City Paper is not for tourists
Thelma Nelson, busily putting a girl’s hair in curlers with her shiny gold fingernails one Friday afternoon, is a lot richer than she feels.
Like many old-time businesses on H Street NE, her Magic Fingers hair salon has seen its clientele cut in half by four years of streetcar construction along the strip. And when the project is done, she fears, the clutch of bars a half-mile to the east will derive a lot more benefit from the shiny new trolleys than she ever will. “I just look at it as a way for people to get as drunk as they want to, so they don’t get a DUI,” Nelson says, in a tone that doesn’t match her bright pink smock.
The irony, of course, is that the streetcar has already boosted Nelson’s net worth faster than hairstyling ever could. She acquired the 1,400-square-foot building in 1985*. Today, it’s assessed at $426,000—a tidy retirement if Nelson wanted to cash out.
For now, at least, Nelson isn’t selling. And she says that other veterans are hanging on too, even as their property taxes rise annually. “The people that can, they’re staying,” she says. “It’s not easy, but they are.”
It’s a strange sort of boom. While Nelson at least keeps her store vibrant, other H Street properties sit vacant, in seeming defiance of the corridor’s boomtown press. Few properties are for sale. City records show that not much has changed hands in the last few years, which you might expect from a neighborhood in transition. What’s going on?
Well, lots of things. Many of the spaces are too small for some businesses. Few could be leased without extensive renovations. But mostly, the scene reflects the same logic Thelma Nelson is using: Hang on as long as possible, because values will keep going up. And if you want to sell, no price is too high.
“People are too unreasonable now. They believe they got a gold mine,” says developer Italo Rodriguez of IS Enterprises, which does renovation work on the strip. “People own lots, they are trying to sell the lots, but they are asking astronomic prices.”
Take 1351 H St. NE, for example: 4,196 square feet, assessed at a half million dollars, and on the market since last February for $950,000. Or 403-407 H St. NE, which is being marketed for a bank is and asking $55 per square foot—about $10 more than downtown’s going rate. Other properties bought by speculators soon after the redevelopment launched have stayed dormant as absentee owners wait for big projects to get going before flipping again or building something new.
That’s the stalemate of H Street: Those invested here are so dazzled by future prospects that they keep the present moving slower than it should.
To understand what’s going on with H Street, think of it in separate pieces. The economic calculus changes radically as you head from west to east.
On the western end of the strip, closer to Union Station, several empty lots will soon see big changes. Louis Dreyfus Property Group is building 302 residential units just south of H Street between 2nd and 3rd streets. Steuart Investment Companies will break ground at some point on a 212-unit apartment project, with a ground-floor Giant grocery store, between 3rd and 4th streets. The area is zoned for the city’s maximum legal height, making adjacent land incredibly valuable: a grassy plot opposite the Steuart site sold for $3.5 million in 2007, for example. The owner hasn’t yet proposed plans for it.
All of those sales affect the prices of the remaining buildings, whose development timelines are tied to the financial fortunes of giant projects. With a few exceptions—like David Bernhardt, who bought buildings and leased them to a coffee shop, a bar, and a yoga studio—not much has changed with the smaller lots, and it’s likely nothing will until developers come in to consolidate the land.
The result is a perverse situation in which the corridor is developing in reverse order. Though officials expected that big projects near Union Station would drive revitalization, the action right now is on the corridor’s more obscure eastern end. Aware that it could take years for downtown to reach them, entrepreneurs there took advantage of cheap land. Nightlife impresario Joe Englert picked up a batch of eight buildings there in the mid-2000s, kickstarting the process. Dozens of restaurateurs followed suit, creating an entertainment zone that is now creeping west.
Alcohol-serving establishments, of course, are better equipped to weather both daytime construction and skyrocketing property taxes. Where old-time businesses want city help handling development-related tax troubles, the bar owners are steering clear. “Only so many hours in the day to bitch and moan, man,” says Englert. “I don’t ask for shit.”
With megaprojects coming to the west side and nightlife hopping on the east, the middle blocks of H Street remain marred by vacant properties and wounded businesses. The city has tried to nudge absentee owners into renting out their spaces by instituting a vacant property tax, which penalizes darkened storefronts by charging owners more than five times the regular rate. But it’s easy to duck that rate, either by razing the building and putting in a parking lot, or by posting a “for lease” sign out front. “I’ve heard that too,” says local broker Steve Solomon, who declined to comment about whether any of his own signs were posted for that purpose.
The biggest property owner on the strip is John C. Formant, the scion of an old Greek real estate family. Formant started amassing his portfolio of around 20 H Street buildings before he graduated from college in the early 1980s. Rising property taxes aren’t a big problem for him; it just means he rents to tenants who can pay, like Cricket, T-Mobile, and Shoe City. As for the neighborhood complaints about the properties he hasn’t yet fixed up or leased, Formant blames District regulations that restrict new chain restaurants in the area, meaning a Five Guys, Chipotle, or Julia’s Empanadas would have to get a special exception to operate.
“They want everything to be sit-down restaurants. And I think that’s a big detriment to H Street,” he says. “If you can’t find a tenant, who’s going to pay for the renovation? All these people up and down, they all complain and make a lot of noise, but it’s not their money. They’re not business people, they don’t know what’s going on.”
On the other hand, you might argue that those annoying requirements result in better-quality businesses that could spur still more development. After the ANC wouldn’t help Formant lease a building to Domino’s Pizza, it sat empty for a year. But today it’s a restaurant called Liberty Tree—reportedly a favorite of former Mayor Anthony Williams, who got the revitalization of H Street going in the first place.
* Correction: Due to a reporting error, this story originally reported that Nelson bought her building for $10.