Since January, 2003
            
 Sliding from Before to After

It was only a few weeks ago that I discovered (much to my embarrassment) that WMATA had been negotiating for nearly two years with Donatelli Development for the rights to build on the southwest corner of Half and L, on the Navy Yard station's "chiller site." Metro's web site on the proposed plan said that the development agreement is now "expected to be executed in the summer of 2010."
However, the WashBizJournal reports today (subscribers only) that the two have now "cut ties," with Donatelli receiving a certified letter from WMATA ending the deal. The article says that, while originally Donatelli proposed 84 apartments with 5,300 square feet of ground-floor retail, the development company last year tried to "reframe the project" as a boutique hotel, but couldn't find financing. WBJ quotes Donatelli as saying "There are too many apartments there already[.] The whole area was getting saturated, and it didn't look like condominiums were a viable alternative," which brought a "perplexed" response from Michael Stevens of the Capitol Riverfront BID: "We think [residential has] been one of the greatest successes of our neighborhood[.] Mr. Donatelli does this for a living, but I don't know what numbers he's looking at."
WMATA says that they won't be putting the small-ish 14,000-square-foot site immediately back on the market for development. (Note that the parcel housing the taxi company at 37 L is not part of the WMATA land.) The lot has office buildings 20 M and 1015 Half to its south and north, and (eventually) 1100 South Capitol to its west.
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David Garber says: (8/20/10 10:42 AM)
that's too bad. Seems odd they would switch to hotel when residential (multifamily rentals, at least) is doing so well in the neighborhood.


code words says: (8/20/10 2:00 PM)
The quoted statements from the people at Donatelli don't jive. The apartment lease-up rate in the neighborhood was pretty good. If Donatelli was not interested in doing a project in a so-called "already established" neighborhood as it has characterized the neighborhood, then why pursue a project there. Too many apartments already? Come on. With over 5,600 units still planned for the neighborhood, Donatelli is saying the neighborhood has already reached saturation?

Residential development seems the relatively easiest to get financing for during the this downturn. It just would take more patience and creative ways to land the financing. And, they wanted to switch to a hotel? It's no surprise they couldn't find financing.


MJM says: (8/20/10 2:15 PM)
As I was walking by that site this morning I was kinda exciting about the development there and then this post ruined it. Someone is being less than truthful - no way there are too many apartments. The people who probably would not have been able to afford the Half St apartments would probably live in those plus its in an ideal spot. Its gonna be years before the apartments are maxed out. If it was for a hotel Velocity as a LOI but no funding for the second phase so I would think there is a hotel glut in the short term rather than an apartment glut.


JD says: (8/20/10 2:24 PM)
I'm guessing Mr. Donatelli's comments (which you won't have seen if you don't have access to the full article) about having won the project "at the height of the market" and WMATA having driven a very tough bargain for the site in the first place are a bigger hint--he probably thinks the site wasn't going to be worth what the original deal was going to cost him.


The Prophet says: (8/23/10 10:40 AM)
Actually, there are way too many apartments in that area right now. If there weren't they wouldn't have been giving away three months in free rent. No wonder they leased up well. To a neighborhood resident the apartments may seem successful - they have brought many residents to the neighborhood. However, from a business perspective the picture is not so pretty. Mr. Donatelli is in the business of making money. You can't make the business case for new, high-rise construction based on the rents that are there today.


Jimbo says: (8/23/10 10:58 AM)
They're giving three free months because that's what the market dictates. You see the same thing in the suburbs and in the rest of the city.


lovethehood says: (8/23/10 1:49 PM)
Donatelli lost 100K to the city(nonrefundable option fee) by walking away from this deal. I'm SURE they had a little analysis behind the decision they made. LoL

~LTH






Andrew in DC says: (8/23/10 1:50 PM)
@Prophet/Jimbo,

Gonna back up Jimbo here - they pro-rate the 3 free months, taking the rents from about $2200-$2400/month down to a more reasonable ~$1800/mo - which is in-line with what one can get elsewhere. Given that the area has really yet to develop (in part because of decisions like Donatelli's) it's pretty audacious of them to ask the same prices as the rest of the region - and by doing it with incentives, it makes it easy to ratchet prices up hard without calling it a rate increase.

