MEETING POLICY OBJECTIVES THROUGH PUBLIC/PRIVATE PARTNERSHIPS:
THE REDEVELOPMENT OF PENNSYLVANIA AVENUE
by
MICHAEL THOMAS HARRISON
Bachelor of Architectural Engineering
The Pennsylvania State University
1985
Submitted to the Department of Architecture in
Partial
Fulfillment of the Requirements for the Degree of
MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT
at the
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
September 1990
(c)
Michael Thomas Harrison 1990
The author hereby grants to M.I.T. permission to
reproduce and to distribute publicly copies' -of this
thesis document in whole or in part.
A~ "A~~
Signature of the author
Michael '.Ihmas Harrison
Department of Architecture
26 July 1990
I ^
ICtU
I
Lynne B. Sagalyn
Associate Professor of Planning and Real Estate Development
Thesis Advisor
Certified by
Accepted by
Gldria Schuck
Chairperson
Interdepartmental Degree Program in Real Estate Development
MASSACHUSETTS INSTiTUTE
OF TEC,"' PY
SEP 19 1990
LIBRARIES
1
MEETING POLICY OBJECTIVES THROUGH PUBLIC/PRIVATE PARTNERSHIPS:
THE REDEVELOPMENT OF PENNSYLVANIA AVENUE
by
MICHAEL THOMAS HARRISON
Submitted to the Center for Real Estate Development
of the Department of Architecture on 26 July 1990
in partial fulfillment of the requirements for the
Degree of Master of Science in Real Estate Development
ABSTRACT
Public sector involvement in real estate development is
Government participation in
phenomena.
new
a
not
development of cities dates back to colonial times and the
planning of Washington, D.C. and Philadelphia. In 1949
public development changed dramatically with the inception
of the urban renewal program. Poor communication between
public planners and developers, and a lack of market
analysis led to the overestimation of development potential
Consequently, land was cleared, residents and
for sites.
businesses displaced leaving land vacant for years.
Cities now recognize the need for collaborative efforts
between public agencies and developers. With a reduction
in federal assistance cities have turned to public/private
partnerships to stimulate and induce private development
In public/private partnerships public agencies
activity.
join with private developers for redevelopment projects in
which cities provide assistance with land assembly and
approvals, and financial inducements, while the developer
builds a project that will create jobs, tax dollars and
help revitalize a city. Through this type of relationship
many cities have been able to set and implement policy
objectives that would not ordinarily be achieved through
traditional private development.
This thesis will focus on the Pennsylvania Avenue
Development Corporation (PADC) and the redevelopment of
It will identify the elements of
Pennsylvania Avenue.
public/private partnerships that have allowed the PADC to
set and attain policy objectives. It looks at the capital
and how the PADC utilizes multiple funding
structure
It also looks at the
sources to finance its projects.
lessons that the PADC has learned over 15 years and 25
projects, as well as the affect of the D.C. real estate
It illustrates how the PADC used
market on its success.
these elements to achieve affirmative action goals, the
historic preservation of Washington, D.C. landmarks, and
the new development of a 1000 unit residential community.
Part Four applies the techniques used by the PADC to a
generic model for public/private partnerships.
Thesis Advisor: Lynne B. Sagalyn
Title: Assoc. Prof. of Planning and Real Estate Development
TABLE OF CONTENTS
.
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- -
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LIST OF FIGURES
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.
ACKNOWLEDGMENTS
.
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..--.-.-.-.-.-.-.-.
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4
5
... ....-.-.-.-.- 6
INTRODUCTION.......
PART ONE:
. . . . . . . .
PUBLIC DEVELOPMENT AND THE PADC
What is a Public/Private Partnership? . . . . .
The Pennsylvania Avenue Development Corporation
.
.
.
. 11
. 13
. 15
The Site: Pennsylvania Avenue
Creating a Public Developer
Defining PADC's Mission and Powers
Setting Goals and Objectives
The PADC's Successful Voyage
PART TWO:
ELEMENTS OF SUCCESS
.
. .
. .
. . .
. . . .
.
. . . 27
Unraveling the PADC's Unique Capital Structure . .
. 28
Multiple Funding Sources
Using the Capital Structure to Create
Opportunities
Learning From Early Projects . . . . . . . . . . . . 39
The First Competition
Modifications to the Prospectus
Land Acquisition: PADC Response to a Changing
Market
Project Timing and the PADC Plan . . . . . . . . . . 46
PART THREE:
USING PRIVATE INVESTMENT TO OBTAIN PUBLIC BENEFITS . 50
. . . . . . . . . . . . . . . . . . 51
The Three Cases
The Willard Hotel and Office Building
Market Square
The Lansburgh
Residential Development in a Commercial Zone .
. .
. 54
Downzoning for Residential Development
Housing for the Rich?
Affirmative Action . . . . . . . . . . . . . . . . . 62
Establishing the Guidelines
Developer Incentives
The Impact of Affirmative Action
Historic Preservation . . . . . . . . . . . . . . . 69
PART FOUR:
SUMARY AND CONCLUSIONS .
NOTES....
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. . .
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...
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. .73
.83
FIGURES
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FIGURE 1:
Pennsylvania Avenue
FIGURE 2:
The Federal Triangle Area
FIGURE 3:
PADC Plan Area
FIGURE 4:
PADC Development Summary: 1977-1993
FIGURE 5:
PADC Capital Structure .
FIGURE 6:
PADC Funding:
FIGURE 7:
PADC Land Use Plan .
.
.
.
(FY 73 -
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.
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FY 90)
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26
30
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. .5 .
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.
55
ACKNOWLEDGMENTS
am indebted to the PADC for their cooperation and for
I
materials
to
access
In
thesis.
particular
I
Milin,
and
Al
Blackford,
would
like
to
Neuhaus
Jo-Ann
to
greatly
contributed
which
this
thank
Sally
for
their
assistance.
also like to thank Lynne Sagalyn.
would
I
and
critiques,
comments,
make this a better thesis.
to
me
pushed
and
think
You made me
thorough
editing
are
Your
greatly
appreciated.
Kathleen
you
Thank
understanding
for your love and support.
and patience this past year.
Thanks
From
for
your
the
minute I filled out the application you were supportive
and that is something I will never forget.
I
and
Harrison,
because
has
of
to thank our parents - Richard and Maria
like
would
you
Marge
that
and
Jim
Reilly.
Mom and dad, it is
I have been able to get this far. It
been your life-long encouragement and support have made
this
help,
possible.
Marge and Jim, thank you for Kathleen, your
for
the week at camp that gave me the energy to
and
finish this thesis.
INTRODUCTION
developers
to
both the public and
Past failures in this area have lead many
sectors.
private
of
support
the
won
have
government and private
between
efforts
development
joint
It is only recently, however, that
phenomena.
new
a
not
in public development efforts is
investment
Government
believe that it was not possible for cities to stimulate
or
redevelopment
major
of
completion
the
redevelopment
efforts
course
most,
of
surprise
the
to
years,
twenty
Over
benefits.
public
provide
private development interests to
use
to
of the last
the successful
projects
implemented
public
development
of
through
the
cooperative
agencies
and
private developers has presented a new record
of achievement.
in
of
the
I will focus on
Development Corporation (PADC), a
developer specially created by the U.S. Congress for
sole
purpose
Pennsylvania
will
redevelopment projects.
Avenue
Pennsylvania
public
look at public/private partnerships,
evolution of public sector planning and
the
particular
implementation
the
will
thesis
This
developer
redeveloping the one-mile portion of
Avenue from the White House to the Capitol.
identify
instrumental
of
to
and
key
planning
the
PADC's
demonstrate
elements
overall
how
the
which
success
agency's
have
I
been
as a public
powers and
resources
have
that
objectives
it
allowed
to
not
could
set
implement policy
and
been
have
through
achieved
traditional private development activities.
I
chosen to study the PADC because the agency has
have
successful in the redevelopment of a significant
very
been
boulevard, as well as, in their ability to set and
national
physical
of
the
resources,
do
not
have
important
One
development,
of
from
the
Urban
the
Development
mid-seventies,
partnerships
cities
and
the
on
urban
Action
and
the
and developers.
type
of
can
be
drawn from how PADC
thesis charts the history of public
tracks
of
advent
to
policy objectives.
focusing
It
same
While
access
lessons
this
redevelopment.
Finally,
with unique financial resources.
used them to further its
Part
Also, the
area.
ability to succeed.
agency's
operated
cities
most
distressed
the local development climate can impact a
how
development
PADC
a
Pennsylvania Avenue provides an excellent
of
redevelopment
public
of
restoration
example
whose benefits extend beyond the
objectives
policy
attain
the
role
of
government
in
the evolution of codevelopment
renewal
Grant
in the fifties to the
(UDAG) program started in
defines current day public/private
roles and responsibilities shared by
Finally, it sets the stage for Part
Two of the thesis by giving the history of the PADC.
Part
Two
identifies
those
aspects
of
the
PADC's
redevelopment
the
by the PADC over its 15-year
Specifically,
it
looks at how and why the PADC
developer
negotiations.
over
development
competitions
and
The methods and strategies used by
this
disposition
and
acquisition
land
in
significantly
part
in
period,
changed
because of the
early PADC projects and in part, in response to
of
success
to
approach
its
PADC
and
made
modified
the
learned
lessons
corrections
mid-process
history.
valuable
the
of
some
documents
It
development interest.
private
stimulate
to
PADC
several financial tools used by
identifying
and
structure
the
starts by laying out the PADC's capital
It
partnership s.
in
public/private
their
of
implementation
successful
critical
were
that
experience
the growing strength of the local real estate market.
Three
Part
made with private developers --
these
I
objectives.
setting
and
achieving
goals,
preservation
development
I
closely
also
behind
at some of the policy
that the PADC tried to achieve through the deals
objectives
it
more
looks
in
them
have
the
analyze
agency's
approach to
affirmative action quotas, historic
and,
finally,
new
residential
area that is currently void of housing.
an
examine
how it priced and valued
how
these
changed
objectives
over
and the guidelines
the course of the last 15
years.
Three projects are the focus of this analysis: The
Willard
Hotel,
the
first
project
completed
through
a
Square,
Market
competition;
development
the
first
PADC
to incorporate a significant residential component;
project
Lansburgh, the most recent development competition, one
and
historic department store, and when
a
restore
will
which
completed in 1991, will be entirely residential.
into
move
PADC,
By
public/private partnerships as we
the nineties.
Drawing on the experiences of the
how
discusses
it
cities
at
looks
Four
Part
looking
to
the
the
lessons
can assist
learned
private sector for new investment.
studying the PADC's capital structure, cities can better
separate sources and corresponding uses for funds,
identify
by
and,
doing
so,
revenue-generating property,
leverage
whether
it be owned by a public development agency (PDA) or
through
tax
out
by
private investment.
provides insight into means cities can employ to carry
a
commitment
made
efforts
Pennsylvania
housing
by
been
implementing
fortuitous
improve
the quality of life for its
the
PADC
to
create
housing
in
the
Avenue area, and how the lack of an affordable
component
agencies
to
This section of the thesis also comments on the
residents.
has
generated
effort to include minority investors in its projects
PADC's
also
increments
very
its
has
impacted its success to date.
successful,
projects.
in
planning
as
well
PADC
as
While other public development
might not enjoy the same level of resources or the
market
conditions
that
contributed
to
the
implementation of PADC's plan, they can learn --
successful
the
effect of preparing a complete master plan, how careful
planning
private
while
careful
of
resource
developers,
stimulating
allocation
allows
PDAs
to
assist
that policy objectives can be achieved
private
redevelopment,
and
that
even
planning and access to financial resources does not
insure that all objectives can be achieved.
PART ONE
PUBLIC DEVELOPMENT AND THE PADC
The
back
role of government in real estate development dates
to
urban
colonial times, but it was not until the advent of
renewal
significantly
development.
