The District’s apartment boom has prompted a team of developers to buy a 223-unit apartment complex in Southwest Washington in hopes of making it more environmentally sustainable and keeping many of the rents affordable to middle- and low-income residents.
The $35.2 million purchase was backed by the Rose Green Cities Fund, a partnership of Citigroup’s community investment arm, Citi Community Capital, and Jonathan Rose Cos., a New York-based developer of affordable housing. Citi and Rose launched the $75 million fund last year to preserve affordable housing in urban areas.
Jonathan Rose, president and founder of the Rose company, said that because of the escalating costs of housing in the Washington area, he made it one of four markets in which to focus his efforts on building and preserving affordable housing. The others are Chicago, Newark and Connecticut’s Fairfield County.
“What’s interesting about the strategy is these are very different markets and they have very different conditions,” Rose said. “One of the things we’ve observed in Washington, D.C., is that there are many areas of Washington where the market is rapidly improving and gentrification is happening and there is a rapid drop in affordability. So the focus is really on preservation.”
The four-acre D.C. complex, the Channel Square Apartments, is at 325 P St. SW, a few blocks northwest of the site where D.C. United and the city government are planning a 20,000-seat Major League Soccer stadium and a few blocks southeast of the Wharf, a $1.5 billion planned remake of the Southwest waterfront.
Given the construction of luxury apartment buildings nearby, Channel Square probably had attracted the interest of developers seeking investments that would yield similarly aggressive rents.
For the Channel Square project, Rose formed a partnership with Somerset Development, a company that specializes in urban revitalization, and two nonprofit groups, the National Housing Trust and Enterprise Community Partners. The complex was acquired in collaboration with the Channel Square tenants association under the District’s Tenant Opportunity to Purchase Act, which gives tenants the right of first refusal when a rental property is sold. Rose said his top priority was making sure that tenants would be allowed to remain in place.
In the long term, Rose said, 51 percent or more of the units would be set aside for families making below the area median income, although he said the exact formula has not been decided upon. “There are already a number of families and lower-income households there. Our number one goal is to keep all of those families in the building,” Rose said.
But he said the developers also plan to make extensive improvements to Channel Square, largely to make the property more energy-efficient and more environmentally friendly. Changes could include support for increased recycling; upgraded heating and cooling systems; use of efficient LED lighting; and renovations to lobbies, corridors and community spaces. Rose said the team also will seek tax credits for the installation of solar energy panels.
“To make a building long-term affordable, you really need to manage its operating costs,” Rose said of investments in energy efficiency. “It reduces the residents’ utility costs, but we also really focus on the human health side of greener.”
Can the developers make money if they renovate the building and keep most of the tenants in place? Rose said that the mission-oriented Green Cities Fund aims for a 8 to 12 percent return over a six-year period, a lower return than what many for-profit developers expect.
To make the deal work, Citi provided a $24.6 million initial loan, and the developers have applied for additional financing through the D.C. Department of Housing and Community Development.
“Environmental sustainability and reinvestment in the communities where we work and live are both pivotal components of our firm’s commitment to responsible finance,” Andrew Ditton, co-head and managing director of Citi Community Capital, said in a statement.
The District lost as much as half of its low-cost rental housing between 2000 and 2010. If Rose succeeds, the area around the proposed D.C. United stadium and Nationals Park, a mile east, won’t be completely flooded with new luxury units.
“When the neighborhood looses economic diversity, we don’t think that’s a good thing,” he said.