District developer Jair Lynch Real Estate Partners has struck a $22 million deal with Howard University to turn a residence hall next to Meridian Hill Park on 16th Street into luxury rentals.
The agreement is the latest move by the historically black university to bring in new revenue and reverse years of financial strain. Last month, the board of trustees voted to participate in a Federal Communications Commission auction, giving the federal agency the right to potentially sell the airwaves used to carry the signal for Howard’s WHUT-TV.
Howard President Wayne A. I. Frederick identified the university’s real estate assets as an untapped source of revenue when he took office in 2014. At the time, he told The Washington Post that the school should explore turning Meridian Hill Residence Hall into condominiums. And the school did just that.
The university put out a request for proposal and received responses from 12 developers, according to Anthony Freeman, Howard’s vice president of real estate. He said the bidding process took several months, with the pool of developers narrowed down to a handful who could move forward “expeditiously” on the deal. Jair Lynch stood out because his proposal offered the “highest and best value for the university,” Freeman said.
The university has entered into a 99-year ground lease with the developer, which means Howard will continue to own the underlying property. The school required the developer to pay the $22 million up front in what’s known as a capitalized lease, rather than pay in monthly installments over the course of the lease.
“We looked at how do we capture the highest and best value for the property, but also minimize the risk for the university — development risk, leasing risk, interest rate risk,” Freeman said. “But this is really for us to find ways to find capital to reinvest in the university’s mission.”
In anticipation of the deal, Howard vacated the undergraduate dorm 18 months ago, relocating its 650 students to new residence towers, College Hall North and South, on campus.
Meridian Hill Hall, an eight-story building constructed in 1942, was the site of the first government-owned hotel built to house women who moved to the District during World War II to fill government jobs. It sits across from embassies on a tree-lined street, next to the eponymous park, also known as Malcolm X Park.
“As a son of a Howard graduate, we take great pride in redeveloping this great asset and re-imagining it for the future,” said Jair K. Lynch, president and chief executive of the development company, in a statement. “We are very excited to utilize our team’s diverse skill sets to re-craft this historic structure into a modern apartment community.”
Plans call for 200 new rental housing units with panoramic views of the park and downtown Washington. At least 8 percent of the apartments must be set aside for families making at or below 50 percent or 80 percent of the area median, which would mean an income limit of $54,600 or $87,360 for a family of four.
High-end apartments in the District continue to be under high-demand, with a vacancy rate of just 3.6 percent at the end of 2015, lower than anywhere else in the region. The average high-end two-bedroom apartment now rents for $2,524 in the District, according to the Alexandria research firm Delta Associates.
All told, Howard’s real estate portfolio, with properties located in some of the District’s hottest neighborhoods, is valued at $1.5 billion, Freeman said. The university, he said, will continue to evaluate other real estate deals, mainly additional ground leases and perhaps the sale of small parcels of property.
“We want to put our real estate into productive use, but we’re not signaling to the market that we are selling,” Freeman said.
Howard has contended with financial challenges in recent years, with rounds of staff cuts, two credit downgrades tied to the fiscal health of its teaching hospital and allegations of financial mismanagement. Frederick has made a point of looking at the university’s real estate and intellectual property rights to bring in money.
His decision to participate in the FCC auction has been met with resistance from faculty in the School of Communications who argue that the airwaves are an invaluable asset. Because of the way the auction is structured, with the opening bid value descending as it proceeds, the closing price could be much lower than the $461 million to $184 million starting price the FCC quoted the school. Howard reserves the right to pull out of the auction by March.
Jonathan O’Connell contributed to this report.
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