Title
a
alter
The
the
the
public
sector
market-driven
attempted
to
pattern of private
urban renewal program, which began with
I of the Housing Act of 1949, was designed to reverse
pattern
its
that
way
of urban deterioration and blight that had woven
into
infusion
the
fabric of American cities.
Through the
of huge sums of public funds for the assemblage of
private
land and subsequent clearing for redevelopment, the
federal
government
power
of
eminent
acquired,
urban
cleared
hoped
to
domain
and
revitalize cities.
local
disposed
provided
land
write-downs.1
cost
City
in
the
renewal.
By
statute,
the
agencies
were
directed
towards
local
real
planning
agencies
of
did not involve
projects slated for urban
planning
the
activities of local
elimination
of slum
may or may not have coincided with demands of
estate
planning, this
The federal
the necessary funding and absorbed any
developers
which
agencies
of land within designated
renewal areas that were deemed blighted.
government
areas,
redevelopment
With the
led
markets.
many
In
agencies
combination
to
with
overestimate
poor
the
from the actual development process, which meant
themselves
no
had
they
that
follow
through
these
actions
with
of
bulldozing
insuring that developers would
of
way
The consequences of
new development.
displacement
permanent
the
included
major
land which lay vacant for
of
tracts
many
years until a developer could be found.
poor
planning,
and
of
and businesses, as well as the massive
residents
long-time
of
lack
Inexperience,
participation between
joint
development agencies and private developers are some
public
of
sold these
had
developers, city agencies then removed
to
parcels
they
after
for
designated
area
an
Furthermore,
redevelopment.
cleared
of
potential
development
the
that
reasons
has
renewal
urban
been
widely
criticized by urban scholars.2
funding
present
The
sources.
aging
for
expansion
continued
the
searching
cities
left
of urban renewal in the early seventies
out
phase
The
federal
sources
--
leasing
of
program
--
tax
the
strategies
and
redevelopment was still
for
need
trying
cities
of
alternative
to
compete
with
the
In place of
suburban development.
renewal funding, cities turned to local
urban
air
for
increment
rights
Urban
--
financing, tax abatement, the
and
one
Development
federally
Action
sponsored
Grant
(UDAG)
Program.3
Established
in
1978,
the UDAG program sought to unite
12
public
joint
redevelopment.
"gap"
money
within
to
form
The
of
and
opportunities
interest
funds
before
to
would
secure
be
made
UDAG program contributed significantly to
partnerships
public/private
program,
stimulating
While
costs of development
that
we
have
Elimination of federal appropriations has shut down
today.
this
cities with
The program's guidelines required cities to
private-sector
the
increased
the
development
available.
provided
program
The
fund
cities.
identify
private developers for the purpose of
and
agencies
not
and
effectively
redevelopment
long-lived,
to
the
shifted responsibility for
the
state
and
city level.
UDAG program taught cities the
fundamentals of public/private deal making. 4
What is a Public/Private Partnership?
Perhaps
today
cities
is
one
with
the
toughest challenges facing cities
the revitalization of their urban core.
For many
the creation of public/private partnerships has been
fundamental
unite
of
to revitalization.
Public/private partnerships
public agencies, and the resources available to them,
private
stimulating
otherwise
interests,
development
development
attract
interests,
for
the
purpose of
activities in areas that might not
private development.
By joining private
which are primarily concerned with the financial
feasibility
to stimulate economic activity, a win/win situation
looking
is
the
a project, with public development agencies
of
Only because of their willingness to share in
created.
risks
development have cities been able to attract
of
redevelopment in areas where market driven
development
and
development
was unlikely, that is, areas with few amenities
or services. 5
traditional
Unlike
partnerships
force
public/private
development,
to
developers
work
from
the
planning
stages
public
development
through
construction
phase.
Through this collaboration and sharing of risks and
rewards,
the
significant
city
provides
and
the
agencies,
hand-in-hand with
and, sometimes, during the operations
mutual
gains
developers.
are achieved, for both
For developers, the city
financial incentives to develop, as well as powers
to
implement activities that are often beyond the political
or
legal
tenant
means
of
relocation,
improvements,
parks
planning
of
exchange
for
project
profits,
private
installation
and
open
of
space,
as
development
and
these
incentives,
cities
to
land assembly,
public infrastructure
future
and
--
developers
well
as master
redevelopment.
implement
designed to benefit the public at large. 6
In
look
to share in
policy
objectives
The Pennsylvania Avenue Development Corporation
The Site:
When
President
envisioned
the
Pennsylvania Avenue
Major
Pierre
Thomas
Jefferson to plan the nation's capitol he
the
as
a
place
L'Enfant's
the
triangle
the
Washington
connecting
created
commissioned
by
inaugural
development
of
great
ceremony
and
much
by the White House, the Capitol, and
including
(See
Jefferson's
of
concept of the city revolved around
Monument,
axes.
residences,
was
boulevard between the President's house and
Capitol
activity.
L'Enfant
Figure
parade,
shops,
Pennsylvania
in
1).
and
saloons,
Avenue
this
area
their
Beginning
continuing
boarding
with
with
the
houses,
and
became the focal point of
commercial and social activity.
It
was
Triangle
not
in
until
the
1930s
development
of
pushed
commercial
and
the
the
construction
(see
Figure
of
2)
the
that
Federal
increased
government buildings divided the Avenue and
core
of the city to the area north
west
of
the
weakening
of
the Washington, D.C. real estate market which
lasted
and
consequently,
any
sixties
disinvestment
along
deterioration
issue
House.
The
post-World
War II
into the seventies, left Pennsylvania Avenue void of
activity,
early
White
new development.
the
Avenue
By the
and rapid
of the existing buildings had become a public
highlighted
by
President Kennedy's inaugural parade
Imp-
a[flNIIaAY YINVA'IkStINad
rrf
r-
P
11fe
T aiEDIa
FIGURE
2
old patent office
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H
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ricpe
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.. a..
..
portrait. gallery-X:--X:-
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old.....
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..... ... .......
...
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TILE..
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ip
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... .monument...
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...
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... . . . ... . ..
.EDERAL.TR.A.G.
televised
on
inauguration,
on
national
Soon
after
his
President Kennedy formed the Advisory Council
Pennsylvania
to
television.
prepare
a
Avenue
which was given the responsibility
master
plan
for
the
redevelopment
and
revitalization of the nation's most prominent boulevard.7
Creating a Public Developer
Preparation
Johnson
and
support.
1969
without
government,
local
plan
the
address
the
in
area.
needs
both Presidents'
of
caused
businesses
significance
on
Congress,
government
felt
of
much
city
debate.
that,
while
the Avenue, the
plans
and did not
of the residents and businesses located
It was in response to this resistance that
Nixon
government
corporation
The
and
much
President
Avenue.
residents,
historic
too
with
participation
District
the
plan continued through the
plan, completed by the White House in
residents
focused
the
master
administrations
The
or
addressing
the
Nixon
full
Many
of
initialized
legislation
to
create
a
to oversee the redevelopment of the
Act stipulated that the PADC was required to
consult
with the District and community officials, and give
primary
consideration
to
the
needs
and desires of local
businesses and residents. 8
On
92-578,86
October
Statute
27,
1266,
1972
Congress
passed
Public
Law
establishing the PADC as a wholly
In this legislation
federal development corporation.
owned
interest required that the area
"national
Congress
stated
adjacent
to Pennsylvania Avenue between the Capitol and the
to
the
its
be developed and used in a manner suitable
to
House
White
funds
of
appropriation
be
to
by
used
included
law
The
community."
the
and
government
and historic relationship to
physical
ceremonial,
and
staff
PADC
for the preparation of a comprehensive plan for
consultants
the redevelopment of the Avenue. 9
involved
District
was
completed
and
federal
of
took
plan
meetings
nearly
with
two
years and
from
representatives
and federal government agencies, community groups,
business
address
100
over
and
sponsored
the
of
Preparation
A preliminary development plan
associations.
in
March
of 1974 and sent to both District
concerns for a 90-day review period.
workshops
concerns
government
Pennsylvania
and
individuals
generated by the plan.
and
Avenue
on
consensus
for
the
public
Plan
in
overall
interests
The PADC
businesses
to
The collaboration
produced
final
a
October of 1974 that reached
strategy
and
plan
for
the
redevelopment of Pennsylvania Avenue. 1 0
Defining PADC's Mission and Powers:
The
between
area
the
designated
for
redevelopment
was
located
White House (16th Street) and the Capitol (3rd
and bounded by Pennsylvania Avenue on the south and
Street)
'F'
Street
was
immense
on
north.
a
21-block
--
and
western
The
"Pennsylvania
uses
the
hotel
and
eastern
Avenue
1974"
Plan
identified proposed
building scopes for each development parcel
plan area.
in
uses
It concentrated commercial, retail,
the
western
sector, and targeted the
sector for the creation of a residential community,
residential
of
and
and
retail
with
into two sectors,
area
10th Streets as the dividing line. (See Figure 3).
and
within
the
The
eastern, with the FBI building located between
9th
land
area covering 110 acres.
subdivided
subsequently
plan
The scope of the redevelopment
the
community
arts
nature of the area.
as
a
compliment to the
The plan outlined the role
the PADC in overseeing the redevelopment of the 21-block
area.
1)
As a public developer it would:
and assemble land, and prepare and implement
acquire
a development program for the site; and
2)
and
oversee
financial,
and
undertaken
plan
provide assistance, both administrative
amounts
redevelopment
activities
by private developers who own land in the
The plan also outlined a unique program
area.
providing
for
multiple
that
the
sources of financial support, in
PADC
believed were sufficient to
complete its redevelopment effort.1 1
20
21
description of the PADC's powers to implement the Plan
A
was
in the enacting legislation.
included
Under the terms
of this legislation, the PADC had the authority to:
1)
sue and be sued in its own name;
2)
acquire land through eminent domain proceedings;
3)
construct and rehabilitate buildings;
4)
manage property; and
5)
establish
and
restrictions
necessary to
standards
ensure conformance with the master plan.
from
exempt
of
corporations
not-for-profit
most
Like
the
was
PADC
all taxation, at both the Federal and District
The PADC is, however, required to make
level.
Columbia
payments in lieu of taxes on all property that it owns. 1 2
Setting Goals and Obiectives
goals and objectives of the plan were varied and far
The
reaching
towards
sought
others
in
aims.
their
physical
the
Many
restoration
objectives were directed
of
the
Avenue; others
to enhance the District's economic base; while still
directed
were
environment
along
towards
the Avenue.
improving
the
social
The plan outlined the goals
of the PADC as follows:
1)
restore
Pennsylvania Avenue to its symbolic position
as the "main street of the nation";
2)
breakdown
the
division
between
the
Federal
core
and the original downtown of the city;
3)
an attractive area to be enjoyed by residents
create
and visitors alike;
4)
mixture
a
provide
of
commercial
cultural
and
activities that will stimulate street life;
5)
a
establish
residential
that
activities
will
area with around-the-clock
support
a
variety
wide
of
commercial uses;
6)
development
stimulate
on under-utilized land within
the plan area;
7)
to
active historic preservation program, and
an
pursue
retain
buildings
that are characteristic of the
Avenue's history;
8)
new
bring
retail
jobs,
life
economic
creation of
the
through
development
and
development,
opportunities;
9)
existing
assist
assistance
through
businesses
program
a
relocation
encouraging
while
existing
businesses to remain in the area;
opportunities for minorities during and after
10) create
the
city
redevelopment
with
the
levels befitting the
effort,
at
highest
percentage
of
minority
residents of any city in the country;
11) enhance
the
city's
tax
base through the intensive
development of land in a prime location; and
23
12) implement
overall
with
in
plan
the
a timely fashion consistent
demand in the Washington, D.C.
market
area.13
that the PADC
mind
in
objectives
When completed in late
program.
development
its
prepared
these
with
was
It
The Pennsylvania Avenue Plan outlined the anticipated
1974,
over
6.0
million
of
feet
square
new
development
of
structures.
