Labor Day weekend may have brought a respite for the city and the nation’s work force, but there was no break for construction workers at 1121 Vermont Ave. NW. The crew has been working virtually around the clock, even on the Monday holiday, to spruce up the controversial building before next week’s D.C. Council showdown. Among other improvements, workers are installing new air conditioning, repairing the wiring, and removing asbestos tiles.
The 12-story building, vacant except for the CVS Pharmacy and Mayflower Valet cleaners on the ground floor, is at the heart of a heated dispute involving Mayor-for-Life Marion S. Barry Jr., the council, and the D.C. financial control board. It also has pitted two of the city’s more visible developers, John Akridge and R. Donahue “Don” Peebles, against one another in an increasingly acrimonious conflict.
Barry has asked the council to approve a 15-year lease on the building to house some of the 720 city employees who will be displaced when work begins on the new downtown sports arena in October. The building was purchased in May by a group that includes Peebles, a former protégé of Barry. Under Barry’s proposal, city employees being kicked out of 605 and 613 G St. NW would relocate to 1121 Vermont Ave. and to 801 North Capitol St. Peebles and his business partners have the North Capitol Street building under contract, but have not yet purchased it.
Hizzoner sent the Peebles lease plan to the council late on Friday, July 28, and told the council to OK the deal by the following Monday, July 31, or risk getting blamed for killing Abe Pollin‘s arena project. But the council balked after jilted developer Akridge, who believed he had the city’s lease locked up for his building at 941 North Capitol St., warned city officials that the air conditioning and the electrical system at 1121 Vermont Ave. didn’t work properly. According to PR executive Art Schultz, a spokesman for the John Akridge Cos., Akridge also cautioned that the 28-year-old building, which was deemed by the architecture firm Davis & Carter last year to need substantial renovations, has other serious mechanical flaws.
City inspectors and engineers were unable to complete an inspection of the building by the evening of July 31, so Chairman Dave Clarke recessed the council for the summer without acting on Barry’s proposal.
Now, Barry is threatening the council with the same ultimatum he brandished six weeks ago. The council must ink the Peebles deal by Sept. 14 or, Barry warns, Pollin may pull the plug on the arena rather than risk costly delays.
But council passage is uncertain and may come down to one vote. Peebles says he has six councilmembers supporting him and views Ward 4 Councilmember Charlene Drew Jarvis as the potential swing vote. A spokesperson for Jarvis says the councilmember opposes Peebles’ lease but is hoping to get “more accurate information before she has to cast a vote.” At-Large Councilmember Linda Cropp, whom LL reported previously as undecided, says she will not vote in favor of the Peebles lease.
The financial control board’s Aug. 18 report may have made approval of the Peebles deal more difficult. Although the board did not recommend that the council approve or disapprove Peebles’ lease, its study expressed numerous technical concerns. Peebles has challenged the board’s conclusions, and has asked the board to clarify its report before next week’s council vote.
Not surprisingly, this bitter dispute is knee-deep in personal politics. Although Peebles backed At-Large Councilmember John Ray over Barry in last year’s mayoral campaign, the developer’s past ties to Hizzoner still bind. The mayor helped launch Peebles’ rapid rise in business a decade ago by appointing him to head the city’s property tax appeals board. That post provided the young, ambitious Peebles with the contacts that enabled him to move easily into the development world. After Barry won the Democratic primary last September, Peebles mended fences with his old mentor by organizing a “unity” breakfast for city leaders.
Fred Ezra, the commercial real estate businessman brought in by the city to broker the leases, also has strong ties to Barry. Ezra organized fundraisers for Hizzoner last year, and stood on stage with Barry on election night.
Since there have been numerous inaccuracies in the reporting of the Akridge/Peebles dispute—including, regrettably, many by LL in previous columns—we’ve decided to try to set the record straight with a chronology of the events leading up to this standoff.
Although the new Barry administration knew soon after taking office in January that it would have to move workers for the arena, it waited until March 27 to advertise for the 200,000 square feet it needed to house the displaced employees. Over the next two months, the city’s Real Property Administration received and reviewed 38 lease offers.
Among them were Akridge’s offer to lease the city all the space it needed at 941 North Capitol St., and Peebles’ proposal to lease the city the needed space in two buildings: one he was trying to buy at 801 North Capitol St., and one he already owned at 900 F St. NW. On May 23, Peebles purchased 1121 Vermont Ave. and offered the city space in that building, too.
Peebles bought the Vermont Avenue building in a venture with Starwood Capital, a Connecticut-based investment fund. Starwood is the majority owner; Peebles says he owns 35 percent of the building. Peebles and Starwood are currently negotiating to buy 801 North Capitol St. According to an Akridge official, the developer is also trying to buy that building.
In May and June, representatives of the 14 city offices that must relocate—including the water bill payment office, the Commission on Mental Health Services, and the Birth and Death Certificates Office—toured the contending sites. Akridge spokesman Schultz told LL later that the agency heads preferred 941 North Capitol St. because the building contained plenty of ground-floor space easily accessible to the public. By contrast, there is no ground-floor space available to the city at 1121 Vermont Ave.
