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D.C. PUBLIC-PRIVATE PROJECT FACES EARLY HURDLES

By Ian Ritter

Gary Rappaport

What happens when a publicly chartered real estate company and a developer try to redevelop an 11.5-acre, 17-parcel shopping center that has 15 different owners and 30 tenants? National Capital Revitalization Corp. (NCRC) and The Rappaport Cos. are finding out, and it hasn’t been easy.

Municipalities and private developers, recognizing a mutual interest in the creation of retail projects, have in recent years worked to ease the development process. That’s the idea for Skyland Shopping Center, a neighborhood center in the southeast part of Washington, D.C. But this project faces yet another hurdle — one put up by the property’s current owners.

In a public-private venture, Washington, D.C.-based NCRC wants to change the tenant mix and look of the center, which is currently tenanted by small and medium-size stores — many built in the 1940s. Over time small parcels of the center have been sold to individuals, said David Burka, president of Washington D.C.-based Delbe Real Estate Co., which manages a portion of Skyland.

NCRC, a public-private entity created by the City Council at the behest of the Clinton administration to bring jobs and tax revenue to the city, sees the center’s redevelopment as an opportunity to improve the neighborhood. According to its calculations, the project would double or triple retail sales and jobs in the community.

Greg Jeffries, NCRC’s senior development director, said he envisions expanding the property by five more acres and adding up to 250,000 square feet of retail with a new tenant mix. Redevelopment is needed in the area, he said, because its 100,000 residents have a high demand for retail and few choices right now.

“They’re looking for more apparel, a large-scale department store — something similar to a Kohl’s or Target,” he said, adding that a hardware store and a food retailer are also needed. “It makes sense that that area could support a redeveloped shopping center.”

NCRC appointed the Rappaport Cos. last May to help it plan the center and attract prospective tenants. But the 170,000-square-foot center’s redevelopment has no smooth road ahead: Some of the property owners don’t want to sell, and some of the tenants don’t want to leave. In July owners filed for a historical designation to the city’s Historic Preservation Review Board in an attempt to stop the redevelopment. The buildings being proposed for such a designation include a former theater that now houses a Discount Mart grocery store.

Burka said that though he is not against Skyland’s redevelopment in theory, many owners and tenants question the present plans. The neighborhood cannot support a big-box store, he said, and the current tenants do sufficient business.

“I’m against what’s proposed, because I have never seen how it will make financial sense,” Burka said.

NCRC officials, who will use their power of eminent domain to acquire the properties if the owners don’t sell, predict that it could take up to two years to secure them, with the redeveloped Skyland opening a year or two after that. The NCRC and the Rappaport Cos. would jointly own the center in an arrangement that has yet to be determined. Though tax increment financing could play a role in funding the redevelopment, arrangements are still up in the air, as is the total cost of the project, insiders say.

With so many different owners come a lot of different viewpoints on the redevelopment. Albert “Butch” Hopkins, whose Skyland Development owns a 92,000-square-foot parcel that houses a 19,000-square-foot building he leases to the United States Postal Service, says he would like to be involved in some type of redevelopment, but would also consider selling. One of his main priorities is the assurance that any type of redevelopment would be good for the shopping center his company owns across the street — the Good Hope Marketplace, which is just under 100,000 square feet and whose tenants include RadioShack, Rent-A-Center and a Safeway grocery store.

“We would certainly like to participate in that redevelopment effort,” Hopkins said, but the company would be willing to sell for the right price. Skyland Development has not received an offer, he added.

Larry Hoffman, a vice president at Washington, D.C.-based H&R Retail, which leases some 80,000 square feet of space to about 20 Skyland tenants, is not against redeveloping the center, but only opposes tearing down the existing development to rebuild. The retailers now in the center are doing fine, he said, and there isn’t a demand for different types of retail businesses.

“You’re going into a very vibrant retail community where it’s 100 percent leased,” Hoffman said. “Most of the owners I’ve talked to are not willing to sell.”

Besides the Discount Mart, other medium-size tenants currently leasing space in Skyland include a CVS drug store and a Kentucky Fried Chicken, Jeffries said.

He admits he has a struggle ahead with the current owners.

“It’s not for the faint of heart,” he said of the negotiations. “We do have some interest, but we have some work to do. I think the owners are waiting for a definitive plan. We’re going to meet with these owners and try and cut a deal and see how we can get this property going as quickly as possible.”

Redevelopment is in the community’s interests, said Gary D. Rappaport, SCSM, SCMD, CLS, president of the McLean, Va.-based Rappaport Cos. and ICSC’s chairman. “I believe that there’s a mutual benefit in having [Skyland’s redevelopment] obtained, and I also believe there is a financial opportunity for both the community and developer,” he said.

Rappaport proposes demolishing all the existing buildings and creating a development with a strongly urban architectural design. If any redevelopment is to take place at Skyland, condemnation of the parcels might be necessary, he said. “It is the public’s responsibility to obtain control of the parcels.”

Meanwhile, UrbanAmerica, a New York City-based private real estate investment company, is negotiating to purchase a roughly 50,000-square-foot section of the center with a view to redeveloping it, said Victor Hoskins, the company’s vice president of strategic alliances. The company is more than willing to work with NCRC in the redevelopment plans, as long as members of the community are consulted, Hoskins said.

“We are absolutely open to any approach that they have to involve the community, as long as it makes sense fiscally,” he said.

Whatever the outcome, Hoskins conceded it will take time and won’t be easy.

“These are inner-city markets, and they’re complex,” he said. “There is nothing easy about entering an inner-city market.”

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