Using its own staff and consultants for market
the
analysis,
PADC
projected the development potential as
1200-1500
encompassing
residential
million
3.2
units,
square
feet of office space, 900,000-950,000 square feet of
retail
development,
master
plan
the
new
rooms.
hotel
to
be
complete
prepared
by
the
development
financial
program
inclusive
and
The
PADC
1994.
by
staff
was
The
all
estimated costs for all aspects of the plan,
public
improvements
and
infrastructure,
land
and associated expenses, historic preservation,
acquisition
tenant
400-700
also detailed and overall schedule calling for
entire
including
and
relocation,
overhead
and
budgeted
over
affirmative-action activities, and PADC
administrative
$220
expenses.
In
all,
PADC
million (1974 dollars) worth of public
investment.14
PADC's Successful Voyage
Over
the
last 15 years much of the PADC's plan has been
24
with
of
completion
the
the
with
Willard Hotel in 1977, and culminating
the
of
acquisition
Beginning
success.
great
with
implemented
construction on the Market Square
will
have
attained,
to a considerable degree, all of its goals.
When
completed
the PADC will have overseen the redevelopment and
North
new
were
developed via PADC sponsored competitions, and another
private
projects
and
their
each.
with
To date, these
have stimulated over $1.5 billion worth of private
square
addition,
over
providing
investment,
million
involved
investment
projects
well as their size and the amount of
as
dates,
completion
these
lists
4
Figure
historic preservation
provided
PADC
the
which
in
assistance.
of office and retail development.
feet
PADC
the
900 housing units and over 5.5
has
undertaken
included
the
development
for
use
by
fountains
Pennsylvania
void
PADC
of over 25 projects, including seven which
development
eight
that
the
1993,
for
scheduled
project
of
preserving
Avenue. 1 5
development
the
In
public works projects
of eight parks, plazas and
the people who live, work and visit
PADC has revitalized an area
The
activity
grandeur
of
for
nearly 40 years, while
Pennsylvania
Avenue
implementing public policies for the good of the city.
and
FIGDRE 4
PADC DEVELOPMENT SUMMARY: 1977-1993
Housing
or Hotel
(Units)
Private
Investment
(millions)
Completion
Date
Office &
Retail
(Sq. Ft.)
Canadian Emrbassy
1988
108,000
0
$40.0
601 Penn. Ave.
1986
225,800
0
45.0
Sears House
1984
33,400
0
8.0
Penn. Plaza
1990
175,100
150
84.0
Argentine Naval Bldg.
1982
21,900
0
1.4
Bob Hope USO Bldg.
1985
48,000
0
5.5
625 Indiana Ave.
1989
159,500
0
44.0
Liberty Place
1991
147,700
0
55.0
Gallery Row
1987
38,200
0
7.0
Jenifer Building
1988
43,400
0
8.6
717 D Street
1984
38,200
0
3.6
The Landsburgh
1991
64,000
385
75.0
Market Square
1990
688,600
210
230.0
Market Square North
1994
322,900
201
115.0
Stables Art Center
1987
33,700
0
2.1
1001 Penn. Ave.
1986
798,700
0
160.0
Evening Star Bldg.
1990
212,400
0
85.0
Presidential Bldg.
1992
274,300
0
8.8
1201 Penn. Ave.
1981
422,200
0
52.0
Pennsylvania Bldg.
1987
216,900
0
25.0
1301 Penn. Ave.
1981
206,000
0
21.0
National Place
1984
492,000
National Press Bldg.
1985
408,000
Willard Hotel
1986
242,900
365*
121.0
Hotel Washington
1989
8,300
344*
12.5
Name of Project
TOTAL
(*) = # of Hotel Roams
Source: 1989 PADC Annual Report
5,525,700
774*
0
946
1,483*
180.0
95.0
$1,485
PART TWO
ELEMENTS OF SUCCESS
public
The
success.
guarantee
renewal would have made many
urban
of
legacy
problematic
development has taught us that
not
does
involvement
public
of a public redevelopment effort of the magnitude
skeptical
Those backing the creation of the
the PADC.
by
undertaken
however, recognized the shortcomings of urban renewal
PADC,
--
of
history
The
the lack of continuous public involvement and testing of
interests,
110-acre
substantial
resources.
careful
through
the
and
area
plan
with
initiatives
improvement
public
development
entire
the
Unlike urban renewal, the PADC has succeeded in
bulldozer.
linking
preceded
have
should
that
feasibility
market
planning
private
of
the
commitment of
early
This success can also be attributed
the
PADC's
role as a public development partner, which
ensured
public
follow
to
its
Throughout
maintained
overseeing
kind
fifteen-year
presence
along
till
project
existence,
the
Avenue
the
completion.
PADC
has
with continuing
improvement projects, and, as a redevelopment agency
public
and
a
through
private
development activities, it could advise
monitor the progress of non-PADC projects.
of
commitment
and
It was this
follow through that urban renewal
lacked.
27
strategy
acquisition
of the PADC.
how
to
an
of
critical to the
It introduces and details the capital
including its multiple sources of
PADC,
evolution,
PADC's
the
by
neglected
long
area
It looks
new
and
investment.
how
changed
its
preparation of the development prospectus.
and
note is the means by which the PADC acquired
particular
property, and how their strategy differed
of
disposed
that followed by private developers.
market
it
It also
issues such as developer negotiations, project
to
scheduling,
from
been
necessary to implement the Plan.
tools
approach
and
have
that
the PADC used these resources to attract developers
details
Of
--
how this structure provides the PADC with the
and
financial
at
the
of
structure
funding,
capital
the
--
lessons learned through early projects, and land
structure,
success
ventures
development
public/private
of
elements
those
identifies
chapter
This
timing
to
The contribution
the success of the PADC, is analyzed
relative to the timing of the plan implementation.
Unraveling the PADC's Unique Capital Structure
History
is
needed
marginal
development
has
to
for
shown
that some form of public assistance
redevelop
private
in
areas
development
that
are
activity.
considered
Public
agencies (PDAs) have provided public assistance
28
in
forms,
many
loans,
no-interest
provided
publicly
below-market terms on ground leases, or
improvements
to
the development parcel
area.
The
PADC activities are no
immediate
the
and/or
different
in
activity
and
this regard.
existing
Avenue
Pennsylvania
cash subsidies, low-interest or
including
area
The general lack of development
developer
apprehension
convinced
the
in
the
PADC that, to be
seriously, it would need to present developers with a
taken
objectives,
and
congress
as
a
financial
nearly
With
area.
that outlined planning goals and policy
plan
comprehensive
part
plan for the entire 21-block
$300,000
of
the
(1972
enacting
dollars) provided by
legislation, the PADC
staff developed the Pennsylvania Avenue Plan. 1
Multiple Funding Sources
The
original
financial
funding
program
sources
from
the
and
PADC
Pennsylvania
U.S.
that
Avenue
identified
available
to
the
Plan
several
PADC --
included
and
a
distinct
appropriations
Congress for public development activities,
salaries, and expenses; a line of credit with the
U.S.
Treasury for land acquisition and related costs; gifts
and
donations; and revenues received from the sale or lease
of
land
which
owned
each
by
the PADC.
This type of structure, with
type of resource targeted for specific kinds of
uses (See Figure 5), allowed the PADC to separate those
FIGURE 5
ORIGINAL PADC CAPITAL STRUCTURE
(as presented and approved by Congress in 1974)
Sources and Uses of Funds
Source
Amount
Uses
Public
Development Fund
$130 million
Public Improvements
Historic Preservation
Tenant Relocation
Affirmative Action
Miscellaneous Expenses
Salaries &
Expense Fund
Budgeted on
Annual Basis
PADC Salaries
Consultants Fees
Administrative Expenses
U.S. Treasury
Line of Credit
$200 million
Land Acquisition
Land Holding Costs:
- Legal Fees, Taxes,
Interest, Surveys,
Property
Management,
Site Preparation, and
Utilities.
Gifts and
Donations
Unspecified
Sponsor events
Residential Activities
Public Relations
Project
Revenues
Unspecified
Repay U.S. Treasury Debt
Secure Bonds
Acquire addt'l property
Source: Pennsylvania Avenue Plan 1974
30
costs
and
improvement
public
strictly
were
that could be financed from those that
expenses
projects
expenses and, as such, nonfinanceable.
Avenue
the
PADC
advantage
approved
was
Plan
of
overhead
The Pennsylvania
by Congress as submitted.
implement
to
began
and
When
the Plan in 1977 it had the
unique financial tools with which to do
some
so.
A. Federal appropriations --
expenses,
Covering operating
Expense Fund.
and
1. Salaries
two types:
including salaries of PADC employees,
administrative
and PADC's consultant
expenses,
fees.
These funds, budgeted and approved on an
annual
basis,
for
to
are
based upon anticipated need
They do not have
the upcoming fiscal year.
repaid
be
are not capped at a maximum
For fiscal year 1991, for example, the
amount.
PADC
and
requested
has
million
$2.465
for
28
employees and expected administrative expenses.
Development
2. Public
capitalization
$130-million
improvements,
historic
activities,
other
A
Fund.
one-time
for infrastructure
parks and open space development,
preservation,
tenant
affirmative
relocation
action
assistance, and
public sector costs was approved in whole
31
as
the 1974 Pennsylvania Avenue Plan.
of
part
costs
were
investments,
and
These
with
financed
land.
This appropriation was
submits
a
Public
Congress
as
part
also
expected
fund
cash
land.
projects
request
Development
its annual budget.
PADC
and
to
The PADC
these appropriations to
use
to
costs
recovering
from
PADC
the
residential)
to
commercial
(from
acquisition
the
the
Annually,
shortfalls on parcels where a change
use
precluded
until the entire
improvement
public
identifies
in
funds
these
complete.
is
project
be
from the sale or lease
access
to
PADC
not
a "no-year" basis, which gives the
on
approved
would
therefore
proceeds
owned
PADC
of
viewed by the PADC as public
through
the
all
its
disposition of
However, the success of PADC's early
and the revenues generated by them has
projects
for
need
the
eliminated
using
appropriated
funds for that purpose.
B. Revolving
line of credit:
to $200 million from the U.S.Treasury, to
borrow
up
assist
prospective
activities.
land;
to
The PADC has the power to
developers through land assembly
funds
These
fund
a
range
can
of
be used to purchase
costs
during
the
PADC
the
U.S.
Because it is a federally owned
the PADC is entitled to borrow money at
been
between 8% and 9%.
that
are
will
be
year)
rate
but has typically
basis,
annual
an
on
This
rate.
borrowing
Treasury
U.S.
fluctuates
be repaid with interest to
above,
Treasury.
corporation,
the
all funds borrowed by
for the acquisition of land, including all
identified
costs
that
required
also
congress
until
property
this line of credit
establishing
In
disposition.
costs
other
and
the
holding
with
associated
to finance demolition, site
charges,
interest
preparation,
the
and
expenses);
utility
and
services,
management
property
taxes,
fees,
costs, as well as insurance, legal
closing
surveys,
(appraisals,
stages
planning
and
predevelopment
Loans from the U.S.Treasury
outstanding after the project is completed
the
through
repaid
guaranteed
sale of long-term (40
secured
bonds
by
existing
PADC
ground-lease revenues.2
C. Gifts
All gifts given to the PADC or
and Donations:
donations
corporations
parks,
public
about
PADC
individuals,
by
made
are
used
to
relations,
and
its
community activities.3
sponsor
institutions,
events
informational
projects,
and
or
in PADC
literature
residential
Any
Treasury.
to
the
U.S.
excess
of
debt
obligations
debt
any
repayment
land is first used for the
PADC-owned
of
lease
or
Revenues generated from the sale
revenues:
D. Project
revenues
in
by
the
used
PADC
acquire
to
obligations
are
additional
land
components
of
PADC-sponsored
the
Willard, National Place, and Market
success
on
allowed
and
service
debt
bond
project
surplus
Upon
After U.S. Treasury
have
payments
revenues
will
be
been
made,
used
for
property management within the plan
and
maintenance
use
land
residential.
to
guaranteed bonds.
long-term
to
due
will be used to secure the sale
leases
ground
from
obligations
entire project in 1994, revenues
the
of
completion
surplus revenue and
needed,
commercial
from
changes
of
were
write-downs
where
Early
projects.
borrowing
Treasury
of
repayment
for
residential
to avoid using appropriated funds
PADC
the
subsidize
generated
has
projects
Square
to
or
area.4
The
of
PADC
fiscal
public
1989
year
authority.
and
the
1990,
development
salaries
Annual Report indicates that at the end
PADC
had used $134 million in
appropriations,
expenses,
and
$28.4
million
in
$100 million of its borrowing
In the same time period the PADC had generated
in
million
$160
parcels,
additional
subsidizing the
Figure 6 shows how the
utilized these funding sources over the course of
has
It is expected that by 1994 when the plan is
tenure.
its
in
assist
also
and
components of the plan.
residential
PADC
it has used to retire Treasury debt, acquire
which
estate,
through sales or leases of real
revenues
have
will
investment
PADC
complete,
leveraged
over
5
$1.7 billion worth of private development activity.
