How the Hine Project Has Changed Over Time – Councilmember Wells Says Developers Constrained by City

How the Hine Project Has Changed Over Time

Councilmember Wells Says Developers Constrained by City

by Larry Janezich

At an April 6 meeting between Councilmember Tommy Wells and two community organizations striving to reduce the height and mass of the Hine project, Wells outlined the economic factors which drive the current size of the project and limit the possibility of significant changes.

Questioned whether – if the community feels strongly about changes – it is possible to send the agreement with the developer back to the city for review, Wells noted that any substantive change to the “Term Sheet” requires action by Council and that it is unlikely the city will back off on certain requirements which it is interested in having the developer provide as “public amenities.”

The “Term Sheet for the Disposition of Hine” is a signed agreement between Deputy Mayor for Planning and Economic Development Valerie Santos and Stanton/Eastbanc.  It specifies the anticipated square footage for the project’s residential, retail, and office space.  It is less specific about the parking, saying only that the developers will provide below grade parking necessary to support the project.  In addition, the Term Sheet lists several “public amenities” – though it does not call them that. These public amenities are what the city expects the developer to do for the city as a condition for proceeding with the project.

There are three kinds of amenities:  1) amenities provided to the city and required by the city in the Term Sheet, 2) amenities provided by the developer as the result of informal dialogue with the community as a way to garner public support prior to the PUD process, but outside the Term Sheet, and 3) amenities made as concessions by the developer to the community as the result of the Planned Unit Development (PUD) process.  The latter can be alterations in building structure but sometimes take other forms, like the addition of a desired function or use, the improvement of a nearby community space, or, sometimes, by awarding a cash settlement.

Several amenities are already specified in the Term Sheet.  Two of the most significant amenities specified are 1) affordable housing, half of which is to be reserved for the elderly, and 2) Reconstruction of C Street, SE.  Both of these come at considerable long term and short term expense to the developer, and must be supported economically by the rest of the project.  According to Wells, these are considerations which drive the massing and density which must be enough to offset the additional expenses incurred by the developer in fulfilling the city’s requirements.

In the community discussion, massing and density are often used interchangeably, though they are different concepts.  Wells undertook to explain why it is difficult to reduce massing – and the complex set of economic relationships between amenities and a profitable real estate venture.  .

Affordable Housing

The Term Sheet states that “subject to the PUD process …it is anticipated that the North Parcel will contain:

28 apartments (probably one bedroom) – available for rent to individuals or families with a current (2010) income of $62,100 – 14 of these for persons 55 or older

5 apartments (probably one bedroom) available for rent to individuals with a current (2010) income of $31,050 – 3 of these for persons 55 or older

10 units (likely one bedroom) available for purchase at income levels required under the DC’s Inclusionary Zoning Act, (50% AMI 2010 = $51,750 and 80% AMI 2010 = $82,800).

The city sets maximum rents and purchase price for these affordable units and this will come at the expense of the developer – the difference in profitability having to be made up elsewhere in the project, even though Stanton/Eastbanc will receive federal tax credits for constructing these units.  Reportedly, Capitol Hill Village representatives are disappointed that these units are so small.

Reconstruction of C Street, SE

The city is also requiring the developer to reopen C Street.  “The Developer shall construct, at its sole cost and expense, a street in the closed portion of the 700 block of C Street, S.E.”  This is strongly supported by the Office of Planning and the Capitol Hill Restoration Society.  Office of Planning is reportedly seizing every opportunity to restore the original L’Enfant plan.  For the nearby neighbors on C, 7^th, and 8^th Street, the reopening seems likely to be only an source of aggravating noise, traffic, and pollution.

In addition to these two amenities the Term Sheet specifies two other significant amenities which the developer is required to satisfy.

Parking

The Term Sheet states only that the project will contain below grade parking necessary to support the project.  At the last presentation on April 5, project architect Amy Weinstein said the developers are considering adding additional parking on a second below grade level.  Wells told those attending the meeting that he is “conflicted about the amount of parking we need the developer to provide.  If you know you are going to find parking, you’re more likely to drive to Eastern Market,” thus creating increased traffic and overflow parking issues.  This puts Wells at odds with Eastern Market Community Advisory Committee, which recently reaffirmed its support of the Stanton development concept, based in part on the basis of the public parking for the market.

Green Building.

The city requires the project to be built in accordance with the city’s Green Building Act of 2006.  This is important to many but not often mentioned in public discussions as being an amenity to the larger community.

