto Group and Pritzker Realty Group.
And EYA, the Bethesda-based urban home builder, brought in the JBG Cos. as an ongoing equity partner on its projects, including Chancellor's Row and Capitol Quarter in Washington and Old Town Commons in Alexandria, all of which were begun before the real estate bust.
Things are still far from rosy. Many companies have had to jettison staff or less choice projects, and developers say it is still difficult finding banks and institutional investors willing to finance new construction. But now that it has become more clear who has survived the catastrophes of the market, a game of matchmaking has begun in which the negotiating points -- as in almost any relationship -- are money and control.
"A lot of what we've been doing is partnering with other developers who had deals under control but maybe their funding source went away on them or maybe they are underwater," said W. Matt Kelly, managing director for JBG investment management.
EYA, a specialist in town homes, had not shown signs of distress but had lost an equity partner of 17 years, giving JBG the chance to back a company that Kelly called "the best in town at what they do."
"I think we were fortunate to have the opportunity, when the markets really blew up, to become capital providers to those guys," Kelly said.
Robert D. Youngentob, EYA president, said the company received offers on similar financial terms from other well-capitalized investors but that JBG's interest in backing EYA deals on an ongoing basis made the deal work. "We were looking to re-establish another long-term relationship," he said. "We weren't necessarily interested in doing projects on a one-off basis, where you find a different person for every deal."
Unlike EYA, other developers that have hung on through the recession have agreed to give up development control as well as a portion of ownership. "Most developers do want to stay with their properties and they do ultimately want to be the ones developing them," said Tom Wilbur, director of development for Akridge. Four Points, a D.C. developer, is currently negotiating partnerships on two of its projects, according to principal Stan Voudrie. He said the first thing he's looking for is a company that doesn't have the same strengths Four Points does. "I'm not trying to replace myself with a new partner," he said.
Of course, until the capital markets make borrowing easier, a warm and fuzzy partnership isn't the only thing required. "Everyone wants somebody that's got a lot of money," he said. "A rich woman makes up for a lot of beauty flaws."