The Oliver T. Carr Co. has agreed to rescue a faltering real estate project above the Gallery Place Metro station that is considered crucial to the rejuvenation of the eastern end of the old downtown.
The proposed $200 million hotel-office complex had stalled in the hands of a development team that was selected by city officials eight years ago to develop the tract bounded by Sixth, Seventh, F and G streets NW.
Carr and the designated developers -- made up mostly of minority business figures, including William B. Fitzgerald, president of a Washington bank and a friend of Mayor Marion Barry -- want to go in 50-50 on the deal for the hotel-office complex on the site.
Carr and the Fitzgerald team recently submitted a plan to city officials, and the D.C. Redevelopment Land Agency is expected to rule in a few weeks. The project would cover a full city block and include more than 1 million square feet of space.
The Fitzgerald group has been repeatedly stymied in an eight-year search for financing, and city officials granted it more than 12 major concessions and extensions on deadlines. The delays left the Gallery Place neighborhood one of the Washington region's only areas above a Metro stop that has seen no construction.
Real estate specialists said the proposed bailout would establish Carr as the premier developer in the neighborhood, whose spine is Seventh Street NW. Besides becoming half owner of this project, the developer also plans an even bigger $250 million office complex one block south in the empty Hecht's department store building.
Carr was also a main investor in the western part of the old downtown, building the Metropolitan Square office complex and redeveloping the old Willard Hotel six blocks up F Street.
In the 1920s and 1930s, Seventh Street was the center of Washington's commercial life, but it declined rapidly in later years, and the 1968 riots hastened its decay.
For years it has been a crime-ridden neighborhood, with many abandoned storefronts. But now, leading developers are planning top-flight projects there, some including upscale condominiums and boutiques.
After years of sometimes embarrassing delay, city officials expressed relief at the prospect of movement.
"The city feels we do want to get on with it," said Robert Pohlman, acting D.C. housing director, who has overseen city negotiations on the site. "We're at a point where everybody agrees there has to be some kind of change."
But some developers are expressing irritation that the city allowed the selected team to delay for so long, and that the city now may allow Carr's entry without holding another competition for development rights.
"It's totally unfair to the development community that this is going forward without going out to bid again," said one developer. "The development community has totally changed since 1979 . . . . It's outrageous."
Some development industry insiders also said that the city had been lax in granting extensions to the team chosen from among five bidders in a hotly contested competition. The group was dominated by Fitzgerald, president of Independence Federal Savings Bank, and representatives of other black-owned financial institutions, and also included Bethesda-based developers Edward Lenkin and Melvin Lenkin.
One month before the November 1979 award, the savings institution granted the mayor a low-interest mortgage loan to buy his Southeast Washington home. Effi Barry, the mayor's wife, was then serving on the Independence board and the bank said such loans to its officials were routine. The Barrys later relinquished the discount and Effi Barry left the board in 1983.
In most other cases in which the city has chosen a developer for D.C. land, city officials have lost patience and chosen a new team after about three years. That's what happened in 1982, when the city chose the Lenkins to develop the Portal site near the 14th Street Bridge. Three years later, after the Lenkins failed to get the deal off the ground, city officials held a second competition.
Pohlman said that holding another Gallery Place competition would have delayed construction and possibly led to a lawsuit by the Lenkin team.
In 1979, city officials proudly proclaimed that the team picked to build Gallery Place was 55 percent minority. But the team's relative lack of a financial track record made some lending institutions wary, development sources said.
In addition, the developers faced high interest rates, a glut of luxury hotel space and lenders' skepticism about the Gallery Place area.
The Fitzgerald group became constant visitors to city redevelopment offices and after one 1983 session in which city officials granted the developers valuable concessions, then-RLA Chairman Nira Long told them, "We hope we never see you here again."
The team's lawyer, Philip Horowitz, said his clients had spent several million dollars trying to assemble a deal.
He declined to provide details of the transaction with Carr.
Fitzgerald could not be reached for comment and a representative of the Lenkins declined to comment.
Sources said the combined group will pay the city the $17 million fee for the site that the Fitzgerald group previously had agreed to pay.
City officials, meanwhile, are negotiating with the developers to ensure that the original minority partners retain a substantial ownership share. They are also trying to persuade the developers to include housing on the site, an idea the developers have resisted.
Ministers from the Downtown Cluster of Congregations, a group of 24 city churches, recently sent a letter to Barry asking that the city insist that there be low- and moderate-income housing on the site, a proposal that most developers regard as impractical.
"This is public land that should be used for public purposes," said Terry Lynch, a staff member of the church group.