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Surplus Property Designation and Disposition Plans Continue to be Controversial; Council Yet to Act

By Anthony L. Harvey

[Note: Photographs accompanying this news story can be viewed in the current issue PDF.]

The District’s development community was out in force at the DC Council’s John A. Wilson Building on July 1st for a concluding joint public roundtable session on the disposition of seven publicly-owned properties, four of which are in northwest Washington, the other three in southeast.

Prized parcels include the 24th and L Streets corner where the West End Branch Library now is situated and at 23rd and L Streets where the police department’s (MPD) Special Operations Building is located.

Also considered a prized parcel where Hine Junior High School is located — across from, and between, the Eastern Market and the same named Metro station.

The session was held in a first floor conference room at the rear of the Wilson building; phalanxes of well-dressed developers and District development project managers vied with informally attired neighborhood activists for the attention of the session’s joint conveners, DC at-large Councilmember Kwame Brown and Ward 3 Councilmember Mary Cheh, both of whom chair Council committees with jurisdiction over the statutory process for designating District-owned property as surplus and subject to transfer, lease, or sale to

either a quasi-public entity like a charter school or a commercial developer or public-private partnership entity. Brown and Cheh were joined on the roundtable’s dais by fellow Ward 2 Councilmember Jack Evans and Ward 6’s Tommy Wells.

The session had an eerie air about it; the seven properties on the surplus designation block have already been awarded by the Mayor to well-known DC developers — the four most lucrative to EastBanc and its several partners. EastBanc is celebrated for its earlier successes with mega-projects in Georgetown and the West End. An added air of unreality was the inclusion in the calculations for the value of the library and MPD properties of hypothetical air rights and Planned Unit Development (PUD) relief from zoning restrictions for these two West End sites — which sit adjacent to each other on L Street.

In addition, EastBanc’s proposed project plans for this development, which includes a third parcel — the fire station at 22nd and M Streets — have remained remarkably the same over the past three years since EastBanc first appeared to have won the parcels with the enactment of “emergency legislation” by the DC Council in July of 2007.

(This project was first reported by The InTowner nearly three years ago. See, “West End Library Site Transfer to EastBanc Controversy Now Part of Larger Issue About District’s Embrace of Public-Private Deals,” September 2007, page 1; available in Current & Back Issues Archive.)

EastBanc’s plans call for the replacement of the existing mid-century modernist-styled, two-story library building — a classic “plain Jane” — with a 20,000 square-foot, single level contemporary library nestled within a luxury condominium tower with 153 high-end residential units and 9,600 square feet of neighborhood-serving retail space. This imposing structure would sit on both the West End Library and MPD sites together with an adjacent site that EastBanc has controlled since 2007, according to the developer’s Vice President for Acquisitions Joe Sternlieb in testimony at the session.

The proposed project also includes a new, two-level fire station to replace the one on M Street, with one level to be for underground parking, and four floors of affordable housing above the high-ceilinged firehouse facility itself.

The affordable housing portion of the building will have 52 units for residents earning 60 percent of the area’s average median income (approximately $60,000), Sternlieb added. The library and fire station would be built by the developer at no direct cost to the District, other than a 5 percent developer’s fee, in exchange for the “air rights.”

Questions from the council members concerning the financing of this project — and that of the others under consideration for surplus designation and disposition to the development community — were complex and fascinating, and ultimately somewhat opaque to the non-developer audience and, perhaps, to some of the council members as well. Answers — especially from the Mayor’s staff — which were infrequent, seemed simply to raise more questions, most of which centered on whether or not charter schools were being given meaningful consideration in the awarding of development projects involving the two DCPS school properties on the list –Hine and the M.M. Washington Career High School.

Questioning also focused on the selection of, and lack of competition, in awarding the assessment contract for appraising the value of the West End library and MPD sites’ air rights; tax and related subsidies being proposed for the developers of these projects; securitization schemes for using property tax receipts to directly subsidize the below market rate affordable housing proposals; the sale of low-income housing tax credits; and the floating of debt bonds predicated on 15 years of rent payments by affordable housing residents.

Councilmember Brown, who chaired the session, further focused on issues of fees charged by the developers, and the profits of all involved, especially investor rate of returns proposed in the project prospectuses. He also inquired as to whether or not financing had been lined up for these projects; the Mayor’s staff insisted that that step would occur after the properties had been officially declared as surplus. At times a developer had to step up to the witness table to assist the Mayor’s staff with their answers.

EastBanc’s Sternlieb was far and away the most forthcoming in his prepared remarks and with specific answers to direct questions. How well even his answers enabled the council members or the tax-paying public to penetrate the highly specialized world of financing municipal projects involving public assets, public benefits, private profits, and commercial development seemed, however, mystifying. Sternlieb asserted that the new library and fire station facilities would be provided free to the District as public amenities in exchange for the air rights “over and around the area reserved by the city for the new library with an in-kind land payment to the District worth…$18 million” — which, he further stated, is the estimated cost of these two replacement public facilities. The affordable housing over the fire station would require another $18 million in complex subsidies, of which $9.75 million would be generated by securitizing the property tax receipts from the high-end condos in the library building (for a specified period) through the sale of tax credits to investors, and, finally from the sale of revenue bonds based on the fire station affordable housing rent receipts.

Details presently negotiated can be radically revised during post-contract award negotiations — a common practice in the District. The provision of public amenities can also be an elusive phenomenon. And in the absence of small area development plans adopted by the DC Council as part of the planned rewriting of the zoning regulations, community and council concerns can change. In the case of the West End project awarded to EastBanc, Ward 2 Councilmember Evans, the Advisory Neighborhood Commission, and the Foggy Bottom and West End community organizations are at the moment in solid support.

After several hours of joint committee roundtable deliberations, the other Councilmembers began drifting away, leaving the Council’s Economic Development Committee chair Kwame Brown to grill, almost curtly, the Mayor’s development staff on the matters of developer fees, investor profits, and the status of financing commitments — yet to be secured for the projects brought forward by the Mayor. He pointedly asked about the long-delayed Penn Branch redevelopment project; no answers were forthcoming to Brown’s strenuous questioning, whereupon the session was abruptly adjourned without any word on the future prospects for formal and final committee consideration of the surplus property disposition resolutions awaiting Council action.