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by Brett Lieberman
Virginia Business
September 2004

It’s been just eight months since Tom Mobley moved into an apartment on 7th Street in Northwest Washington, D.C., and his new neighborhood already looks different. There’s a new restaurant here, a Starbucks there, plus retail shops, condos, upscale apartments and a movie theater. Mobley watched the changes during his daily six-block walk to work. “I swear a new restaurant or business opened every three weeks on that strip,” he says.

Mobley knows better than most what is driving the development. He is general manager of the new $834 million Washington Convention Center, a 2.3 million-square-foot project that opened last year. In its first year the center – adorned with cherry wood paneling and $4 million in artwork - attracted about 1 million visitors who spent roughly $426 million, according to convention center data. The building has been at more than 80 percent capacity for most of the summer, ahead of projections.

The old center was barely a third the size of the new one and couldn’t handle bigger conventions – which was kind of embarrassing for the nation’s capital. “There’s been a pent-up demand for Washington,” says Mobley. “People have been waiting for a building of this size and this quality to open for years.”

And while the massive new center is hard to miss, so are the construction cranes that seem to have taken over much of the city. Since 2001, an estimated $27 billion in development projects are either planned, under construction or already built. Included are downtown projects such as developer Tishman Speyer Properties’ $140 million One Metro Square project at 13th and G streets and the proposed 16.5-acre redevelopment of the aging Skyland shopping center in Southeast.

The current wave of development is a far cry from the mid-1990s, when the chronically mismanaged district faced a $600 million budget deficit as well as the humiliation of having Congress appoint a financial control board to take over virtually every city function. The city was better known for its high crime rate and the antics of former Mayor Marion Barry than for making major economic gains. Most major investments came from the federal government or were made in Northern Virginia and Maryland. “There wasn’t much confidence in local government,” says City Council member Harold Brazil, who chairs the council’s economic development committee.

What changed? Developers, business leaders and economic development officials credit new political leadership, smart tax incentives and an intensive effort to woo business. Slowly, the city regained control of its spending. By the late 1990s, its finances were in better shape and the economic conditions were ripe for investment. Then in 2001, the federal control board effectively returned control of the city to its elected officials. “The budget deficits were symbolic of larger problems,” says Mayor Anthony Williams, who took office in 1999 after serving as the city’s chief financial officer. “The biggest hurdle was always inertia and bureaucratic stagnation.”

The suburbs — Northern Virginia especially — still dominate when it comes to creating new jobs in the region. But the city’s progress is marked by projects that only a city can produce — such as the MCI Center, a $200 million sports arena that owner Abe Pollin financed himself in the mid-1990s. He put it in a neighborhood a few blocks north of the National Mall that was known for its prostitutes and boarded-up buildings. “When I came down to look around, I was told not to even get out of the car,” says Pollin. One of the city’s longtime boosters, he wanted to build the “best arena for the nation’s capital and to be a catalyst to turn the city around after it hit rock bottom.”

The 20,000-seat MCI Center opened in 1997, and since then the blocks around the new arena have rebounded. Law firms are expanding rapidly into the area. Until two years ago there were only 1,300 residential properties and no new housing development had come to the area for nearly a decade. Today, 3,500 units are under construction and another 3,500 are planned in the East End neighborhood. “It’s just a wonderful resurgence … that far exceeded any of my expectations,” says Pollin.

The development is reflected in the city’s job market. Today the federal government employs 33 percent of the city’s work force, down from 44 percent in 1990. Privatization, the growth in consulting and expansion of the law, lobbying and public relations sectors have been key factors.
With experts predicting that downtown will be built out in about a decade, attention is shifting to the 10-acre site of the old convention center in northwest Washington. Williams favors a mixed-use plan that includes a park, museum, library and music center. Others are pushing plans that include more offices and a hotel. Selling it to the highest bidder, he says, would be a mistake. “When you take the most valuable land and you just sell it to the highest bidder, you know what you end up with? You end up with K Street, not one of the world’s grand avenues.”

Washington has a unique restriction that adds to development costs: buildings can’t rise higher than 135 feet, a safeguard designed to keep historic sites from being overshadowed by skyscrapers. When combined with a growing market, it puts a premium on land. In the city’s East End, a 110-block area roughly bounded by Massachusetts and Constitution avenues, 15th Street NW and Interstate 395, land prices have shot up 30 percent in the past three years and can cost $120 to $140 per square foot. “There’s only a finite amount of office space you can deliver,” says Bob Murphy who manages developer Trammell Crow’s mid-Atlantic operations. “It’s not like New York, where you can tear a building down and put a taller building up.”

The premium on finding space is driving a new push to redevelop areas in Southeast and Southwest Washington. There is an ambitious $8 billion, 20-year plan to reshape the Anacostia River waterfront with new neighborhoods, parks, roads, bridges and trails. Despite skepticism in those neighborhoods that have heard similar promises for years, the creation of a development corporation, federal funds and a lack of space elsewhere make it realistic this time. “We’re going to be out of office space in 10 to 15 years. What that means is that even if you tear some down and add some more, generally you’re not adding some density,” Murphy says. “So people are going to be moving to the Southwest and Southeast.”

All the development is attracting people such as young professionals and empty nesters back to the city, though the city’s overall population dipped 1.5 percent between 2000 and 2003 as families continued to leave. At the 225-unit Columbia Condomini-ums that Trammell Crow is developing on the L Street site of the old Columbia Hospital for Women, about 200 units ranging from the mid-$600,000s to more than $2 million are pre-sold. About half the buyers are from Virginia and Maryland, and moving to the city lets them escape the hellish commutes that suburban residents face. “It’s a great location. You can walk to Georgetown, you can walk to Dupont Circle, you’re close to the Metro,” Murphy says.

Still, the city has its own traffic nightmares. K Street, for example, the well-known address for many prominent lobbyists and law firms, is one of the most congested downtown corridors. New plans by the city and experts hired by the National Capital Planning Commission have proposed creating a tree-lined boulevard with light rail to alleviate traffic and put a new face on the unimaginative architecture.

Other challenges remain in the district. The top two are a lack of affordable housing and education. About 4,000 affordable units are planned, but there is widespread concern that the continued gentrification will push out working class and poor families. “A $250,000 to $300,000 house is affordable in D.C., and for people on a $40,000 income that’s not affordable,” says Barbara Lang, president and chief executive of the D.C. Chamber of Commerce. “The challenge the mayor and the city council has is how do you attract families to the city.”

City leaders also agree the district needs to fix its beleaguered schools. Williams was rebuffed in an attempt to take control of the schools, which have little to brag about despite spending more per student than any state. The school system needs a strong leader, and the D.C. Board of Education voted unanimously last month to hire former Rochester, N.Y., Superintendent Clifford B. Janey as the city’s new schools chief. Janey, 58, is an experienced, 29-year veteran who also was a top administrator in Boston. Following contract talks, the board plans to finalize the deal at its meeting this month.

Business leaders say they are willing to help pay for a compensation package that could reach $600,000 for the new superintendent to run the 64,000-student system. “We as a business community need to step up or we’re not going to be able to hire anybody,” says Lang. Yet throwing money at the problem may not be the answer. In the past top candidates have turned down the school job, citing a familiar reason: the perpetual turf battles and leadership struggles inside city government. What’s needed, opined a recent editorial in The Washington Post, is for city officials to butt out and to let the new superintendent manage the schools. A short supply of affordable housing and lackluster schools aren’t the kind of problems that happy convention-goers and tourists notice, but the private sector does; the city’s revival won’t be complete without gains in these areas.

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