Amenities provided by the developer as the result of informal dialogue with the community as a way to garner public support prior to the PUD process but outside the Term Sheet:

Public Space Improvements

Courtyard

The Hine project’s large interior courtyard has been described as community space in earlier presentations by the developer, and seemed likely to serve that purpose when it was possible to walk through the courtyard from Pennsylvania Avenue to C Street.  A design change revealed on April 5 makes it less useable as public space since a new lobby entrance to the project’s office building will prevent access from Pennsylvania Avenue.  The only access to it would be through a gated entrance on C Street.  Wells asked, “if the courtyard is not open to the community, what’s the point?  It seems to me it should be negotiable.”

Plaza

A means of providing for the continuation of the weekend flea market has wide support in the community and was part of the reason EMCAC recently reaffirmed its support of the Stanton development.  This provision is not specified in the Term Sheet.  Stanton/Eastbanc’s recent recasting of a public plaza with a fountain between the north ends of the 7^th and 8^th Street residential buildings – added at the request of neighbors – into the splayed piazza opening up the west end of C street where it intersects 7^th Street, disappointed some of the neighbors.  Neighbors also raised concerns that in time, the piazza splayed out toward the Market could become something else, less attuned to neighborhood requirements and more attuned to commercial usage.

Wells said that the degree to which the piazza is an amenity to the community depends on how it is viewed and used; suggesting that as a site for strolling and gathering in the European sense it would in fact be an amenity to many.

Residential space

This is the target in the PUD negotiations for the most vocal critics of the current plan, the residents of 8^th Street, who object to the height and massing of the Hine Project’s 8^th Street residential building and the assignment of retail to the ground floor of the north residential building.

The project’s residential space has gone up by 92,156 square feet since August of 2009 to 237,750.  The term sheet anticipates 144,594 square feet of residential space.  In February of 2011, Stanton/Eastbanc announced that it was increasing the amount of residential space since the non-profit International Relief Development (IRD) had dropped out of the project.  The Term Sheet allowed for 65,000 square feet to be used for a hotel as an alternative to the office space.  Instead, when IRD dropped out leaving 62,000 extra square feet of office space and when the hotel did not materialize, that 65,000 square feet plus another 28,156 square feet of space taken from office and retail was reallocated to residential.  The change will have to be approved by the city council.

Office Space

Office space has taken the biggest hit in the downsizing, going down from a Term Sheet estimate of 211,999 square feet of office space in the August 2009 proposal to the current proposed 160,200 square feet – a difference of 51,799 square feet.  Wells listed office space as one of the items on the term sheet that is “a lot more negotiable.”  There are several reasons why this might be so.  Office space might sit empty for a long period, depending on demand and the economy.  In addition, office space will require continuing, on-going management as opposed to residential condo space which can be turned over to a condo association, leaving the developer free of that responsibility.

Retail Space

Retail space has gone down by 7,500 square feet, from an estimated 49,200 square feet in the August 2009 plan to 41,700 today.  Wells stated that “people in the community are expecting more retail.”  Wells held out the possibility that the amount of retail was one of the things that could be negotiated.  He noted that “generally, a developer will make more money on housing than retail. Retail is not the highest return on the property.  Housing is hot now.   I’m not fully convinced they’re (Stanton/Eastbanc) more excited about retail.”

According to a source knowledgeable about Capitol Hill commercial corridor leases, rates are currently climbing for commercial retail space.  Commercial space can lease for up to $42 a square foot.  Retail space can go for as high as $50 a square foot.  A 1000 square foot store could cost anywhere between $45,000 and $52,000 a year – or at least $3,750 a month.  Leases for space in larger commercial buildings have additional costs involved which may vary the rent by up to 20 percent.

The Economics

This is what all of this adds up to:  Wells said that the number of square feet of a project is determined by a formula for the project after calculating what the developer has to provide in amenities like affordable housing, C Street reopening, plaza, public space, parking, etc.  The rest of the development has to fund these.  Balancing these expenditures with anticipated profit is how the developer figures out how large the project has to be, assuming a certain return per square foot.  Wells affirmed that the City Council was responsible for the oversight hearing of the Lease Development Agreement with the developer and had expectations about what a fair profit for the developer would be.  “I have no reason not to believe the city didn’t do due diligence on the Hine project, just as with any other project in the city.”  But, as an audience member pointed out, that that was for a previous and much different version of the project.

Wells pushed those seeking changes in the project toward the Planned Unit Development (PUD) process which will unfold next year, where the impact of proposed changes on the economic viability of the project could be more easily determined.  This will involve public hearings where the public and community groups can testify before city officials regarding the project and negotiate with the developer for amenities.

According to Gary Petersen, Chair of the Restoration Society’s Planning and Zoning Committee, “for zoning purposes, we need a complete set of drawings that shows the façade, shadow studies, detailed traffic analysis, and elevations.  In the PUD process, everything is on the table.  We are not limited by what they (the developers) propose.  We can bring up stuff – tinker.”