The Uptown Arts Overlay. (Brooke Hatfield)

Aman Ayoubi thought he was golden. One year and half a million dollars into retrofitting a long-empty building at 14th and U streets for a new restaurant and nightclub, he had a 15-year lease and two liquor licenses in the bag. Permit-wise, he figured the hard part was over.

He was wrong. On April 5, the Department of Consumer and Regulatory Affairs (DCRA) abruptly stopped issuing the all-important certificate of occupancy to any new business planning to serve food or alcohol along the 14th or U Street corridors.

“It’s a very big, big, big problem,” Ayoubi, who also owns the existing Local 16 restaurant on U Street, told Housing Complex. “The investors are not going to put one more penny into this until we have something in writing that says we are safe.”

Ayoubi does have some recourse. He can apply for a special zoning exception, but that could take four to six months. Meanwhile, the restaurateur—who is also constructing another new boîte a few blocks south—is paying a combined $45,000 in rent for two buildings bringing in no revenue, plus legal fees.

“On top of everything else, the D.C. government threw this on us,” Ayoubi says. “I hope it gets resolved soon, before we all go bankrupt.”

The fallout from DCRA’s sudden freeze on the occupancy permits has been dramatic, icing projects already underway, spooking would-be investors, and sending elected leaders into a tizzy. It also reopened old wounds in the body politic.

When Housing Complex first reported DCRA’s shocking announcement online two weeks ago, a flurry of heated comments ensued. Neighborhood blogs exploded with indignation. Fingers were pointed in all directions, some directed at this reporter’s portrayal of the situation. One critic even threatened legal action. Participants in this regulatory brouhaha could be almost evenly divided between two camps: Those who want to see more bars and restaurants on U Street, and those who think there are too many already.

The mantra that hangs in the air in all of these conversations has to do with the long-time D.C. denizen’s bête noire: Adams Morgan. As in, “We don’t want to become another Adams Morgan.”

On the flip side, no one wants to become another Cleveland Park, either, with its frumpy retail shops and empty storefronts. And the issue facing U Street and 14th Street is exactly the same problem Cleveland Park has been wrangling with for the past 10 years—namely, regulations limiting food and drink. “Restaurants can’t open in Cleveland Park, and instead you’re getting tanning salons,” grumbled former Board of Zoning Adjustment chair Ruthanne Miller at a panel discussion last week. “Is that what the neighborhood wants?”

Since 1989, 14th Street NW from N Street to Florida and U Street between 15th Street and Georgia Avenue has been nestled beneath an “arts overlay,” a set of regulations designed to foster a diverse mix of cultural institutions. Cleveland Park has similar regulations. The rules include a 25 percent cap on the linear street frontage taken up by “eating and drinking establishments,” with the intention of leaving room for theaters, galleries, and other arts-related uses.

For nearly 20 years, however, DCRA never even took the measurements, and no one was denied a license on the grounds of violating the cap.

In late 2008, that all changed: JBG Companies came to local Advisory Neighborhood Commissions with a proposal to build a new mixed-use development at 14th and S streets. If it put restaurants in the ground floor, the cap would likely be reached, forcing the company to get a special exception for its project from the Board of Zoning Adjustment.

Suddenly, people realized that the arts overlay could start to stifle all business in the corridor rather than simply limit bars and restaurants to leave space for local artists. So in June 2009, area resident and economist Andrea Doughty spearheaded a task force to figure out how the zoning ought to be modified. After eight public meetings with a broad swath of businesses, residents, and local government officials, the task force found that more bars and restaurants actually help artsy institutions like the Source Theatre survive. Moreover, most places to eat and drink in the area often double as exhibition spaces, blurring the line between arts and recreation. The task force’s report, endorsed by three ANCs and a host of neighborhood organizations, recommended that the 25 percent cap be raised to 50 percent as soon as possible.

But, in order for the zoning commission to lift the cap, DCRA would eventually have to do a street frontage inventory. The process started earlier this year. Local leaders fully anticipated the survey would reveal the 25 percent threshold had already been reached. But few expected the zoning administrator to put a cork in new permits entirely.

“Everybody was a little caught off guard by how quickly it turned into a ruling,” says Scott Pomeroy, a former chair of the U Street Neighborhood Association. “There had been no push for the enforcement, with the realization that it really wasn’t going to achieve anything that people wanted it to.”

To explain DCRA’s abrupt decision, many point to the efforts of three persons—specifically, ANC Commissioners Ramon Estrada and Peter Raia and Phyllis Klein of the Dupont Circle Citizens Association—each known for their outspoken opposition to new liquor licenses. On March 11, all three met with Fred Moosally, director of the district’s Alcoholic Beverage Regulation Administration, about completing the frontage inventory. (Estrada did not respond to calls for comment, but Raia and Klein both confirmed the meeting took place. Klein had just this statement: “The community’s shared objectives are to responsibly preserve, develop, and promote 14th and U Street’s neighborhoods.”) Moosally then turned to Zoning Administrator Matt Le Grant, who shortly completed the inventory and issued a freeze on new permits.

For Raia, advocating for enforcement of the cap was about curbing the growth of new bars in his single-member district, which covers U Street between 9th and 14th streets—the most concentrated area of bars and restaurants in the whole overlay. “It’ll slow down liquor licenses, but it won’t slow down small businesses,” he says (Raia supports the ability of projects already in the works, like Ayoubi’s, to open on schedule). “Even when I talk to licensees, they even feel there’s enough restaurants and bars. They can’t make enough money, because there’s too many of them.”

The local MidCity Business Association, however, warned that the decision could miscast the area as anti-business.

Politicians were quick to respond. Councilmember Jack Evans threw his weight behind boosting the cap. So did the Fenty administration: DCRA Director Linda Argo reassured businesses that the rule would be eased, and the Office of Planning recommended that the Zoning Commission take emergency action to change the limit.

In the meantime, local businesses have been scrambling to find out whether their ventures can move forward or not.

Last week, DCRA released a spreadsheet of its decisive inventory. Some operators filed their applications just in time to make the cut. “I could have been burned,” says Mark Kuller, whose Spanish-inspired Estadio at 1520 14th St. NW will proceed as planned. “I don’t think anyone was particularly worried until this note came out.“

Others weren’t so lucky. Grillfish owner David Winer scotched a project when enforcement of the cap was announced. BlackSalt operator Jeff Black, too, was strongly considering opening a location on 14th Street until the news dropped. He’s now shifted his sights to Capitol Hill.

Restaurateur Ian Hilton, meanwhile, isn’t sure what will happen with his planned gastropub, the Brixton, located at 901 U Street NW. “I don’t know,” Hilton says. “It would be great if you could tell me.” CP