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American University's growth causes pains for neighboring businesses

By Derek Kravitz
Washington Post Staff Writer
Saturday, December 11, 2010; 12:18 AM

Morty's Delicatessen, housed in a drab brick building in Tenleytown and known across the District for its hot pastrami and matzo ball soup, was never very profitable. Or glamorous.

Its front window featured a cartoon caricature of its folksy Brooklyn-born manager, Morty Krupin. Its owner, the late philanthropist Cy Katzen, believed in the deli and kept it in business. Its customers, always fearful that Morty's days were numbered, would say that the deli would "go as the neighborhood goes."

So when American University took over as its landlord last year after Katzen died and left the building to the university, Morty's was on borrowed time.

"They didn't shut us down, but they didn't help keep us open either," said Krupin, 71, who is retired and lives in Boynton Beach, Fla. "We weren't in their plans and they are the new boss in town." American officials said they lowered the rent to help Morty's get by, but in the end, the deli just didn't make it.

After 20 years, Morty's closed in early November, unable to make its monthly rent. Residents and longtime patrons say Morty's closure is proof that the university's plans for growth do not include many of the small and long-standing businesses that dot the surrounding neighborhoods. American is too tough with its economically vulnerable and small retail tenants, they say, many of whom are still grappling with the recession.

American officials say the university's faculty and student population is an important source of local financial support.

"Our students, staff and faculty are supporting a lot of local businesses," said Penny Pagano, a university spokeswoman. "When neighbors say they want retail, part of the reason in this economy the retailers are doing as well as they are is because we are there."

In the past few decades, American University, the private research university with two campuses near Ward and Tenley circles, has grown into one of the country's best colleges with a prestigious international service school, a top-notch law school and a reputation as one of the most politically active universities in the country.

But like many other universities, American is also in the business of residential and commercial property management, owning buildings stretching from Massachusetts to Wisconsin avenues NW and north to the Tenleytown-AU Metrorail station. The buildings range in size from the small and aging Brandywine office building near the Metro stop to a 156,000-square-foot steel and concrete building on Wisconsin Avenue NW, which houses embassy and university offices, a public library, a sign-maker and a plastic surgeon.

American officials are working to finish by March a new campus plan, a guiding document that will lay out its growth over the next decade. Among its goals are: building a facility for the Washington College of Law in Tenleytown; luring more students back onto campus from off-campus neighborhoods by adding about 900 beds; and somehow easing traffic at Ward Circle. New facilities will stay on the existing campuses, officials say.

Total student enrollment is expected to climb by more than 3,000, to 13,600, by 2020. However, officials point out that most of the growth will be among graduate and law school students, who tend to shop and live in different places than undergraduates.

"We think American University is right-sized but we want to enhance our facilities," said David Taylor, longtime chief of staff to American's president, Cornelius M. Kerwin. "We manage lots of properties now. It's not foreign to us."

'Grow Up, Not Out'

American isn't the only local university that is buying and developing property to address its needs for more office space, activity centers, housing and income. In the past two decades, American, Georgetown and George Washington universities have acquired dozens of off-campus commercial office buildings, apartments, townhouses and hotels, with some qualifying for tax-free status, and are looking for more.

"American is a pocket in a neighborhood so there's not a lot of chance to grow," said John Asadoorian, a Washington broker who specializes in retail. "A lot of these universities are tucked away like that and they really have to expand or stop growing altogether."

George Washington University is using its old hospital site on Pennsylvania Avenue NW at Washington Circle to build a large, mixed-use town center, dubbed Square 54, with a Whole Foods, more than 300 rental apartments and commercial office space. The development was marketed to the community with the slogan: "Grow Up, Not Out," alluding to the university's plans to increase building heights in Foggy Bottom and density on campus. It is slated to open next year.

Georgetown University, in the midst of its own 10-year campus plan, is facing criticism from neighborhood groups who say increased density and altered zoning regulations associated with the plan will turn many large single-family homes into graduate student dorms. Neighbors have posted signs that read: "Our Homes, Not GU's Dorm." To assuage concerns about its construction plans, Georgetown is building stores and common areas at its 1789 Block building, at 37th and Prospect streets NW.

But American's growth is notable in its impact on retail establishments, many of which help define the leafy but perennially congested areas. Since 1989 the university has purchased six commercial buildings with at least 50 tenants. A wine shop, an optician, two restaurants and a dry cleaners are among the businesses in American properties that have closed in recent years.

"They've made it clear they are in the business of managing properties now," said Tom Smith, a neighborhood advisory commissioner representing neighborhoods near American's main campus. "It's part of a pattern, but right now the community is losing out."

'Little less home'

University officials say they are working hard to fill the space left by Balducci's, the gourmet grocer that left its New Mexico Avenue NW location 18 months ago. Balducci's didn't give a reason for its departure, but it came amid increased competition among high-end food retailers and customers who were scaling back on such purchases.

American's search for a store to fill the spot has been fruitless, university planning documents say: "Grocery stores do not want to lease there."

"It really hit the community psyche, the community feeling hard when Balducci's left," said Susan Farrell, 60, who has lived in Westover Place, near Ward Circle, for five years. "It's just nice to have a few local places to draw people together. Without that grocery store and other shops we lost, it's just a little more city and a little less home."

Other former tenants say American did little to understand their businesses and made few accommodations. Michel Cadeaux, owner of Cadeaux Hair Salon, ran his shop out of the same New Mexico Avenue building as Balducci's until June, when he decided to close and move to Maryland.

"It's a big corporation there. The university just is very greedy. The tenants just couldn't handle it," he said.

American officials say they worked hard to keep places such as Balducci's, Cadeaux and Morty's open, lowering rent and sticking with the businesses during down months, such as the record snowstorms that paralyzed Washington earlier this year. All three storefronts have "FOR LEASE" signs in their windows.

"They just weren't making it," said Jorge Abud, the university's assistant vice president for facilities, development and real estate. "A lot of places aren't."

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