The Washington PostDemocracy Dies in Darkness

The saga behind Washington’s most infamous hole in the ground nears a close

The Half Street hole, outside Nationals Park. (Photo by Jacqueline Dupree, courtesy of
Placeholder while article actions load

In the summer of 2004, executives from Monument Realty, a high-flying D.C. real estate developer, sat down to a meeting in the offices at 1100 New Jersey Ave. SE to decide whether to bet big on the neighborhood outside.

The 10-story building had been completed less than a year prior, and its location made it something of trailblazer. Built a few blocks from the Washington Navy Yard by another local firm, it was cut off by the Southeast Freeway from Capitol Hill and downtown, and it was surrounded by vacant lots, abandoned buildings and auto repair outfits.

But it was less than a mile from the Capitol. And there were growing signs that Major League Baseball would move the Montreal Expos to Washington. One of the four stadium sites was a few blocks from the New Jersey Avenue building.

Monument decided to go all in on the neighborhood, buying dozens of properties and planning a bold, mixed-use Half Street project on the doorstep of Nationals Park. Not a penny was spared marketing it.

But at the center of the project, all Monument ended up creating was a hole in the ground, one that came to signify much of how badly the real estate industry had gone astray during the bubble, laid bare for thousands of baseball fans once the Nationals arrived.

Only recently did the financial mechanisms that allowed it to lie fallow — fenced off with trees growing in the bottom — finally become unwound, when Washington’s most infamous hole in the ground went up for sale.


The first property Monument went after was a vacant lot surrounded by a sagging barbed wire fence at the corner of of N and Half Streets. Over the next three years, the company completed more than 20 transactions for more than 50 lots in the area.

“It was anything from a single townhouse, very small lots, to some of the bigger ones, some land from Pepco, some land from families that had owned properties there for generations,” said Russell Hines, Monument president.

Monument was founded in 1998, and three years later, under the direction of principals Michael Darby and Jeffrey Neal, had become a darling of Lehman Bros., the Wall Street investment bank that shared the developer’s interest in aggressively buying Washington real estate.

Beginning in 2002, nearly all of Monument’s acquisitions were backed by Lehman. In 2003, the bank offered Monument a $7 million line of credit. That increased to $32 million less than a year later and to $80 million in 2005.

Together, the companies bought land and properties across the Washington area, including the Watergate Hotel, which they planned to turn into luxury condos next to the Potomac River.

The companies appeared to time their bet on the Navy Yard area perfectly. In September of 2004, just weeks after the meeting on New Jersey Avenue, D.C. officials led by then-Mayor Anthony Williams (D) offered 20 acres of land along South Capitol Street nearby to Major League Baseball for a new stadium.

Monument’s quickly expanding holdings on Half Street were across the street. Although the announcement launched a land rush on the properties in the neighborhood, the company was able to elbow out many of the competitors who arrived after the announcement.

By the time District officials locked up a deal to build the ballpark, they would have to buy some of the land from Monument.

“Once we had some key pieces, it didn’t make sense for other people to buy them because you needed to put these small blocks together into bigger developable parcels,” Hines said. “We were sort of ready with our money and a game plan.”

Among the investors who showed up looking to cash in was Victor MacFarlane, who served as an adviser to some of the country’s largest public retirement funds, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System. At the peak of his business, MacFarlane managed about $20 billion in assets.

MacFarlane was betting big on real estate in big urban markets such as New York, San Francisco, Los Angeles and Seattle. Once Monument and Lehman had enough land on Half Street to plan a major mixed-use project, MacFarlane bought a 50 percent stake.

Together, the three companies planned a 1.5 million-square-foot ballpark entertainment district of condos, hotels, shopping and restaurants along Half Street. Monument built a new entrance to the Metro station as part of a land deal with the transit agency and plotted a curbless street with pavers and a string of buildings with distinct finishes.

This, the companies thought, would be the grand festive entrance to the city’s new ballpark. “It was meant to be this sort of celebratory atmosphere with restaurants and bars, and it would be programmed with music and festivals,” Hines said.

They began to market it heavily. They mailed glossy brochures around town:

They held parties with giveaways like T-shirts and pint glasses:

They even made packs of “limited edition” trading cards:

The companies began constructing an office building first, at 55 M St. SE. Then, in late 2007, with the new ballpark under construction and the Nationals set to play their first game there in less than six months, they broke ground on the next phase — luxury housing.

“By the time the baseball stadium opened in April of 2008, that hole was fully excavated and we had every intention of finishing two residential buildings and a hotel at that point,” Hines said. “But the development obviously was sailing into a storm that we didn’t see.”


Hines said he knew there were signs of concern when they began digging the hole. “There was still a lot of optimism in some regards, but we knew that the condo market had changed,” he said.

By February of 2008, still more than a month before opening day, the economy had collapsed and Monument was short on cash; it was forced to make layoffs and give up on the Watergate.  The value of MacFarlane’s new assets in D.C. and elsewhere began to drop precipitously. Lehman’s balance sheet was so damaged that it filed for the largest bankruptcy in American history. The companies shut down the construction site.

Monument and MacFarlane were now stuck with a partner tied up in bankruptcy. The hole in the ground, as prominent as it was outside the ballpark, became an illustrious local example of the excesses of the real estate bubble.

“People expect it to be like the stock and bond markets and recover in a quarter. It doesn’t happen that way,” said MacFarlane.

But long-term, he believed in the project, and decided to stick with it. “As much as I hated having bought a whole bunch of real estate at the height of the market, what’s been proven and is being proven again now is if you buy great real estate and you have the capital to hold on you will eventually do okay,” he said.

Last month, MacFarlane doubled down on his bet, buying Monument and Lehman out of the project for $34 million. With a Whole Foods on the way and a neighborhood of new amenities surrounding the hole, MacFarlane said there is reason for optimism.

“I think it’s a great long-term site and I think it will be better three years from now than today, primarily because there is  lot of place-making happening in that neighborhood right now,” he said.

MacFarlane has tasked Jair Lynch, the local developer whose company his investment firm backs, with completing the project. The work will require tearing out the trees that have grown there over the past seven years and connecting a new parking lot to the one beneath 55 M St. SE, the office building Monument and MacFarlane built next door and later sold.

Lynch said he plans to keep much of the original plans for Half Street. Selling investors or apartment renters on Half Street, now part of a neighborhood known as Capitol Riverfront, ought to be a lot easier than when it was surrounded by vacant lots. Construction could start as early as 2016.

“The baseball stadium was the biggest thing and the driver of the neighborhood. Now we’re looking at a neighborhood that just happened to have a baseball stadium near to it,” he said.

Monument wanted to see the project through as well, but had its hands tied by the Lehman estate, which wanted to sell, Hines said.

“We would have been happy to do that and would have been ready willing and able, but MacFarlane wasn’t a seller and Lehman was, which put us in an unfortunate position,” Hines said.

Years after he began working on it, Hines said he has mixed emotions about Half Street. Although many consider it one of the company’s most glaring failures, Monument made millions on the project when it sold a stake to MacFarlane.

But Monument won’t be playing a role in the project he spent so much work on.

“I know it was a financial success for us because we made a substantial amount of money on the assemblage,” he said. “I was probably more attached to that site than to any other one, so to have it go away from us was tough. The truth is we have so much other stuff going on that I don’t spend too much time thinking about it. But I want to see them finish the building. I want to see it get done. And I want to see it be successful.”

Half Street promotional materials courtesy of Jacqueline Dupree/

Follow Jonathan O’Connell on Twitter: @oconnellpostbiz