Using the Capital Structure to Create Opportunities
the 1974 Plan.
These
agency with guaranteed resources
the
provided
have
tools
implement
to
tools
of
set
unique
the PADC has been given a
structure
capital
its
With
and assurances that are not available to all PDAs.
Salaries
The
unique
among PDAs, in that its salaries and consultants are
funded
fully
the
that
funded
it
does
contrast,
completed
to
monies.
appropriated
Redevelopment
have
not
most
rely
to
for
appropriations
projects
competing
revenues
with
While it is true
PADC's annual budget requests are not always 100%
congressional
In
Expense Fund makes the PADC somewhat
and
on sources other than
paying for its overhead.
PDAs must rely heavily on revenues from
or
city budget funds which are subject
uses.
Authority,
Some
now
agencies,
rely
for salary and expense funding.
like
solely
the
on
Boston
project
Additionally, the
FIGURE 6
PADC FUNDING
Fiscal year 1977 - Fiscal Year 1990
($
Salary and
Expense Fund
Year
$
FY 73 Supp.
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
FY
74
74
75
76
76
77
77
78
78
79
79
80
80
81
82
82
83
84
85
86
87
88
89
90
in thousands)
Supp.
Supp.
Supp.
Supp.
Supp.
Supp.
Supp.
TOTAL
Source:
Pennsy
vania
Public
Development
Fund
$
350
U.S. Treasury
Borrowings
$
0
0
350
150
824
824
218
1,000
32
1,294
29
1,630
29
1,856
50
2,443
2,246
48
2,350
2,275
2,254
2,215
2,397
2,516
2,334
2,375
0
0
0
0
0
0
4,081
12,354
0
12,355
17,900
20,110
500
14,1
13,632
0
8,750
9,600
4,410
3,091
3,924
3,000
3,175
3,150
0
0
0
0
0
0
25,000
7,500
0
13,400
19,600
17,000
0
15,000
2,400
0
0
0
0
0
0
0
0
100
$28,373
$134,201
$100,000
Avenue
Development
36
CompuzL.Lon
numerous plan amendments and working papers
with
case
the
reevaluate its plan, as has been
continually
to
resources
expense fund provides the PADC with the
and
salary
annual
generated by the PADC staff.
mechanism
private
developers.
the
in
most
The large scale and contiguous nature
its
resources in a single
development
public
Money invested on a park brought immediate benefits
area.
to
PADC was able to attract
redevelopment zones and allowed the PADC to
other
concentrate
historic preservation was
area provided the agency an advantage missing
plan
of
the
which
by
another
and
space
open
in
investments
of funding committed to public
amount
significant
The
all
of
parcel
the
each
part
of their initial funding request.
project,
redevelopment
dedicated
funds
enough
was
The
costs associated
If there was ever a
developers of the PADC's commitment to completing
by
this
Avenue.
within the development area as
land
with
doubt
the
along
estimated
Plan
Avenue
Pennsylvania
invested
who
developers
$130
million of appropriated
for use in improving the development area,
of a commitment to attract nationwide developer
interest.
The
assisting
with
needs.
the
line
of
credit
developers
flexibility
For
example,
in
to
provides the PADC with a means of
a
number of ways, in particular,
modify
being
able
deals to suit developers
to
repay the Treasury
project proceeds and revenues or later
immediately
out
of
by
the
issuance of 40-year bonds allowed the PADC
through
the choice of either purchasing sites
developers
to
offer
or
establishing a long-term ground lease.
A
projects.
was
developers
able
by
many
private
inability to sustain the heavy costs
their
land assemblage and site preparation.
assemblage
land
credit
of
line
this
use
to
in
developers
faced
obstacle
primary
during
was
PADC
short-term
another feature that gave credibility to PADC
was
incurred
project
The security inherent with funding by the U.S.
mortgages.
Treasury
unsubordinated
of
form
the
in
financing
supplemental
developers
offer
also
could
PADC
In addition, the
on
private
to
The
assist
development
ventures, as well as on its own projects.
its
achieve
and
salary
the
public
the
PADC
repay
expense
its
Building,
or
debt
subsidize future projects and the
policy objectives.
The
competition,
which
revenues
repayment
fund for its capital expenditures,
anticipated project revenues solely to
nonfinancial
development
to cover its operating costs and
fund
development
used
Since it could rely on the
objectives.
plan
Treasury
agency's
annual
are another tool the PADC has used to
revenues
Project
set
in
excess
obligations.
as
up
was
Willard
of
The PADC's first
Hotel
and
Office
a ground lease, provides
the
PADC's
U.S. Treasury
Likewise, the Market Square site,
38
the developer at a $5 million profit, will provide
to
sold
revenues
allowing
projects
where
had
it
cover shortfalls in those
to
PADC
the
inclusion
the
mandated
of
less
profitable residential uses. 6
the
public
like
project
debts upon the completion of
leveraged
be
can
or
projects,
development
they
expenses,
income
Because these project revenues are not needed to
plan.
fund
of
the PADC to issue the long-term bonds
outstanding
repay
to
needed
allow
will
revenues
source
dedicated
a
Having
PADC
salaries and
to obtain the necessary
bond funds.
Learning from Early Projects
By
virtue of its 15-year track record and the 110-acre plan
projects,
had
much
time over which to learn valuable
It
has
used
the
development
to
inadequacies
of
these
development
it
way
development
changed
its
changing
a
initial
market
and
to
address
Since the
competitions.
competition in 1978 the PADC has changed
negotiates
competition
land
experiences of the first two
to adapt their approach to public
competitions
development
the
involved in more than two dozen
and
lessons.
first
been
has
PADC
the
area,
with
format
acquisition
39
developers,
and
modified
prospectus,
strategy.
the
and even
By reviewing the
has
the PADC we can see how the public sector
by
made
changes
how
and
developer,
a
as
evolved
it has adapted to
changes in the market.
The First Competition
hotel
deteriorated
1978
restoration
Willard.
In
its
first
the
PADC
partially
restoring
the
and
redevelopment
of the
development competition the PADC
assistance,
restoration
successful bidder.
not
identified
had
not
yet
committed
nearly
reached,
financing
the project schedule with
Because the terms of the lease were
the
funds to the project, negotiations
two
years.
developer
When an agreement was
was
unable
to
attain
and a second developer had to be brought on board
complete
ten
and
in the prospectus and because the developer
for
on
finally
1986,
before
negotiated the terms of a ground lease, the level
the
to
years
the developer on the basis of the design proposal,
then
dragged
been
PADC invited developers to submit development
the
the
of
had
and preparing a development prospectus,
for
and
Hotel
After
proposals
selected
Willard
fifteen
1976.
in
it
acquired
the
1800s,
nearly
for
mothballed
in
the
in
Built
the
years
project.
after
As a result, it was not until
the PADC had acquired it, that the
Willard reopened. 7
40
Modifications to the Prospectus
PADC learned many of its most valuable lessons from
The
basis
the
on
financial
their
of
did not
it
competition
Willard
the
In
project.
this
prequalify
developers
capability
to build the project; it did not require deposit
to guarantee schedules; nor did it stipulate minimum
monies
leave
This one-stage approach to
them as negotiable items.
in
financing, and the search
project
negotiations,
developer
delays
significant
to
led
process
selection
the
Instead it chose to
for the ground lease.
terms
financial
for a new developer. 8
Several
development competition 1982.
Square
Market
development
competition
which
totaling
several
returned
as
the
deal
including
completion,
and
The one-stage
by
two-stage
a
prequalified developers based upon their
was
thousand
developer
experience.
project
and
developer
successful
replaced
was
competition
capabilities
financial
also
were made as the PADC prepared for the
changes
required
dollars,
to
submit
The
deposits
all of which would be
met key progress milestones -site
negotiation,
preparation,
shell
For the first time, the PADC
occupancy.
included the minimum acceptable land-disposition terms
which
studies
were
based
performed
development
market
upon
by
analysis
and
feasibility
the PADC or its consultants.
competition
for
the
Landsburgh
In the
in 1986, the
PADC
the
went
even
So
determining the
In all
since 1982, the PADC has required
competitions
invited
developers
competition
project
when
value of their proposed ground lease terms.
development
the
applied
be
to
rates
discount
present
one step further by telling the developers
to
in the second stage of
pro forma analysis of the
a
complete
to
as part of their development proposal.
flows
cash
participate
that the PADC could evaluate all proposals more readily,
were
developers
forms
standard
even
prospectus
require
to
complete
provided
by
the
their pro formas on
PADC.
The
Landsburgh
included a computer template to be used by
developers.9
Land Acquisition: PADC Response to a Changing Market
The
way
110-acre
on
the
enabling
and
in
the
which
the
of
land
acquired
in
this
effort has had a significant impact
redevelopment
success
PADC
overall
project.
As part of its
legislation, PADC was granted the power to acquire
dispose
land
of
in
its
own name, in particular the
authority
to use eminent domain as a means of land assembly
land.
With these powers the PADC was able to assemble
of
parcels
too
of land that might otherwise have been too small or
expensive
assemblages
acquire
for
land,
to
induce
new
private
developers seeking land
commercial development.
The power to
either through direct acquisition or eminent
42
of
private
sector
would save the
high cost of private land assembly and
the
the
for
prices
high
for
of possible hold-outs, land owners who, in asking
risk
the
process
This
scope.
larger
project
site
or combine it with additional parcels for a
use
individual
a
prepare
and
structures,
existing
demolish
by which the PADC could acquire land,
tool
a
was
domain,
parcel
remaining
for a site, might
actually preclude the project from going ahead.
approach that the PADC uses in land acquisition has
The
the
changed
over
initial
strategy
through
a
The
opportunity.
costs
The
concept
identified
was
to
a
acquire
development
land
early,
a lower cost, and absorb the project holding
at
until a the final project concept was specified and a
It was thought that the appreciation
selected.
developer
of
staff
its
until
presumably
history.
used was to acquire the land
agency
the
15-year
its
of
negotiated purchase or eminent domain taking and
it
hold
course
the land between the time of acquisition and disposition
exceed
the costs incurred during the holding period.
Through
this
method of land acquisition, the PADC hoped to
capture
the value created by their public investment in the
would
plan
area
such
as
and
channel
residential
it into public initiative efforts,
development,
affirmative
action, or
historic preservation.
The
PADC, however, underestimated the initial inflation
43
land
of
that
prices
redevelop
to
intentions
their
value
unexpected
land
protracted
negotiations
start
project
costs
in
of
case
its
with
that
the
and
delays
in
PADC incurred holding
land value appreciation.
