The final chapter is closing on one of the more ambitious purchases of the real estate bubble in Washington.
In December 2007 — just nine months before the national economic collapse pushed Lehman Bros. into bankruptcy — Patriot Equities bought the former Hecht Co. distribution center on New York Avenue NE for $78.5 million.
It was the Philadelphia company’s first purchase in Washington, and its president and chief executive, Erik E. Kolar, immediately announced plans to turn it into a shopping center anchored by a big box store.
Patriot executives offered tours to brokers, retailers and reporters , showing off the building’s historic art deco facade, rooftop views of the city and proximity to another planned New York Avenue project, developer Jim Abdo’s Arbor Place. The company marketed the project as Patriot Yards and drew up creative plans for the space, including the idea to have auto dealerships occupy various levels of the building.
None of it came to fruition. Big box stores opted for other sites, Abdo forfeited his mixed-use plans for New York Avenue and Patriot Equities found itself without a partner. “They talked to a bunch of retailers, but then they were getting further into 2008 so things were getting kind of ugly,” said Debra Yogodzinski, real estate attorney at Reed Smith. “So frankly I think they just hit it at the wrong time.”
Now the property, at 1401 New York Ave. NE, is being foreclosed upon and likely falling into the hands of Douglas Development, the private, family-run D.C. firm that has quickly gone from being considered by many to be short on cash to one that is itself acquiring properties from distressed owners.
Douglas bought a loan Patriot Equities took out to make the purchase and is acquiring the property through foreclosure, said Norman Jemal, a Douglas Development principal. Douglas used a similar process to recently acquire Gallery Square, in the heart of Gallery Place, out of bankruptcy. Patriot Equities did not return requests for comment.
Jemal would not reveal the purchase price of the Hecht’s loan but confirmed that it was less than $20 million — a discount of more than 75 percent from Patriot’s price. Jemal said the lower cost would make developing the property much easier. “The building’s completely vacant and it was a product of their basis being too high,” he said.
Jemal said he would consider a number of uses for the property. “We have two possibilities: one is the path of least resistance, which is warehouse distribution space,” he said. “The other is a more grand plan, which is a little bit more risky, which is apartments in the tower and then retail along New York Avenue.”
Yogodzinski said she expects things to be different this time around. “I still think it’s great for big box retail and retail is what Douglas Development does . . . it’s one of their sweet spots,” she said.
Danielle Douglas contributed to this report.