The District government has acquired the former Children's Hospital site and five nearby properties in the Shaw area controlled by developer Jeffrey N. Cohen in a complicated $12.5 million deal.
In obtaining the property, the District took what it hopes will be a major step toward spurring redevelopment in the run-down Shaw neighborhood. Cohen, a close friend of Mayor Marion Barry, has been trying for several years to redevelop some of the sites.
Under the unusual agreement, a consortium of city banks headed by the National Bank of Washington is initially financing the transaction. A partnership controlled by Cohen has received $11 million put up by the banks. A year from now, the city is required to repay the banks the $11 million, plus interest expected to total $1.5 million.
The aim of the deal is to aid Cohen's partnership and a nonprofit Shaw community group in undertaking redevelopment projects that banks would be unlikely to finance without the city's involvement. Revenue from those projects ultimately would repay the District.
The city closed the land transaction Feb. 1 without first conducting its own appraisal of the property, according to Kwasi Holman, director of the city's Office of Business and Economic Development.
Instead, the District relied on an appraisal prepared for Cohen's partnership last October by William Harps, a private real estate appraiser and a member of the board of directors of the National Bank of Washington.
The $11 million purchase price is about one-third more than the city's property tax assessment of about $7 million for the sites. Most of the sites are zoned for commercial use, and the District assesses commercial property at 100 percent of its market value. However, some real estate experts say the assessed value frequently lags behind the market value and that prices in the Shaw area appear to be on the upswing.
Harps' appraisal of the properties, dated Oct. 16, set their value at nearly $13.9 million, according to the agreement spelling out the deal that was filed with the D.C. recorder of deeds.
The largest parcel, the old Children's Hospital site at 13th and V streets NW, was sold to the city for $5.8 million, according to the agreement. Last May, a partnership headed by Cohen persuaded the D.C. Board of Equalization and Review that the parcel was worth $3.37 million for property tax purposes.
Holman said yesterday that the city had begun its own appraisal of the property using real estate specialists in the city's Department of Administrative Services. He said the city found Harps' appraisal acceptable, and is "just trying to update it now to be certain."
He said city rules permit the government to buy land with only one appraisal by a qualified appraiser. It does not matter who retains the appraiser.
The Department of Administrative Services usually reviews appraisals done for the prospective seller and then has city real estate experts appraise the property before the city buys it, according to Robert Storey, a department spokesman. If the two appraisals are more than 15 percent apart, then both sides jointly hire an outside appraiser and abide by his decision.
Deputy Mayor Curtis McClinton, the city's primary negotiator in the deal, and Cohen both declined to comment, saying they had agreed to wait until a press conference with community leaders scheduled for Tuesday.
Cohen, chairman of the National Bank of Commerce, said, however, that "figures and assumptions" cited by The Washington Post in seeking comment for this article were inaccurate and misleading. He declined to provide specifics.
The total purchase price for the properties, which Cohen entities purchased between 1979 and 1983, was about $6.4 million, according to deeds filed with the recorder's office. However, the prices listed on the deeds do not include additional costs, such as real estate taxes, loan payments and attorneys' fees, that have been expended by entities headed by Cohen.
Victor Knight, a deputy to Holman, said that Cohen told him it had cost "about $15 million to $16 million" to assemble the land and meet other costs associated with holding the property.
A Cohen partnership bought the old Children's Hospital site in 1981 in hopes of building a National Rehabilitation Hospital, but city health officials turned down that proposal. In 1983, Children's Hospital, which held a mortgage on the property, threatened to foreclose after a partnership including Cohen fell behind in its mortgage payments by $500,000. The partnership later paid the money.
Since then, Cohen has teamed with the ShawCoalition Redevelopment Corporation Inc., a nonprofit group headed by community activist Ibrahim Mumin and school board member Edna Frazier-Cromwell (Ward 1), to develop low- and moderate-income housing and retail space on the parcels, which lie within boundaries formed by 10th, 14th and U streets and Florida Avenue.
The proposed redevelopment, called the Samuel C. Jackson Plaza in honor of a deceased businessman and former federal housing official, would include the renovation of the 1,200-seat Lincoln Theater and the old Manhattan Laundry on Florida Avenue NW.
Holman and city planning director Fred L. Greene said the proposal fits with the city's long-range plans for revitalizing the Shaw area. However, both officials said the District has not done a detailed study to determine whether the proposed developments are financially feasible.
"We know it's a strong market area," said Holman.
Before redevelopment can begin, the city must choose from among three options. It could lease the property to Mumin's group, which in turn would hire Cohen's partnership as a subcontractor; it could sell the property to Mumin's group; or, if the mayor rejects both options, the city must sign an exclusive contract with Mumin's group to assist in the development of the property.
The agreement with the city gives Cohen some breathing room in planning the projects and also relieves him of having to pay costs of owning undeveloped property, such as property taxes and mortgage payments.
The $11 million from the banks went first to Mumin's group, which reloaned it to Cohen's partnership. The agreement specifies that Cohen and his partnership are obliged to repay the District as the six parcels are developed.
The group hopes to begin some work in July, but not to start on the project's largest component until mid-1987, it said in a proposal attached to the agreement.
About $7 million of the funds went to pay off liens previously incurred on the property by Cohen-related businesses, according to G. William Hollar, senior vice president of NBW who helped negotiate the finances. Much of the remainder of the funds went to the Shaw community group and will be used as "seed" money to develop the site, Hollar said.
Hollar and other bank officials said they had been reluctant to get involved in the deal until the city agreed to pay off the loan.
"For a project of this size in the Shaw area you had to have the support of the city," Hollar said.
City Council member Charlene Drew Jarvis (D-Ward 4), chairman of the Housing and Community Development Committee, who has been briefed on the land deal, described it as "creative financing." She said she would reserve judgment until she has had a chance to study it further.
The city will hold a public hearing March 21 on the development.