In the
the Willard Hotel, for example, eight years passed
lease
ground
still
conjunction
in
PADC acquisition of the site and the negotiation of
between
a
This
developers
with
the
of
excess
Pennsylvania Avenue.
inflation,
meant
up,
the announcement of
with
coincided
a
a
with
developer.
it forced the PADC to rethink
success,
financial
While the Willard was
In a 1983 internal memo, Al
land acquisition strategy.
Milin, PADC's Director of Finance, commented:
If we [the PADC] continue to acquire land and
hold it until a development opportunity is
our holding period costs may
identified,
exceed our gains from appreciation. If this
scenario is borne out it raises the question
of where we will find the necessary funds to
repay monies borrowed from the U.S. Treasury
to acquire the land and the cosH incurred
while we decide what to do with it.
The
alternative
land
acquisition
was
identified.
about
uncertainty
carrying
costs
acquisition
redevelopment
to
until
initial strategy was to defer
the
a specific development opportunity
With
land
whether
it
incurred,
prices
could
the
PADC
increasing
recoup
changed
the
its
and
heavy
land
strategy to a method more widely used by public
agencies.
The
PADC
would wait to acquire
a
the
PADC
security,
able
to
acquire
In
the
value."
assumption
reasonable
faced
who
developer
the
"current
fair market
the
premise
developers
that
were
market value for the land, plus the
incurred
the
because
This was a
by the PADC.
PADC's
cost
of
land
be considerably less than that of a private
would
assembly
at
competitive Washington, D.C. market, the
assembly
land
of
land
fair
pay
to
prepared
existing
property management and other similar
under
operated
PADC
of
upkeep
Using its eminent domain powers, the PADC
costs.
carrying
and
maintenance
payments,
buildings,
In this way
minimize the holding costs associated with
could
interest
cost
opportunity had been identified
preliminary development plan completed.
and
was
development
a
until
land
the prospect of hold-outs and unknown
delays.
when
ahead
this
strategy
new
The
the market dictated its viability.
on
approach
sponsored
PADC
In
successful.
site
the
development
for
covered
the
next
Market
projects,
Having used
Square, the Lansburgh, and other
the
PADC
has
been
a
PADC's
three
very
Market Square, for example, the PADC sold
to the successful bidder for $26.1 million.
the
called
also insured that a project would go
prospectus
When
was prepared in 1982, the PADC
minimum purchase price of $25 million, which
projected
years
it
total costs.
Over the course of
assembled and acquired the land
45
the proposed project.
for
necessary
Reduced holding costs
and
a higher than minimum bid allowed the PADC to extract a
$5
million
conservative
on
approach
to
more
land acquisition has worked well
costs
holding
identified,
This
project.11
the
By waiting until a project opportunity is
PADC.
the
for
profit
because of the
minimized
were
shortened time period between acquisition and disposition.
Project Timing and the PADC Plan
the
careful
PADC
has
contributed
the
perhaps
of
its
control --
boom.
Avenue
redevelopme nt
discussions
prepared
first
sixties.
district
(CBD)
streets,
stagnation
and
decay
throughout
availability
of
had
period
been
the
the
new
north
and
west
This
space
along
the
commercial
to
Avenue
Pennsylvania
activity.
development
continued
this
located
leaving
overall success,
subject
of
since the Kennedy administration
migrated
had
its
redevelopment master plan in the early
During
activities
to
the timing of the Washington real estate
Pennsylvania
t he
much
largest contribution was something out
single
the
and resources provided by
planning
While
lack
the
of
development
central
of
void
business
'F' and 16th
of
any
new
development led to
Avenue,
a
pattern that
sixties into the seventies.
The
in the new CBD, in conjunction with
the
overall demand for space did little to change
of
lack
this pattern.
the pattern of real estate development in Washington,
1976,
by
square
the
improving
this
plans
Avenue
through
to
oversee
feet
At
find.
finishing
was
Pennsylvania
lines
to
harder
government
suitable
parcels
vacant
became
implementation
of the plan
fortuitously with an increasing demand for space,
coincided
while
The
change.
to
began
D.C.
of the Pennsylvania Avenue Plan in
implementation
the
and
between the PADC's creation in 1972
period
the
During
two
for development in the CBD
the
same time, the federal
office
buildings
in
the
area, and construction of METRO subway
plan area was already underway.
Buoyed
real estate market, the PADC introduced
the
development
of
nearly six million
of new development over the course of the next
fifteen years. 1 2
As Al Milin pointed out:
All things considered, the timing of our plan
had about as much to do with our success as
any single planning feature. If we had tried
to implement the Pennsylvania Avenue Plan in
of the late
instead
sixties
late
the
seventies, it would never have worked. In
the sixties no one would have considered any
kind of commercial development east of 16th
As land in the old CBD became more
street.
scarce and land prices rose, developers were
starting to look outside of the traditional
This coincided with the
development areas.
release of the Pennsylvania Avenue Plan. The
PADC's
announcement of its intentions to
in
Pennsylvania
Avenue
rehabilitate
combination with the resources committed to
The
it gave the plan instant viability.
PADC's announcement in 1978 that the Willard
Hotel was going to be part of a development
competition
finally
raised
developers
eyebrows regarding the possi lity of new
development [in the plan area].
With
the
the completion of the first design competition for
rehabilitation
1978,
the
and
PADC
expansion
sent
a
message
Pennsylvania
Avenue
as
for new development.
well
as
was
of the Willard Hotel in
to
developers
that
a valuable area for redevelopment
Through a combination of
increased
demand
property,
the announcement of PADC's plan in 1974 attracted
considerable
prospectus,
from
attention.
development
competition,
Square
$50,000
the short supply of commercial grade
For
example,
the
Willard
issued in 1978, generated development proposals
nine
four
and
deposits
which
later
required
in
1982, the Market
developers
to submit
as evidence of their commitment, produced
development
development
teams;
proposals.
competitions
In general, all of the PADC
have
generated
a similarly high
level of interest.
The
a
case
PADC
was
necessary
during
timing
of the plan implementation was not entirely
of being in the right place at the right time.
able
to
market
the
time
use
their
analyses
period
resources
to
The
conduct many
and project feasibility studies
leading
48
up
to
the
plan
Had the studies indicated a lack of demand
implementation.
or
an
oversupply
of
space elsewhere within the city, the
PADC would have delayed implementation of that project.
climate
been
and
numerous:
income
this
over
and
foster
course
the
fuel
of
a
healthy
its
15-year
increased
taxes;
new
estate
real
taxes, sales
and increased retail
jobs;
Success also has positioned the PADC to set and
activity.
achieve
to
The economic benefits of a development this size
history.
taxes
PADC
the
allowed
development
have
stability surrounding the
financial
plan, and its subsequent success with early project,
PADC's
has
and
planning
The
policy
thesis,
objectives,
that
provide
described
public
in the next part of
benefits
derived from new jobs and a higher tax base.
beyond those
PART THREE
USING PRIVATE INVESTMENT TO OBTAIN PUBLIC BENEFITS
The
PADC
attain
has used its success as a public developer to
several
prepared
the
targeted
Pennsylvania
specific
provided
through
called
for
within
an
infusing
the
that
1200-1500
plan
that
PADC
was
a
zoned
As
might
not
efforts.
residential
the
be
Its plan
neighborhood
for commercial uses.
units,
it
in 1974, the PADC
that
development
of
objectives.
Plan
benefits
housing
the area.
handicapped,
of
private
policy
Avenue
public
creation
area
revitalize
action
non-financial
PADC
hoped
By
to
The Plan also outlined an affirmative
sought to include minorities, women, the
and veterans of the Vietnam era in all aspects
projects.
preservation
and
In
addition, the plan called for the
restoration
of
many Pennsylvania Avenue
historic landmarks.
This
Hotel,
the
chapter
Market
methods
these
PADC
provided
by
the Willard
used to set, implement, and enforce
objectives.
fifteen
years
changing
real
agency's
ability
seventies.
examples
Square, and Lansburgh competitions to detail
the
policy
uses
of
PADC's
estate
By using projects that span the
activity,
I
will
show how the
market has positively influenced the
to reach goals that were set in the early
In particular,
these
50
cases illustrate
the
escalating land values on the PADC's residential
of
effect
and how the agency used its portfolio of
plan,
development
projects to meet its residential development goal.
The Three Cases
The Willard Hotel and Office Building
was
Hotel
Willard
from
transformed
completely
restored
of
space
retail
a
originally
early 1800s the
the
hostelry.
When
the
effort was completed in 1986, the Willard had
redevelopment
been
in
Built
competition.
development
Willard as its first
the
selected
PADC
the
1978
In
an
decaying
old
hotel
into
a
365-room hotel with 24,300 square feet
and
218,600
square feet of prime office
space.
By
it
the
prepared
committed
original
in
structural
that
wanted
development
general
program,
the
PADC
itself to a plan for restoring the Willard to its
and
condition
large
nearly
federal historic landmark guidelines when
following
part
the
use as a hotel.
result
of
an
This decision was
investigation into the
integrity of a building that had been vacant for
fifteen
years.
The consultant's reports indicated
the PADC needed to begin restoration immediately if it
to
proximity
save
to
the
the
hotel.
The PADC felt the Willard's
existing central business district (CBD)
and
two-block
private
walk
interest
development
restore
to
to
activity
the
the White House would help attract
an
for
hotel,
area
many
that
had
years.
been
The
void
of
decision to
versus demolishing it for a new office
building,
forced
developer
to offset the higher development costs associated
with
building
while
the
PADC
around
complying
to
make cash subsidies to the
and repairing the existing structure
with
federal
historic
restoration
guidelines. 1
Market Square
After
the
negotiation
PADC
Willard
period
revised
its
prequalification
based
on
Market
104,100
The
of
that
first
protracted
format
screened
to
include
development
a
teams
project
to use this format was
When finished in 1990, Market Square will
585,500
square
the
prior development experience and financial
Square.
consist
and
search for a second developer, the
selection
stage
their
capabilities.
and
competition
feet
square
of
feet
of
office
space,
retail space, 800 parking spaces,
and 210 units of housing.
The
original
prospectus
called
constructed
as
program
part
requirements
development
for
225
program
outlined
residential
units
of a larger mixed-use project.
in
the
to
be
Other
called for the maximization of office
52
and
retail
of
the
uses
that compliment the residential character
area.
developer
In
reduced
the
the
course
total
of
negotiations with the
housing units in the project
were
reduced
this
negotiation to illustrate the PADC's ability to adjust
the
from
development
objectives.
has
objectives.
action
Later in Part 3 I will use
program, while maintaining their long-term
This project will be used to show how the PADC
maintained
maintained
225 to 210.
a proactive role to meet affirmative action
While developers of previous PADC projects had
the needed overall 75% compliance on affirmative
guidelines,
the
developers were unable to meet the
10%
equity participation guideline set by the PADC.
the
Market
Square
competition
the
PADC
took
During
steps
to
correct these deficiencies. 2
The Lansburgh
Built
in
1882,
"Lansburgh's"
D.C.-based
department
'E'
location
Street
forced
its
project
is
369
a
closing
because
that
was
The
they
100%
that
a
had
slump
1973.
When
a
Washington,
operated
at
its
in the retail market
this PADC sponsored
in 1991, the building will reopen as
units, 44,500 square feet of retail space,
30,600-square-foot
spaces.
until
in
completed
residential
store
was
community arts space, and 365 parking
successful
were
developer,
selected
primarily
the only developer to submit a proposal
residential,
was
53
the
first
developer to
to
desire
overall
PADC's
the
of
indicator
the
during
PADC
the
unanimous selection was a strong
The
process.
selection
from
support
unanimous
receive
create
a
significant residential presence along the Avenue.
by
was
site
number of housing units
financial incentives would be
The Lansburgh
revenues on other properties.
also
consequently
proposed
proceeds from the Market Square project and
the
lease
surplus
their
if
developers,
the
PADC provided
the
prospectus,
These
PADC.
by
specified
requirement and no office
exceeded
program
development
housing
to
incentives
financial
To
developer proposed far in
its
of
part
As
funded
minimum
the
of
space.
uses
the
PADC,
the
of
delight
excess
of
arts space, and an optional office component.
community
the
mix
minimum of 225 residential units, retail,
a
of
consisting
a
for
called
prospectus
original
The
designated
required
a
as
landmark
historic
and
additional financial assistance from
the PADC for the added costs incurred by the developer. 3
Residential Development in a Commercial Zone
The
pursue
new
(See
most
and
visible
attain
residential
Figure
7.)
evidence
of
the
PADC's ability to
policy objectives was the creation of a
neighborhood
The
within
Pennsylvania
the
eastern sector.
