It’s business as usual in the realm of D.C. public/private development schemes: The Washington Business Journal reports that Mayor-elect Marion Barry wants Rock Newman, who helped bankroll Barry’s comeback, to get a piece of the proposed downtown sports arena. Meanwhile, Mayor Sharon Pratt Kelly has her own sweetheart deal that she hopes to consummate before leaving office: the sale of city- owned land at 59 M St. NE to a group including Washington Properties Inc. and William J. Barrow III, executive director of the quasi- public H Street Community Development Corp. (CDC).
The Kelly administration is pushing for the sale of Square 673, a 107,000-square-foot property controlled by the Department of Housing and Community Development (DHCD), in the Union Station North area, where industrial uses are yielding to offices; almost 700,000 square feet of space could be built on the site as a matter of right. Opponents note that the transaction would be a noncompetitive, sole-source sale, and that the prospective developers’ bid for the property was unsolicited. The sale of city-owned land under such circumstances seems to violate Redevelopment Land Agency (RLA) regulations, which require public land to be sold through competitive bidding.
The deal may also put Barrow in violation of the city’s conflict-of-interest regulations, which specify that “no individual may represent a community group, ANC, or residents’ association…if that individual or community group, ANC, or residents’ association has any personal financial interest in the development team or development entity.” Asked about his role, Barrow said, “I have no comment about any development project.”
There is an exception to RLA’s competitive-bidding requirements that’s sufficiently vague to cover almost any eventuality: that “a competitive offering would be unlikely to significantly improve the quality of development sought for the site.” In this case, though, there is another potential bidder, Potomac First Associates, whose interest could provide just that significant improvement.
“The only problem we have with the deal is the way it’s being done,” says Bob Cohen, a spokesman for Potomac First. An open bid “would be better for the city.”
The group’s entrance into an open-bidding process could lead to the city’s getting a better price, but there is another advantage to a possible Potomac First development of the site. The developer also owns land to the south, and combining the parcels would give it a large enough tract to lure such major federal tenants as the Patent Office, which is considering leaving its Crystal City digs, or the Department of Transportation.
In addition to a greater return for the city, competitive bidding might also yield a better deal. Under the scheme approved Oct. 25 by the D.C. Council’s Committee on Government Operations, Square 673 Partners puts no money down and is not obligated to pay a penny to the city until construction commences on the project. (This echoes such disastrous deals as the one for the RLA-controlled Gallery Place site, which remains vacant some 15 years after it was awarded to a developer in a similar incentive-free transaction.)
Though the partnership promises a 40 percent minority stake in the development, one skeptical observer says this can be easily diluted after the city approves the property transfer, and that the city’s favored developer has neither a prospective tenant nor significant financing in place for the development.
DHCD Director Merrick Malone testified in favor of the sale before the council committee. According to a summary of that testimony, Malone noted that DHCD’s deal with the developer was upheld by the city’s Contract Appeals Board and that “the proposal speaks for itself and is extremely beneficial to the District.”