Property Group Partners Closes Air Rights Purchase for $1.3B M-U Project in DC
By Barbra Murray, Contributing Editor
The largest contiguous undeveloped site in Washington, D.C., is now well on its way to being transformed into the 2.2 million-square-foot Capitol Crossing mixed-use destination. Property Group Partners just completed the acquisition of the air rights above the recessed portion of I-395 from the city, thereby paving the way for the developer to commence the first stage of the$1.3 billion project.
The land that will become home to Capitol Crossing doesn’t actually exist, not just yet. Property Group Partners will erect a platform that will create seven acres on which the project will sprout. It’s not something a developer gets to do every day.
“Usually when you’re building a building you’re dealing with the streets and the sidewalk that you’re presented with; here, we have the chance to not only build three blocks worth of buildings, but we’re building the streets, we’re building the sidewalks, we’re doing all the urban infrastructure,” Robert H. Braunohler, regional VP with Property Group Partners, told Commercial Property Executive. “So it’s an opportunity to do something a little more exciting than a normal streetscape of downtown Washington.
While Capitol Crossing will provide somewhat of a live-work-play environment, its most dominant feature will be office space. Buildings carrying the addresses of 200 and 250 Massachusetts Ave. will encompass a respective 407,000 and 546,000 square feet, while the towers at 200 and 201 F St. will offer 685,000 and 297,000 square feet.
Property Group Partners expects that the four buildings will help close a gap in premier office offerings that the company predicts will materialize in the area a few years from now.
“There’s a real dearth of office being built compared to historic levels in Washington, so we think that by the time 2017 or 2018 rolls around there are going to be very few options for large users,” Braunohler said. “One thing we have here is large blocks of space, and we also have large blocks of space that are in the traditional downtown area–the area south of Massachusetts Avenue in the East End–and that’s going to be a valuable commodity.”
But Capitol Crossing will not be all work and no play. Each office structure will feature ground-level retail space for restaurants and boutiques, and the fifth tower at the development will be a 150-unit residential tower. There is a great demand for apartments in Washington, D.C., but Property Group Partners has not determined if the building will provide rentals or condominiums; an issue that Braunohler said is influenced by the current challenges in financing condos. Capitol Crossing could conceivably accommodate a greater number of apartments and/or condominiums, but the developer has its reasons for keeping the residential segment to 150 units.
“The overall issue is that land values for residential are about one-third of what they are for office development and because we are basically building our land, we need the higher values that office can justify in order to make the project work financially,” Braunohler said. “Even though multi-family is booming, the land prices for multi-family still are generally under $100 per square foot of building and for office it’s about three-times that.”
In terms of financing for Capitol Crossing, Property Group Partners is being relatively hush-hush. An equity partner is in place for construction of the deck, which carries a development price tag of approximately $300 million. The company anticipates commencing construction of the deck in early 2013.