Avenue
Plan of 1974
FIGURE 7
ILT
&W..
178
~Lk1IiJ
aw
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PADC LAND USE PLAN
I
called
7th
for the housing component to be concentrated between
and
9th
Avenue.
this
The
its
would
decided
result
recognized that the creation of
neighborhood
in an area with no existing
require that the residential development and
supporting
community.
and between E Street and Pennsylvania
Corporation
residential
housing
a
Street
uses
function
as
a
self-sufficient
Together with its housing consultant, the PADC
that
was
the
critical
mass necessary to achieve this
between 1200 to 1500 units.
combination
of
rental
and
The PADC felt that
for-sale housing would best
suit the needs of the area. 4
Downzoning for Residential Development
The
the
area targeted by the PADC for this community was at
time
zoned
development
density
than
in
Washington,
as
also
called
created
zoned
with
in
uses.
most
Residential
cities with high
development, has traditionally been less profitable
floor-area-ratio
to
commercial
commercial development.
Plan
it
for
for
a
for
for
an
Since the Pennsylvania Avenue
increase
commercial
in
the
allowable
development in this area,
situation where the PADC would purchase land
commercial
development
at a price commensurate
the highest-and-best commercial use, then down zone it
residential, and have to sell or lease the property at a
price
to
make
residential development feasible.
The PADC
could
to
have sought a rezoning from commercial to residential
drive
down
land
estimated
that
the
disputes
of
as
$20
expenses
and
the time lost in
PADC absorbing the land cost differential.
creation
PADC
legal
with current land owners would out weigh the costs
the
the
values, but its staff and consultants
Because
of a residential neighborhood was seen by the
an
essential component of this plan, it set aside
million
of
development
the
$130
million appropriated for public
activities to cover the cost difference between
the acquisition and disposition prices. 5
Again,
the
attention
role
the
timing
generated by PADC's early successes,
in
the
price
developer
include
developer
could
but
every
The
developer
housing
from
$25
a
$25 million, provided that the
to
of
reduce
unit less than 225.
was
units.
housing units.
the
The
number of housing
not
There was a limit, however.
allowed
to
propose less than 100
Consequently, the disposition price varied
million
(for
(for
a
Through
this
pricing,
would
225
at an additional cost of $80,000 per unit
million
developer
at
minimum
choose
only
for
In
for Market Square, the PADC set the minimum
disposition
units,
played a key
implementation of the housing initiative.
prospectus
land
of the plan, and the excitement and
be
a
proposal with 225 units) to $35
proposal
which
the
trading
PADC
cash
included
only
recognized
for
100).6
that
the
the opportunity to
develop
doing
more
so,
profitable
commercial
space,
and
that, in
could use such funds to subsidize housing on
it
other sites.
To
establish
allowance
for
residential
applied
the
established
the
residential
uses.
consideration
Since
the
extremely
to
had
risky,
the
especially
risk,
the
PADC
usual
lease-up
sales
values
shorter
added
wanted
for
area.
more
since
as well.
included
and
considered
also
the
commercial
and
one additional
residential units.
to
develop
into
a
no existing housing, new housing would be
development
were
for
of
they
Then it
area.
values
PADC
that
plan
and
guidelines to its site and
pricing
commercial
nonresidential
the
pricing
The
commercial
comparable
different
area
neighborhood
of
surrounding
estimated
trade-off
Square site, the PADC conducted
analyses
sites
and
price
disposition
Market
the
market
several
the
sales
the
in
the
area
was void of
To explicitly define this
its
pro forma a longer than
schedule,
units
and lower rental and
in
this
previously
The sites along Pennsylvania Avenue
valuable
and were estimated to have
lease-up periods than those parcels located off the
Avenue.7
When
eighties
the
the
D.C. real estate market took off in the early
so did land values in the plan area.
As a result,
PADC acquired the land for Market Square at a time when
58
to
borrowings,
including
residential
down-zoning,
and
costs
holding
the
eliminated
disposition
repay
its
was
Treasury
write-down costs associated with the
still pull out approximately
and
It
profit.
in
to
PADC
the
allow
sufficient
million
and
acquisition
between
period
holding
$5
The appreciation during the
values were still rising.
land
through minimization of
was
increased
appreciation
that
the PADC
need to rely on appropriated monies to fund
the residential objective.8
The
the
allowed
a
--
major housing component.
Using the same analytical
at
a
success
of
the
Landsburgh
money
housing
land
Square
Market
for
price
activity
the
competition
property.
and
The
the ever
along Pennsylvania Avenue
the PADC to restructure the development program for
allowed
for
disposition
development
increasing
and
units,
--
units
the
as employed in the Market Square project, the PADC
arrived
more
Square project
another project slated to
strategy
the
Market
the
push ahead with the next development
to
PADC
of
Landsburgh,
competition
have
upside
$5-million
project.
allowing
the
PADC
Instead
them
specified
225 for the Lansburgh --
developers
to
of charging developers
reduce the quantity of
the minimum number of
and provided an incentive
who chose to build more housing units.
The
disposition price was set at $10 million, and with the
success
of
the Market Square competition, higher estimated
was able to reduce the credit to $52,500
PADC
the
Avenue,
locational attributes along the
better
and
rates,
rental
for
each
unit provided over 225 units.
was
$8.4
million.
a
225
385 units.
to
other
from
revenues
development
PADC
was
once again able to repay its U.S.
borrowings
and
associated land acquisition costs
the
activity,
Treasury
scheme that had anywhere from
With the profits from the Market Square
surplus
and
project
This set of terms allowed developers to
residential
100%
propose
The maximum rebate
without using appropriated monies.9
Housing for the Rich?
Square
Market
of
half
for
ready
area.
When most of the residential units are
to
part
of
of
the
establishing
a
residential
However,
D.C..
mass
neighborhood in this
one area that the PADC has
the
initial
its
critical
objective
is
affordable
When the Plan was first written the PADC targeted
housing.
of
in
sustain
short
fallen
mid-1990, the PADC will have been
in
occupancy
necessary
with
housing units that will be built in the
successful
quite
250
1000
the
plan
entire
Landsburgh represent more than
the
and
the
the
compensate
elimination
anticipated 1200 units for low-income housing,
expectation
developers
of
on
Sections
that
federal
low-income
235
60
and
236
would
subsidies
units. 1 0
subsidies
With the
of
the
one
already
neighborhoods
to
obligated
not
provide
the
higher
repay
PADC
was
suites"
The
Avenue
which
for
consequence
of
In addition, increased land
This reduction in
attributable to the higher land prices,
to
contributed
of
subsidies required to offset
the overall number of housing units from the
number,
total
Pennsylvania
be
the
U.S. Treasury borrowings used for
development costs.
component.
area
all
Because
city.
the
1200-1500 units, down to 1000.
projected
many
available for low-income residents of
substantial
the
reduced
costs
also
Thus, Section 8
residential.
zoned
acquisition, PADC staff reasoned that the agency could
land
the
within
areas
currently
were targeted by government officials for
D.C.
Washington,
other
were
that
subsidies
housing
provide assistance for many units in other
could
unit
The reasons
high that the subsidies required to fund
so
were
existed,
no
where
area,
Avenue
Pennsylvania
were
Commercial land costs in the
justifiable.
and
many
were
from the PADC's program.
dropped
subsequently
units
affordable
these
Act,
Housing
National
are
the
end
consists
being
employees
detracts
result
from
used
in
the
that
was
100%
of
the
of
elimination
affordable
housing
along
market rate units,
by corporations as "hotel
town
for
business.
This
PADC's goal of creating an
intense activity, because much of the housing will
underutilized.
Critics claim that these transient uses
and
atmosphere
generally
activity
the
true
a
of
development
the
preclude
will
neighborhood
with
associated
one. 1 1
Affirmative Action
as
a
in
urban
center
PADC
decided
of
aspects
in
exceeded
redevelopment
these
As a result, the
participation
minority
insure
Pennsylvania
of
business
minority
in
all
Avenue by
and
worker
each development prospectus, as well as by
incentives
financial
providing
States. 1 2
United
significant
requirements
population, of any major
city
total
the
to
the
including
how
of
percentage
the highest minority population,
has
D.C.
Washington,
developers
to
guidelines.
minimum
who met or
This section looks at
the PADC set the guidelines and the way in which it has
adapted
its approach in response to unexpected shortcomings
in its initial guidelines.
Establishing the Guidelines
PADC
The
regulation
number
requirements,
acceptable
action
36
however,
percentages
hiring.
federal
the
used
guidelines
outlined
in
basis for its own
CFR
906.2
as
a
it
chose
to
increase the minimum
for
all
categories of affirmative
The high percentage of minorities and the
Washington,
of
status
prominent
nation's
the
as
D.C.
figured prominently in the PADC's decision to raise
capitol
performance criteria that developers had to meet on its
the
The categories and participation guidelines were
projects.
designed
era veterans in all aspects of the real estate
Vietnam
and
development
minorities, women, handicapped persons,
cover
to
and targeted specific services in the following
ways:
Participation
1) Equity
participation
10%
--
by
minorities, women, and/or minority owned businesses,
2) Contracts
Professional Services --
for
20% of total
contracts value to minority-owned businesses,
should
Services --
Professional
Providing
3) Individuals
20%
be provided by minorities, women, handicapped
persons, or Vietnam-era veterans,
Contracting
4) Construction
15%
--
of
total
construction value to minority owned businesses,
Employment --
5) Construction
worked
shall
minorities, women, handicapped
by
be
35% of construction hours
persons, or Vietnam era veterans,
6) Purchasing
--
20%
of
total
purchases
are
to be
provided by minority-owned businesses,
7) Hotel
Employment --
employees
(1978
earning
dollars),
20% of all employees, 15% of all
more
than
$2,000
per
month
and 60% of all hotel trainees shall
63
minorities,
be
women,
handicapped
persons,
or
Vietnam-era veterans; and
--
8) Leasing
15%
of all retail space shall be leased
to minority-owned businesses.
submission,
proposal
to include an affirmative action
required
were
developers
development
the
of
part
As
plan
which
documented
how the development team planned to
meet
these
guidelines.
This plan included the designation
of
and
plans,
reporting
officer,
action
affirmative
an
additional
any
progress tracking and
affirmative
action
plans beyond those called for by the PADC. 1 3
Developer Incentives
The
to
meet
affirmative-action
developers
development
and
staff recognized that by requiring developers
PADC
to
provide
represent
a
these
successful
developer
affirmative
action
prospectus.
In
land
affirmative-action
significant
of
the
asking
something not required in a private
the
recognition
developer
was
They also recognized that preparing
venture.
implementing
it
requirements,
cost
to
the
plan
would
developer.
In
costs, the PADC planned to offer the
financial
incentives
to
meet
the
guidelines specified in its development
most
PADC
development
competitions the
was allowed to choose whether they would purchase
or
lease it from the PADC, so the PADC developed
upon
compensated,
a
established
This
level.
had
developer
least
completion
of
the
project.
threshold
as
the
minimum
75%
meet
The PADC
compliance
the incentive, the
or exceed the minimum quota for at
75% of the eight minority-hiring guidelines specified
the
addition,
compliance
the
plan
below
for
approval.
