In public service, changing one’s mind is too often frowned upon, disparaged as flip-flopping. But it’s good to change your mind as you learn new things and circumstances warrant.
Serving as an Advisory Neighborhood Commissioner has caused me to change my mind on many issues. The ones I’ll discuss today are economic and housing development, which are particularly relevant in the current moment with the District experiencing a localized recession.
Before I became a Commissioner, I was generally dismissive of the idea that the District’s business climate and regulatory environment had much impact. No longer.
Our Commission hears regularly from those building housing and retail across Ward 7. Over the past several years we’ve been confronted with major challenges in our housing ecosystem, as projects have been delayed, modified, or scrapped all together due to failure to secure financing and our economic environment.
One of the developments we receive frequent updates on is Parkside in Ward 7 near Minnesota Avenue and Kenilworth Gardens. We were given one such update in November 2024, and the extent to which the business climate, in particular retail theft and rent nonpayment, was chilling development and impacting the ability of operators to manage housing shocked me.
Keep in mind, this was November 2024, long before the DOGE job cuts even began and nearly two years after the expiration of the pandemic eviction moratorium.
In today’s post I wanted to share directly what I heard in this meeting from City Interests. I have heard similar stories since, including that there is essentially no current demand for retail investment in the District. (The lengthy discussion of this project begins around 50 minutes into the meeting for those who care to watch.)
As I and our guest contributors articulate concerns about the potential direction of the District under a new mayor, these are the real-life conversations and stories that motivate our thinking.
Now that’s not to say that District leaders should just do the bidding of private sector interests, but they do need to take their concerns far more seriously than they currently do.
Here’s the feedback I heard in November 2024:
I’ll say retail, what we’ve been seeing lately is that retail across the District is in a tough spot. I think we’ve had more troubles because we’re trying to create a new retail node. I would say from from everything that that I’ve heard just out out in the real estate world relating to retail that the suburbs are on fire in terms of retailers wanting to go opening up new locations, the District’s been very tepid because of crime, or perceived crime, as one of the items, and the minimum wage, where like places like new restaurants are looking and having trouble penciling, you know, paying everybody the 18 bucks, that’s been a big response that we’ve got, which has been extremely disappointing.
As some of the folks on here know, from the retail working group meetings we have quarterly with residents, we actually were extremely close to signing a grocer for the site, a 25,000 foot grocer that would have gone on 12 H1 on this photo that you’re rendering that you’re looking at. They backed out after we had exchanged two or three drafts of the LOI.
We were pretty much final in terms of signing that and moving on to the lease, because they, they had updated sales projections for their urban locations, and they ended up discarding every single urban store that they were looking at, which was highly disappointing.
One of the big ways for a site that has no retail to kind of get a jump is to get that anchor tenant, and the other folks will kind of fall in line, but I mean you’re seeing even with, with like with Skyland, where they have Lidl, who has had its own issues with with theft and lesser sales than they hoped, and some of that, you know, retail space remains vacant there, so it’s definitely been a challenge, you know, we have been trying to get a grocery store for this site for, you know, really since 2004 I mean, it’s been a food desert, it remains a food desert, Artillie mentioned it earlier when, when we were talking about the bottle bill, I mean, there’s, you know, two and a half grocery stores, or you know, three three east of the river.
I don’t know if you even count the Safeway at East River Park as a full one, because I don’t think they’re very attentive and focused on it, which is why the folks who live at Parkside don’t go there, even though it’s, you know, half mile away and so it’s a dire need, you know. I think with the other opportunity that we’re trying to bring here, it’s.. I think it’s coming. It’s just.. it’s taken longer than we had ever thought or hoped.
Asked for more information about the concerns articulated by the potential grocer:
I can tell you just from our experience, they, they went from paying a or offering where we had agreed upon a reasonable rent. I mean, I, you know, rents for retail space vary wide, wildly, and grocery stores are probably, you know, towards the lower end of the spectrum, because they are that anchor that that brings the smaller tenants who will pay higher per square foot, but they went from paying a number that was like in the high teens to saying they could pay zero based on their updated projections.
And so that’s that’s where the deal, and we had gone through, we had gone through the process, like with parking, is always a big concern. We had provided 90 to 100 dedicated spots, which they were looking for, that close to four to one for four per 1000 so 25,000 feet. They wanted 100 spots. We’d incorporated some green space that the community was looking for. We, you know, we had really gone through a lot of detail, and you know it. We’re still discussing with them, but you know it’s not an imminent item like we thought it was. This was back in July.
I will say, from a just from a perspective of investor interest, and looking at the district, there is a notable difference in valuations between the district and the close in suburbs, Montgomery County, PG, Arlington, etc. like retail or multifamily investments are usually measured or sold on on cap rates, which is taking the income and then applying a cap rate to it, and so an apartment building that sells maybe at a 5% rate, which is taking the income divided by .05 in the District, or in Arlington is selling at like 150 basis points more in the District, and that’s due to a number of factors that we probably don’t have time to discuss, but I’m sure you’re all familiar about ERAP and everything that’s been going on with that, and the amount of non-payers.
I can say just from our experience, Vesta Parkside has has experienced that, I mean, we have a building that is 95 plus percent leased, and our quote unquote economic occupancy of that building is in the low 80s at the moment, because we have folks who have racked up enormous balances, and we have not been able to do anything about it to remove them from basically squatting at the site, so until that stuff changes, I think you’re going to see less investor interest, unfortunately, in the city, which is kind of trickles down to to a lot of asset classes and down to the to the bare bones spaces.