Friday, March 13, 2009

If We Build It, Will They Come?

With the economic downturn stalling development projects all around the city, one has to wonder what drives developers willing to continue moving forward. There are likely countless subjective reasons for a project to still appear viable to a developer in the face of falling home values and diminished financing availability. I don't claim to be an expert, or even a novice for that matter at evaluating real estate potential, but I think it's worth wondering what it takes for a well positioned project to bring commercial and residential renters and buyers. In Arlandria, there is a bit of a chicken vs. egg problem -- an area must be high income, low crime for development to make sense vs. development brings in a new demographic, lowering crime and helping raise the average income.

Arlandria is not a well-to-do area on average, but it is chock-full of amenities necessary to a lively, urban community. There are negative perceptions due to loitering and a higher than average crime rate. However, it seems positioned to be a very popular, eclectic neighborhood if the right domino falls. Arlandria amenities include:

  • Neighborhood is closest portion of Alexandria to DC and Crystal City.

  • Two bus routes to the Pentagon bus terminal with ~ 12 min. rush hour headways.

  • Hundreds of visitors are drawn to the area almost daily by the Birchmere.

  • Wrapped around Four Mile Run Park, which is getting ready to be expanded and re-naturalized (search page for "four mile run").

  • Adjacent to the Four Mile bike trail, and only a mile from the Mount Vernon Trail and the Potomac River.

  • The Alexandria Aces, a summer league baseball team, play at Four Mile Run Park on a newly revitalized field.

  • Cora Kelly Magnet School (math, science, and technology focused)

When you add all of the amenities up, then consider that Arlandria is situated between Del Ray, Beverly Hills, Arlington Ridge, Crystal City, and the soon-to-be developed Potomac Yard, you wonder how Arlandria isn't a priority for redevelopment. A Coordinated Development District is long established at the Safeway/Datatel site (across the street from the Birchmere), a large parcel the Planning and Zoning identified as a potential town center-like mixed use development. The Arlandria plan only includes vision-level plans and is probably too restrictive, requiring 10% below market-rate housing and limiting the project to approximately 3 floors. Were the city to loosen its plans so it has greater potential for profitability, perhaps that would be the necessary component to bring in the investors.

Under the auspices of the current restrictions for the site, the project likely isn't profitable. Though with falling real-estate prices and building costs, it may be more so than it was even just last year. According to a feasibility study conduced in 2007 and early 2008, viable development would need to fetch $360/sqft for condos and $29.65/sqft per month in rent for office and retail. The developer simply asks themself, "if we build it, will people pay those rates to buy and lease in this location?". The answer is likely "no" based on perceptions of the socioeconomic conditions in the area. These rates seem exorbitant in many areas, and may be overly inflated from the real estate market at the time the study was conducted. The question, though, probably should be, "if we build it, will current perceptions of the area still apply?" With a little help from the City to loosen some of the revenue limiting requirements and a little forward thinking, maybe this site will get snatched up. Maybe not. All we can do is try, make it appealing as possible for development, and see if someone from the market can make it work.

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