In
for each of the
level
after
If,
guidelines.
affirmative-action
affirmative-action
PADC
an
required to submit quarterly
was
developer
indicating
reports
the
to
plan
affirmative-action
submit
to
required
was
developer
The
above.
eight
receive
to
that
meant
to
developer could be
a
that
so
formats
incentive
several
an
has been approved by the PADC, the
level
75%
the
he
forfeits
any
developer
falls
incentive,
until such time as he is able achieve compliance
The PADC offered developers a choice of one of the
levels.
following incentives:
1) Reduced-Rate
however,
If,
financing.
receive
12.5%,
at
mortgages,
then
unsubordinated
developers
offer
In general, the PADC would
Mortgages.
this
form
complied
would
as
short-term
supplementary
project
the developer elected to
of supplemental financing and he
with affirmative-action requirements,
reduce the mortgage rate to 10% for
the
PADC
the
duration of the loan, usually until construction
was
completed.
If the developer failed to maintain
65
be forced to return the
would
they
quotas
minimum
with additional interest (2.5%) from the date
funds,
that the rate was reduced.
a cash
offer
would
PADC
the
site,
the
purchase
Should the developer elect to
Credit.
2) Land-Purchase
to the developer if he reached and maintained
credit
75% compliance level with respect to the overall
the
affirmative-action
In
example,the
PADC
for
project,
Square
requirements.
deposit
$500,000
account,
payable
to
interest-bearing
plan,
affirmative-action
an
of
implementation
offered
developer upon successful
the
to
an
in
dollars
Market
the
payable upon project completion.
3. Rent
the
site,
the
Should the developer elect to lease
Deferral.
the
construction period.
deferral
during
deferral,
set
up
to
stages
of
projects
was
to
be
early
critical,
interest
rate
rent
a
developers
offered
PADC
The rent
developers during the
assist
when
repaid
cash
were
flows
by the developer with
upon construction completion.
The interest
would be established at the same level that the
PADC paid on borrowings from the U.S. Treasury. 1 4
The
PADC
staff
established
these
incentives
after
completing
an in-house analysis to estimate developer costs
associated
with
the
creation
and
implementation
of
an
have
estimated
to
recognized
that
While all three incentives were
plan.
affirmative-action
the
PADC
the
value,
present
same
the
developers submitting proposals would
different capital structures and would not necessarily
have
approach
the
project
in the same fashion.
the
75%
overall
compliance
met
maintain
fell below the 75%
who
Those
completion.
during the project, but were able to make adjustments
level
still
the
for
downward
plans
developed
also
were
programs
affirmative-action
developer
the
that
period
Federally
compliance.
incentive, which was adjusted
the
receive
to
able
at the 75% compliance level, were
project
the
finish
and
were able to
throughout the project, received the incentive
it
project
upon
and
level
Developers who
was not in
other
for
used as a template
for PADC guidelines and cost estimates. 1 5
The Impact of Affirmative Action
implementation
plan
the
of
timing
The
real
D.C.
estate
and
the
market figured
competitive
Washington,
prominently
in the success of the PADC's affirmative action
plan.
staff
or
With
first development competitions, the PADC
the
was unsure whether developers would be able to comply
how much pressure the agency could apply, outside of the
incentives,
prospectus
to
for
achieve
the
PADC's
its
first
policy
objective.
The
two competitions stated
generating
trouble
no
had
the
these incentives the PADC
that
proposals
competition,
1978
another
and
Willard
an
proposal
included
After the successful completion
plans.
affirmative-action
of
With
plan.
affirmative-action
those developers who
development
their
with
included
to
given
be
would
preference
that
National
both of which included affirmative-action plans, the
Place,
area was attracting much attention, from both
redevelopment
incentives,
development
the
although
five
PADC's
similar
offered
prospectus made it
only developers who included affirmative-action
that
clear
the
and
competitions
development
subsequent
financial
Lansburgh,
the
Square,
Market
result,
a
As
investors.
private
and
public
plans in their proposal would be considered.
knowledge
the
and
market
plan
affirmative-action
categories
all
seek
to
continued
that
all
it
require
could
developers,
women
surveyed
an
PADC
the
greater minority participation in those
able
were
none
requirement,
PADC
from
the Washington real estate
that were falling short of their targets.
developers
minorities,
of
success
the
by
Buoyed
had
to
meet
the
While
overall
75%
met the 10% equity participation by
and/or
developers
minority-owned
businesses.
The
and local minority leaders in an
The
attempt
to find out why this target was not being met.
results
of the survey indicated that developers were unable
68
to
suggested
leaders
connections
establish
minimum
the
reducing
know
not
did
minority
with eligible investors.
how to
Instead of
so that developers were
requirement
to meet the goal, the PADC staff, assisted by minority
able
interested
minority
available
to
and
as
part
of
the
development
With additional input, developers of the most
development
PADC
able
eligible
of
list
businesses and individuals and made it
developers
prospectus.
recent
a
established
organizations,
were
developers
that
partners;
equity
minority
interested
find
to
the
meet
competition,
Pennsylvania Plaza,
10% minority equity participation
requirement.16
Historic Preservation
"At the heart of the Corporation's work to
revise the Avenue and its environs is a deep
concern for the tradition of urban design and
that have shaped the City of
architecture
Washington. "17
1983 PADC Annual Report
Since
the
inception
in 1790, Washington D.C. has been
most prominent symbol of American history.
designed
the
its
city
Capitol,
design,
by
was
and
L'Enfant
Charles
the
the
When it was
in 1791, the focal point of
triangle formed by the White House, the
Washington
Pennsylvania
Avenue
Monument.
soon
Although not by
developed into the main
Avenue
styles.
architectural
Romanesque
The Avenue's pattern of grand design
a world power and it continued with the construction
became
of
and
the early 20th century as the United States
into
continued
Gothic
chateaux,
French
of
were
During the
of the structures built on Pennsylvania
many
century
19th
the city.
of
street
business
and
commercial
buildings, in the area that is now called
federal
many
the Federal Triangle.
out
in
historic
a
designed
Avenue,
the
of
importance
the
Recognizing
the PADC
strategy, which it laid
preservation
1974 Pennsylvania Avenue and the 1977 Historic
the
prepared
Plans
Preservation
for
the
the
by
PADC
staff.
The
retention and restoration of all
strategy
called
National
Register
Landmark buildings and the creation of a
historic
district
within
historic
for
the
of
preparation
restoration
expected
abundant
approximately
to
ways
the plan and prepared estimates
Due to its flexible and
costs.
funding,
the PADC was able to budget
developers
in
the
of these public landmarks.
--
by
developers
as
structures
and
During the
$11.1 million of the Public Development Fund,
private
assist
restoration
two
of
sources
area.' 8
plan
capital budget PADC staff analyzed all
within
buildings
the
preservation
and
This it has done in
providing financial assistance to private
an
incentive
to
rehabilitate
existing
by acquiring historic structures that might
70
otherwise have deteriorated beyond repair.1 9
that
indicated
was
action was required if the hotel
sponsored
development
specified
that
unknown
extent
Willard
the
for
it
the
wrote
PADC
chose not to
parcel, due to the
the
for
price
As the project was designed, and later
developer,
the
with
for
assistance
financial
the
When
worked
PADC
the
built,
which the PADC
restoration required and the total cost
of
an effort.
such
PADC
was to be saved and restored to
hotel
disposition
a
first
the
during
competition,
condition.
include
held
then
It
prospectus
development
of
the
original
its
hotel the PADC
the
acquiring
After
weathertight.
it
make
immediate
necessary funds to shore up the structure and
the
invested
Willard Hotel the PADC's reports
saved.
be
to
the
of
case
the
In
restoration
those
providing
not
costs
20
covered by the Federal Historic Preservation funds.
The
appropriations
in
advance.
Square
removal
and
the
and
irreplaceable
development
public
used
also
has
PADC
to
plan historic restoration projects years
On
eight
Landsburgh,
storage
parts
of
projects,
PADC
of
PADC
the
facades,
buildings
including Market
has
paid
lobbies,
and
for the
other
until such time as they
In
can
be incorporated into specific development projects.
the
case of Market Square, these facades could not be used,
however
the
PADC
included
in
a
subsequent prospectus a
design
the reuse of the existing facades into any
for
requirement
the
with
negotiations
successful
for
associated
costs
installation
developer.
assistance
additional
provided
the
by
proposed
In
developer,
the
with
subsequent
the
restoration
reusing
PADC
and
these
facades.21
the rebuilding of internal structures,
Whether
it
was
restoration
of
facades and slate roofs, or the dismantling
and
the nationally sponsored historic preservation fund
through
were
programs
To
incurred.
assist
of
of existing buildings, the subsidies available
storage
the PADC has used over $8 million to
date,
developers, including $5 million for the restoration
The
restoration.
financial
by
the
Landsburgh
$500,000
PADC
staff believes that the amount of
assistance
the
for
and
Willard
the
offset
insufficient to cover the tremendous expense
it
private
has
sector
provided
dollars
non-PADC projects along the Avenue.
has been more than
invested
to save
PART FOUR
SUMMARY AND CONCLUSIONS
we move into the nineties we are a nation faced with
As
an
government
the
face budget crises, they will be forced to look
governments
than
that
public
public/private
study
to
begin
agencies
development
revitalizing our aging
essential
is
it
why
is
That
cities.
for
strategy
a
as
forefront
partnerships will move to
public/private
ever,
Now,
sector for assistance.
private
the
to
increasingly
the
As state
for development and housing assistance.
available
more
subsidies
federal
remaining
few
the
restrict
further
the federal budget deficit will
reduce
to
Efforts by
corporate consolidation.
and
tightening,
belt
a nationwide movement of
space,
office
of
oversupply
partnerships that have worked.
have
they
public
had
unique
development
of
characteristics
for
adapted
all
away
use
Less
agencies.
the
available
not
advantages
obvious
by agencies in other cities.
those
are
that
activities
PADC's
to most
can
be
In general,
be they large or small, should be able to take
cities,
an
PADC one immediately recognizes that
the
analyzing
By
redevelopment
effort,
implementation
of
how
of
understanding
and
how,
the plan, it
73
the
PADC
through
has been
the
planned
the
successful
able to
provide
This chapter looks to
benefits
to the city and its people.
identify
the key aspects of the public/private partnerships
to
redevelop Pennsylvania Avenue, and how they can be
used
generic
partnership
public/private
where
areas
those
address
will
It
model.
more
a
to
applied
the
PADC
has missed the mark, such as affordable housing,
initiative
and how it could have been avoided.
Planning the Capital Structure
capitalization
the
the
by
PADC
was provided with are beyond the
costs, project and administrative, necessary
all
projected
to
implement and complete the plan.
of
its
to
able
debt
of
repayment
development
while
of
Through the separation
and their corresponding uses, the
accurately
prepare
methodology for
a
incurred by the Corporation through its
activities.
Furthermore,
it
recognized the
public improvements, in their entirety, up
budget
to
as-needed
100%
sources
funding
was
front,
the
The PADC prepared a development plan that
PADC is not.
need
While
government.
the
most cities, the financial program established by
of
PADC
agencies is the
development
public
provided
that
resources
means
among
unique
as
out
characteristic of the PADC that makes it stand
one
The
budgeting
basis.
revenues
for
salaries
Additionally,
and
expenses
on
the PADC was able to use
generated by its land to secure the bond
74
issues needed for the repayment of its debt.
cities use funds gained through the disposition or
Most
could
appropriations
salaries
Thus,
plan
the
PADC
costs,
access
appropriated
to
more
funds
for
limited
staff
to finance public development initiatives.
bonds
preserving
project revenues, and proceeds from sales
goals
like residential development, or historic
other
for
use
entire
relying on financing instrument such as tax
while
increment
have
that
PDAs
financed.
the
redevelopment efforts can be
how
demonstrates,
experience
these
segregating
By
redevelopment.
for
costs
project
estimate
to
able
separated from all other costs, the PADC was
were
expenses
expenses, but because PADC overhead
related
and
projects,
for salaries, public improvement
pay
to
land
of
leasing
preservation.
