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Developer: Whole Foods deal near Nationals Park would require $8 million in tax breaks

By Jonathan O'Connell and Mike DeBonis
Washington Post Staff Writers
Monday, February 14, 2011; 7:42 PM

Whole Foods Market and a D.C. real estate firm are interested in building a new store in Southeast Washington near Nationals Park, but the developer says that luring the grocer would require $8 million in tax breaks.

William C. Smith and Co. is proposing a 39,000-square-foot Whole Foods for 800 New Jersey Ave. SE as part of a building that would include 375 apartments.

The arrival of the popular grocer on the site, which is currently a parking lot, would possibly inject new life into a neighborhood where dozens of development plans have stalled after the recent economic collapse. The developer, however, is asking that the city provide an $8 million property-tax abatement over 10 years in order to make the project financially viable, a difficult request because the city filled a $188 million budget gap for this fiscal year and might face a shortfall of more than $440 million next year.

Chris Smith, chief executive of William C. Smith, said opening a Whole Foods in Southeast would likely draw other restaurants and shops, much as the Logan Circle neighborhood enjoyed after the chain opened a store at 1440 P St. NW in 2001.

The site is on the northern edge of the ballpark redevelopment area, next to the Southeast Freeway, and is expected to lure shoppers from nearby Capitol Hill.

"We're hopeful that Whole Foods, similar to what it meant to P Street in Northwest, will do the same thing down here, creating sort of a nexus between Capitol Hill and Capitol Riverfront," Smith said.

Smith's company was one of the major investors in the area before the baseball stadium was built, buying the New Jersey Avenue site from The Washington Post in 2000 for $50 million. But its plans, like those of many other developers, have been battered by the recession. It has been discussing the site with Whole Foods since 2002 and eventually plans four buildings with 1,100 apartments.

Smith said the $800,000 annual tax break would cover requests by Whole Foods including an additional level of underground parking, extra elevators and higher ceilings on the bottom floor. Without the tax break, he said, he would either wait to develop the site or build a smaller apartment building with little or no retail.

"I can't see the project going forward, at least not with a grocery store on the first floor," he said.

Whole Foods did not respond to requests Monday for comment.

D.C. Council member Tommy Wells (D-Ward 6) said that he expected the money lost through the property-tax abatement to be recouped from the store's sales taxes, income taxes from new residents of the development, and other taxes and fees. Smith estimated that the project would generate $11.5 million in tax revenue annually.

In a recent study of economic development assistance provided by the city, the D.C. Office of the Chief Financial Officer found that Ward 6 had received by far the most aid in fiscal 2010: $129 million, followed by Ward 2's $59 million. The study accounted for debt financing, grants, tax breaks and other forms of assistance. In future years, the ward is expected to host $386 million in bond issues and tax abatements; Ward 2, again in second place, is set to receive $137 million.

Those numbers could complicate a deal. D.C. Council Chairman Kwame R. Brown (D-At Large), who ordered the study, cited them as proof that the council needs to spread economic development aid more equitably around the city.

Real estate developers have made more frequent requests for tax breaks from the District since the economic downturn, even as officials trimmed schools and welfare spending and furloughed city employees to balance its books. The council approved a $7.3 million abatement for existing apartment buildings in Columbia Heights and Petworth, and a $46 million abatement for a planned 174-room hotel in Adams Morgan, for example, but did not approve a $33.5 million request from the company that leases the retail space in Union Station.

Ed Lazere, director of the nonprofit D.C. Fiscal Policy Institute, said the city needs to stop considering tax breaks on an ad hoc basis and using accounting tricks to make them appear cost-free.

"At a time when basic services are facing large cuts, the idea of yet another tax break for a high-end development, without any clarity or sense of direction in the city's economic development policy, simply does not make sense," he said.

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