Partnership behind One Loudoun project revival counts on real estate recovery

By Jonathan O'Connell
Monday, February 21, 2011; 4

There were already signs that the real estate market was on shaky ground in September 2007 when Miller & Smith held a groundbreaking ceremony to announce the beginning of its pinnacle project. With an eye on leveraging Loudoun County's escalating home values, the developer and its partners planned to turn 358 acres of sod farms off of Route 7 in Ashburn into a residential community and town center featuring more than 1,000 new homes, new offices and a shopping mall's worth of retail.

One Loudoun was the biggest mixed-use project proposed in the history of Loudoun County.

"We're very bullish about One Loudoun," said Bill May, Miller & Smith vice president, at the groundbreaking, an event that featured then-Virginia Gov. Tim Kaine. "We're the right plan, at the right place, at the right time."

At the time, Loudoun County was booming. County residents earned more than those of almost any other place in America. Median home values had more than doubled between 2000 and 2005, from $296,000 to $614,000. Fortune 500 companies were relocating to Northern Virginia. And Miller & Smith, along with Meridian Group, had moved the project through the zoning process, becoming the first county project to earn approval from the Washington Smart Growth Alliance, which praised One Loudoun for having a plan "integrated to encourage walking and a vibrant street life."

But May was wrong about the timing. The median sales price countywide dropped to only $371,000 in 2009. The company and its partners found themselves deeply underwater on a loan from Goldman Sachs and stopped construction.

This week, however, the project is getting restarted, and just as its demise became a tale of Washington's housing bubble, One Loudoun's return says something about the local real estate recovery.

After the recession dashed the initial plans, it wasn't just any company that stepped in as majority owner of the project: Sekisui House Ltd., headquartered 6,800 miles away from Ashburn in Osaka, Japan, may be the world's biggest home builder. In a sign of just how much interest Washington's real estate market is attracting internationally, Sekisui House, which built its 2 millionth home last year, made One Loudoun its first investment in North America after almost 50 years in business.

Satoshi Yoshimura, president and chief operating officer for the firm's North American unit, said the Washington area was one of the American markets the company had targeted because of the federal government's expansion and the diverse range of the area's employers. "D.C. is not so much damaged by the financial markets crisis," he said.

He also said the similarity of the two firms, both of them home builders founded in the 1960s, gave Sekisui House, a publicly traded firm, confidence in Miller & Smith as a partner. "We believe Sekisui House and Miller & Smith have a lot in common," he said.

Sekisui House partnered with Miller & Smith to buy the Goldman Sachs note and foreclose on the previous ownership group. For Miller & Smith, the losses were major: After buying the property for $115 million in 2007, the original development group had spent more than $30 million building new roads and infrastructure. After that team was foreclosed upon, One Loudoun sold for just $35 million last August. Sekisui House owns more than a three-quarters stake in the property -- Yoshimura would not give an exact figure -- and Miller & Smith owns the remainder.

This time around, May will pre-sell homes before they are built. He said with Metro coming to Tysons and eventually Reston, living in Loudoun will become more attractive for people who work in Northern Virginia. A $2 billion, 424-acre mixed-use property, Kincora Village Center, has been approved nearby, with plans for a professional baseball stadium. And although he acknowledges that it will be some time before housing prices there reach 2005 levels, May said demand for new homes in Loudoun has returned and prices are headed in the right direction. "I think they're going up and I think they're going to continue to rise," he said.

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