Policy Objectives and Public Commitment
the
that
conclusion that can be reached by studying
obvious
The
PADC's
to
approach
establishing
When
success.
affirmative-action
objectives is
guidelines is not enough to ensure their
the
so
a
with
its
set
PADC
affirmative-action
dual purpose.
With a high
guidelines
it
did
percentage
of
minorities as residents of the District, the
PADC
felt
guidelines
that
was
an
increasing
important
75
the
and
normally
recommended
visible example to set.
of
10%
recognize
to
It
that the PADC was
developers were unable to achieve
that
Rather
investors.
minority
by
participation
equity
decrease the level of participation, the PADC actively
than
interaction
constant
able
to
guidelines,
and
been
and
interested
as
developers
could be presented to private
that
candidates
out
sought
the
participation
active
this
through
able
on a project-by-project basis.
implementation
plan
was
actively particpated in the assistance
PADC
the
Secondly,
is
primary
increase
successfully
This
reason that the PADC has
above
participation
federal
achieve 100% compliance with
established by the PADC.
guidelines
investors.
qualified
It was because of
determination and commitment to involve minorities and
this
all aspects of projects that the PADC has not
in
residents
succeeded, but managed to find a way to get minorities
only
involved as equity partners and owners along the Avenue.
Changing the Use:
the
Changing
in
desire to integrate a residential component into the
PADC's
plan
use from commercial to residential,
land
sector of the plan area to accommodate the
eastern
the
Commercial to Residential
Among them was how to
raised many challenging issues.
the
establish
could
through
have
value
down
eminent
of the land at its new use.
zoned
domain
the
area
The PADC
and then taken the land
proceedings,
but
faced
with the
to
the PADC.
by
desired
uses
combination
the
for
value
residential
for
While
PADC
the
provided
commercial and residential
of
The PADC estimated sales costs
then
it offered the land at prices
the
less
profitable
finance
to
forced
was
development
residential
Instead, the PADC chose
land,
with
commensurate
extended
to developers at the fair market
land
the
lease
or
and
at fair market, change its use, then
land
the
acquire
sell
chose another route.
they
delays,
expenses,
legal
resistance,
of
prospect
residential
use.
a portion of the
through other project revenues, it
the means to induce developers to provide the uses
desired by the PADC.
A
issue was the way in which the PADC actually
related
the
structured
incentive.
It chose to set the disposition
price
of
the
land based on its commercial value, plus the
value
of
the
minimal
PADC
then
housing
developer
offered
PADC
was
complete.
allowed
on
each
The
additional unit of
The
would pay the full purchase price at the closing,
the
the
rebate
of acceptable housing.
above the minimum that the developer provided.
and
that
a
amount
would return the incentive after the project
This
proposed
the
PADC
served
scheme
to
duration of the project.
use
is
the
the dual purpose of insuring
actually
built,
developer's
and
also
funds for the
How Successful was it?
nearly
housing
1000
in an area previously void of residential activity is
units
It is true, that when
have been such a success.
not
the
to
is
cannot
afford
Washington
Designed
there.
live
to
most
that
such
priced
created
bring much
the market rate housing
but
area,
plan
will
neighborhood
residential
the
completed,
activity
residential development the overall plan
the
without
might
It is felt by some
a great success by the PADC.
as
viewed
that
of
development
residential
The
residents
to
bring
activity to the area, high prices, and the
around-the-clock
to government and business activities have led to
proximity
for
units
purchasing
corporations
use
as
corporate
apartments which are not occupied by permanent residents.
units
by
the
that
it
would
PADC
by
the
impossible
Section
8
have
were
available
high
gap
created
between
tenants
More thorough research
shown that the federal subsidies
not
sufficient to fill the gap
price of new housing.
The high land
with the new residential development made
associated
costs
the
to pay and developer costs.
were
created
fill
to
The PADC,
that federal subsidies would
assumed
incorrectly
available
ability
as affordable housing units.
provided
be
however,
be
in Part One, it was intended that 20% of the
stated
As
to
subsidies
develop
went
affordable
to
units.
Instead,
existing neighborhoods that
already residential and to areas where land costs were
were
the
were
uses,
prorated
proceeds
In
rents.
would
land
the
subsidize
this
units
redevelopment
its
gap, either
or from office
plan
the
PADC
It should have gone a step further
need to make provisions in the plan to
the affordable units.
need
the
to
Either the PADC
augment
federal
through the use of appropriated funds, or perhaps
have
should
to
densities
developers
housing units.
where
PADC
the
assumption
set
and
residential
This is one of the few instances
--
analyze
provide
higher
provided, at their own cost,
who
goal
a
properly
to
allowing
considered
affordable
failed
fund
rate
market
recognized
have
subsidies
it
from
change.
recognized
should
to
expected
be
and residential
commercial
the creation of a residential neighborhood
use
partially
both
for
downzoning and the need for the PADC to fund
involve
this
who were already paying land costs
preparing
that
recognized
and
not
could
through
normal subsidies were sufficient to fill
Developers,
gap.
that
that
such
priced
250 affordable units, and
the
feasibility
of
their
the resources needed to meet their
objective.
While
I agree that the overall development of a housing
component
national
through
is
important,
it
seems
that in this time of a
housing crisis, the half-hearted attempt to follow
on
the PADC's initial affordable housing objective
79
subsidy
the
housing
affordable
the
funds
these
redirected
some
were
mid-course
recognized that
PADC
to fund the land use
it
residential,
could
have
assist with the realization of
to
Also,
component.
it could have
projects and surplus lease
gap or to offset below-market ground
the
fill
to
revenue
to
earlier
from
profits
utilized
needed
be
not
commercial
from
the
When
gap.
would
appropriations
change
there
that
that would have provided the funds necessary to
corrections
fill
make
to
PADC
the
for
opportunities
think
I
short.
far
fallen
has
leases.
"The D.C. Market"
Perhaps
this
is
analysis
effort
redevelopment
a cooperative real estate
without
would have succeeded to the degree it
The Washington, D.C. real estate market has been in a
has.
boom
that
highly unlikely that the Pennsylvania Avenue
is
it
market
single largest conclusion to be drawn from
the
mode for the last ten years.
well
projects
as
ventures
along
during
17
the
Pennsylvania
ten-year
this
span.
related private development
Avenue
While
have been initialized
it
is impossible to
the impact of the general market conditions on the
quantify
successful
suggest
as
All seven PADC sponsored
implementation
that
the
of the plan, it is reasonable to
PADC might not have achieved some of its
had
goals
the
bargaining
had
land
more
commercial
their
given
them
The
in
available
been
lack of
A
much less
negotiations, and less surplus
leading to different results.
thereby
revenues,
if
in
power
have
would
certainly
most
demand
favorable.
plans.
affirmative-action
of
inclusion
less
projects allowed them to mandate
early
on
success
PADC's
been
conditions
market
the
Likewise,
traditional
area, the PADC would not have been able to price
their parcels as they did.
Summary
has accomplished much in 15 years as a public
PADC
The
in
it
the
PADC
it
is important to
1974 when the original Pennsylvania Avenue Plan was
succeeded
has
had
exception
the
With
prepared.
PADC
the
its accomplishments in light of goals and objectives
review
set
critiquing
In
developer.
to a large degree in meeting the goals
set for itself.
demonstrated
PADC
of affordable housing the
While it was uniquely capitalized,
a
financial planning process that,
subject
to dramatic changes in the D.C. real estate market,
allowed
them
commit
to
resources
to specific uses, thus
allowing
them to do the long-range planning necessary for a
project
of
this
implementation
attributed
not
of
scope
the
and
PADC's
duration.
policy
The
successful
objectives
can
be
only to good timing but to careful planning
and
preservation
and
minorities
neighborhood
overall
up-front
historic
of
city
to
monitoring
and
modifications
ensured
the
structures,
participation
Continuous
up.
mid-process
effective
The
follow
relentless
residents,
support
of
and the creation of a new
extensive commercial development.
success of the PADC is evidence to support the
planning
and commitment of capital that is
for successful public development.
needed
NOTES
PART ONE
1) White, Michael J., Urban Renewal and the Changing
Residential Structure of the City, University of
Chicago, Community and Family Study Center, 1980,
pp. 26-40.
2) Anderson, Martin, Urban Renewal: The Record and the
Controversy, Cambridge: The MIT Press, 1966,
pp. 491-508.
3) Weiss, Barbara, Public/Private Partnerships: Financing
a Common Wealth, Government Finance Research Center,
1985, pp. 132-151.
4) Black, J. Thomas, UDAG Partnerships: Nine Case Studies,
Urban Land Institute, 1980, pp. ii-iv, pp. 100-108.
5) Witherspoon, Robert, Codevelopment: City Rebuilding by
Business and Government," Urban Land Institute
Development Component Series, Washington, D.C.: Urban
Land Institute, 1982.
6) "Emerging Partnership Opportunities for Cities," U.S.
Department of Housing and Urban Development, The
Economic Development Administration, and The Urban Land
Institute, 1980, pp. 1-26.
7) The Pennsylvania Avenue Plan 1974, Pennsylvania Avenue
Development Corporation, 1974, pp. ii-x.
8)
9)
10)
11)
12)
Ibid.,
Ibid.,
Ibid.,
Ibid.,
Ibid.,
p. ix.
p. x, and p. 1.
p. 3.
pp. 3-61.
p. 1, and p. 64.
13) Ibid., p. 3.
14) Ibid., pp. 11-16, 63-66.
15) Pennsylvania Avenue Development Corporation, Annual
Report 1989, Pennsylvania Avenue Development
Corporation, 1990.
PART TWO
1) Barnes, W. Anderson, "Downtown Development: Plan and
Implementation," Urban Land Institute Development
Component Series, Washington, D.C., Urban Land
Institute, 1980, p. 11.
2) Opcit., Part One, Note 7, pp. 63-69.
3) Telephone Interview with Jo-Ann Neuhaus, Chief of
Project Management, Pennsylvania Avenue Development
Corporation, Washington, D.C., (13 June 1990).
4) Opcit., Part One, Note 7, pp. 63-69.
5) Ibid.
6) Telephone Interview with Alexander K. Milin, Director
of Finance and Administration, PADC, Washington, D.C.,
7)
8)
9)
10)
(20 July 1990).
Opcit., Part Two, Note 3.
Ibid.
Development Prospectus: Parcel 408-432, 1982, and
Development Prospectus: Parcel 431-B, 1986,
Pennsylvania Avenue Development Corporation.
Memorandum from Alexander K. Milin, Director of Finance
and Administration, PADC, to Thomas Regan Jr.,
Executive Director, PADC, 1983.
11) Ibid.
12) Ibid.
13) Ibid.
PART THREE
1) Pennsylvania Avenue Development Corporation, Annual
Report 1988, Pennsylvania Avenue Development
Corporation, 1989, p. 29.
2) Ibid., p. 14.
3) Ibid., p. 18.
4) Opcit., Part One, Note 7, pp. 11-14.
5) Opcit., Part Two, Note 6.
6) Development Prospectus: Parcel 408-432, Pennsylvania
Avenue Development Corporation, 1982.
7) Opcit., Part Two, Note 6.
8) Ibid., (25 June 1990).
9) Ibid., and Development Prospectus: Parcel 431-B,
Pennsylvania Avenue Development Corporation, 1986.
10) Opcit., Part Three, Note 1, p. 14.11) In house
memorandum, Pennsylvania Avenue Development
Corporation, 1986.
12) Opcit., Part One, Note 7, p. 3.
13) Opcit., Part Three, Note 6, Appendix VI.
14) Opcit., Part Two, Note 9.
15) Ibid.
16) Opcit., Part Two, Note 6, (25 June 1990).
17) Pennsylvania Avenue Development Corporation, Annual
Report 1983 - Entering the Second Decade, Pennsylvania
Avenue Development Corporation, 1984, p. 22.
18) Ibid.
19) Ibid.
20) Opcit., Part Two, Note 6.
85