In early June, Peebles got wind that the city was about to accept the Akridge offer. Peebles then raised the issue of the city’s “50 percent” procurement law with District officials. That law forbids the city from occupying more than 50 percent of a building’s leasable space without first soliciting competitive bids. The relocation project had not been competitively bid: The 38 offers had not been required to conform to bid specifications. Akridge’s 941 North Capitol St., the biggest building of the bunch, contains 296,000 square feet of leasable space, and the city was planning to occupy more than 60 percent of it.
Since the city could not find any building that provided enough space without violating the 50 percent restriction, the D.C. Corporation Counsel came to the rescue. That office ruled in early June that elevator shafts, garages, and stairwells could be counted as “gross area,” thus artificially increasing the size of the building. The ruling enabled Akridge’s and Peebles’ buildings to qualify without a competitive bid.
On June 25, according to the Akridge Cos., city officials gave the firm the go-ahead to begin preparing for its new tenants.
Peebles swung into action again. He lobbied councilmembers, many of whom he previously had raised campaign funds for, to block the Akridge deal. “I was furious,” Peebles relates. “I went to the councilmembers saying, “This is ridiculous.’ My offer was $54 million cheaper than Akridge’s.”
Contrary to reports that Peebles was able to wrangle the lease away from Akridge because of his access to Barry, Peebles says he was unable to get a meeting with Hizzoner, who apparently was still smarting over the developer’s 1994 snub. “I had to go to the council because he wouldn’t meet with me,” Peebles said in an interview this week.
Just a few days after the Akridge firm thought it had gotten the green light from the city, Barry huddled with advisers and devised a new solution. Since councilmembers, prodded by Peebles, were questioning the Akridge lease, Barry decided to hire an outside consultant to broker the relocation deal. Barry crony Ezra won the contract by bidding $1. Ezra proposed to collect his fees by imposing a 3 percent commission on the winning lease, a rate that could reap him $1.4 million.
Both Akridge and Peebles initially resisted signing a contract with Ezra to pay this hefty fee, especially after much of the paperwork already had been done by city bureaucrats. But both an Akridge Cos. official and Peebles say they felt that their offer wouldn’t stand a chance if they didn’t agree to Ezra’s terms.
Peebles got his meeting with Barry on July 27. Akridge met with the mayor the next day. A few hours after the Akridge meeting, Barry announced his support for Peebles’ plan.
Ezra, Peebles says, also concluded that Peebles’ deal would save the city $54 million over Akridge’s offer. Peebles and Ezra arrive at that figure—which the Akridge firm disputes—by calculating the value of 1121 Vermont Ave. at the end of the 15-year lease as $33 million. Peebles proposes to give the building to the city for a mere $100 when the lease expires.
How, you may ask, does a building that Peebles purchased for $8.75 million just three months ago, and which has been described by real estate experts as decrepit, quadruple in value by the year 2010?
Land, Katie Scarlett O’Hara. Land.
“The value of ground appreciates much more rapidly than buildings depreciate,” Peebles contends, adding that he is in the process of making $5 million worth of improvements at 1121 Vermont Ave. The city currently assesses the land and building at $13.2 million.
Peebles claims his deal also will save the city an additional $21 million in rent over 15 years. The Akridge firm, while acknowledging that Peebles is offering a lower price per square foot, says the rival deal will actually cost the city an extra $21 million because it will be locked into space it may not need after a few years, due to downsizing. Akridge offered an eight-year rather than a 15-year lease. Peebles countered with his own eight-year lease, but that proposal does not include turning the Vermont Avenue building over to the city.
“With all this controversy, no one has yet beat my price, and I think that speaks volumes,” Peebles says.
The financial control board, in its report, questioned whether the city would own the Vermont Avenue building and land outright after 15 years, or whether taxpayers would have to pay the tab for attached mortgages or liens. The language of the 70-page lease is confusing on that point. But Peebles promises to clarify the document.
“The intent is that the government get the building free and clear of debt,” he insists.
Of course, the council could have avoided this entire mess. Instead of shelling out millions the city doesn’t have, the council could have ordered the administration to find space in city-owned buildings to house the displaced workers. The Commission on Mental Health Services, for instance, could probably move to St. Elizabeths without much trouble.
But the council—surprise, surprise—failed to lead, and now it faces a Hobson’s choice: If it accepts either Peebles’ or Akridge’s lease, it will be criticized for wasting city money; if it rejects both in favor of city-owned space, it will be accused of jeopardizing the arena.
“Loose Lips” (8/25, 9/1) incorrectly reported a number of items involving Peebles. LL omitted the fact that no evidence or testimony given at the 1990 drug trial of Barry indicated that Peebles was connected to or participated in any way in Barry’s activities in the property owned by Peebles. LL also erred in not reporting that Ezra will collect a broker’s fee no matter which developer is selected to lease space for city workers displaced by the proposed arena. Finally, LL inaccurately reported the control board’s reaction to the lease; the control board made no recommendation concerning approval or disapproval of the proposed Peebles’ lease by the city. Any other reading or interpretations of these portions of LL’s original column are erroneous. LL and Washington City Paper regret the errors.