Jefferson, Axiom, 909 and Onyx are all pretty full. Cap Quarter's phase II is selling, phase I is sold. Obviously the demand is there. The only building having trouble selling is Velocity and that's (to my mind) an extremely overpriced condo unit - given what's still missing from the area.


Andrew in DC says: (8/23/10 1:51 PM)
sorry, to clarify: those rents were on a 1 bdrm.


The Prophet says: (8/23/10 3:37 PM)
Jimbo, actually, no they're not doing it everywhere. But you are right, that is definitely what the market is dicating in Near Southeast.


MJM says: (8/23/10 3:44 PM)
'Everywhere' is a strong word but it was done in a lot of DC over the last three years - even into the Orange Line in ARL but this article has some info on free rent:

link


P.S. - while I haven't confirmed - I hate rumors but rumor has it Velocity is over 50% sold/under contract


The Prophet says: (8/23/10 3:48 PM)
Andrew,

Exactly, the rents are $1,800 like you can get in the suburbs, with suburban land prices. Unfortunatley, these buildings were not built on suburban priced land and were not proformaed at $1,800 rates, but probably closer to $2,400 rates. You need $2,400 per month to make the profits necessary to justify development at the land prices paid for the sites in the market. The free rent eats up the owner's profits every month. Either rents have to increase significantly, or land prices have to decline significantly. Apparently, WMATA wasn't ready to drop the land price enough for Donatelli to get comfortable with the deal.


BubbleGum says: (8/23/10 7:03 PM)
I heard that the velocity is also 50% sold/under contract. This seems pretty good considering the market and that it just opened in fall of '09. Kenyon Square, a comparable building in a turn-around area, took about 3+ years to sell out.


lovethehood says: (8/24/10 8:30 AM)
I do have a question about the Velocity??? How come all these people living in the building never turn on their lights at night? They must be promoting a green life style? Or their mortgage is so preposterous that they cant afford the electricity. :)

Just wondering?

~LTH


Misplaced says: (8/24/10 10:34 AM)
I actually live in the Velocity and my lights are on all the time :-p, but I know that there are only 2-3 other units that have fully closed on my floor. Last I checked with the building management in early August, Velocity was 46% sold/under contract, so 50% isn't out of the question, but that would be about 8 units sold in about 20 days.

As far as cost, I think the prices are comparable to other developing areas in DC, but the apartments are generally bigger, you get free parking and you get about 11k off closing costs (which many don't take into consideration). There is no doubt that Velocity definitely is charging market price during what may be a double dip in our economy where many sellers are lower prices, but it's not ludicrous considering how hot the DC housing market has been.


Khan says: (8/24/10 12:10 PM)
Whose light are you talking about? My lights are always off.
For people who think Velocity is over priced..you are wrong. Compare Velocity with other condominiums over Mount Vernon triangle such as City Vista, Yale Laundry loft, and others. None of them were giving a free parking and were paying your closing costs. Besides, Velocity has great amenities and the units are huge and condo fees are reasonable comparing to other places. The one bedroom units are almost 800 square feet and they are selling $450 per sqf.


lovethehood says: (8/24/10 1:53 PM)
Sales of existing homes plunge to 15-year-low

link

I would be keeping my lights off too. ;)

~LTH


MJM says: (8/24/10 2:02 PM)
The question you have to ask is - since we live in 'Mother Government Land' and we don't live in the national economy - how much did they plunge in DC - prices were up in DC but slaes were down? Remember - the tax credit expired in June so that should not have come as a surprise.

Use CFC lights and you can keep them on for 15 years dirt cheap :)

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