Special Section: Mid-Atlantic

Thanks to demand from the millennial generation and a strengthening economy, real estate development is returning to the Mid-Atlantic region, which includes Washington, D.C.; Virginia; Maryland; and North Carolina.

In development in northern Virginia is 1760 Reston Parkway, a 420,000-square-foot (39,000 sq m) office tower in Reston Town Center. The 330-foot-high (101 m) structure is expected to be nearly 115 feet (35 m) higher than the next-tallest building in Reston Town Center. (AKRIDGE, RTC PARTNERSHIP)

In development in northern Virginia is 1760 Reston Parkway, a 420,000-square-foot (39,000 sq m) office tower in Reston Town Center. The 330-foot-high (101 m) structure is expected to be nearly 115 feet (35 m) higher than the next-tallest building in Reston Town Center. (AKRIDGE, RTC PARTNERSHIP)

Washington’s neighborhoods are being transformed as if overnight by millennials moving in, filling apartments, buying condominiums, supporting street retail, walking and biking to work,” says Tom Carr, managing partner at Federal Capital Partners, a real estate investment company based in Chevy Chase, Maryland, that focuses on the East Coast. “New areas of growth—in technology [including cybersecurity], private and federal health organizations, and service jobs in leisure and hospitality—are sending up green shoots that are unmistakable, especially in highamenity areas with access to mass transit.”

Millennials—generally people born in the 1980s and 1990s—are leading much of the market for smaller rental product in good locations throughout the region, says Bill Bonstra, managing partner at Bonstra | Haresign Architects in Washington, D.C. “These folks are sharing their cars rather than owning, which allows them to spend more for apartments and lifestyle pursuits supporting nearby restaurants, bars, and other businesses,” he says. “We are designing a number of projects converting vacant/obsolete B and C office product in transit-oriented locations to residential units to serve this market.”

Designed by Thomas Dinneny of Polleo Group in conjunction with HOK, 1760 Reston Parkway is being developed by Akridge and RTC Partnership, with the goal of LEED Gold certification. Design has just commenced. (AKRIDGE, RTC PARTNERSHIP)

Designed by Thomas Dinneny of Polleo

The ability to attract young college graduates who are permeating all sectors of the regional economy, from startup tech companies to federal and local government, greatly benefits the Mid-Atlantic region, says Adam Gooch, senior vice president and director of development at the Akridge real estate firm based in Washington. “The energy and ideas that they bring into the region contribute to the vibrancy of the area, which in turn makes it even more attractive to the next generation of college graduates,” he says.

Now America’s largest generation (an estimated 75 million people, according to the Pew Research Center), millennials are influencing real estate in the region at nearly every stage and helping buoy local markets. Construction cranes signal a new building spurt; and office leasing is showing signs of improvement, as is the retail sector. Multifamily developers are benefiting from the propensity of millennials to postpone homeownership and continue to be renters instead.

The desire of millennials and others to live downtown has spurred increased attention to townhouse and single-family detached housing in transitoriented developments, says Dan Anderton, community planner and landscape architect at full-service design firm Dewberry, based in Fairfax, Virginia. “There is more interest in high-density urban townhome projects replacing previously designed multifamily apartment projects,” says Anderton. “We are also seeing interest in mixed-use multifamily developments and some full mixed-use projects replacing existing office buildings in neighborhoods close to Metro [subway] stations.” He adds that bright spots in the D.C. region include development next to several stations on Metro’s Red Line in the Maryland suburbs.

Washington, D.C.

Takoma Central Apartments, a green, 150-unit multifamily complex in the Takoma neighborhood of Washington, D.C., was designed to complement the architectural character of the area and to promote a healthy, sustainable lifestyle. Completed in 2014, the development also features the restaurant Busboys and Poets. (FEDERAL CAPITAL PARTNERS)

Takoma Central Apartments, a green, 150-unit multifamily complex in the Takoma neighborhood of Washington, D.C., was designed to complement the architectural character of the area and to promote a healthy, sustainable lifestyle. Completed in 2014, the development also features the restaurant Busboys and Poets. (FEDERAL CAPITAL PARTNERS)

The District continues to be an extremely attractive market, not only for millennials, but also for institutional capital, says Akridge’s Gooch. The investment market for well-located buildings with access to transit and amenities remains strong, he adds. “We expect this to continue. The commercial office market is starting to see some improving fundamentals, and leasing activity has definitely picked up in the past few months,” he says.

Akridge has about 10 million square feet (930,000 sq m) of space in its development pipeline, Gooch says, including the following projects in the District and its suburbs:

l 2100 L Street, N.W., a 190,000-square-foot (18,000 sq m) redevelopment site in downtown Washington that was recently acquired; the project is in the design phase;

l 1690 Old Meadow Road, a 200,000-squarefoot (19,000 sq m) office building adjacent to the new McLean Metro station in Tysons Corner in Virginia; the project is in the design and entitlement phase; and

l 1760 Reston Parkway, a planned 400,000-square-foot (37,000 sq m) office building that will be the tallest building in Reston Town Center in Reston, Virginia; design has just started, and no construction start date has been set.

ZGF Architects of Washington, D.C., has prepared the ambitious SW Ecodistrict Plan, a 20-year road map to bring together federal, District of Columbia, and private stakeholders to redevelop the area as a sustainable, livable community and transform the federal employment center into a mixed-use, net-zero-energy neighborhood that connects to the National Mall and the city. (NCPC, ZGF ARCHITECTS)

ZGF Architects of Washington, D.C., has prepared the ambitious SW Ecodistrict Plan, a 20-year road map to bring together federal, District of Columbia, and private stakeholders to redevelop the area as a sustainable, livable community and transform the federal employment center into a mixed-use, net-zero-energy neighborhood that connects to the National Mall and the city. (NCPC, ZGF ARCHITECTS)

Such new Class A commercial structures and others offer opportunities to pull tenants from older, nearly obsolete buildings with difficult floor plans, says Kelly Davis, managing partner in the Washington office of ZGF Architects. “Smaller floor plates are better,” he says. “The classic block-filling D.C. office buildings that used to be ideal for large law firms are now hard to lease because so much support work is either outsourced or performed in less costly settings. There is very limited use for windowless interior floor area.”

ZGF recently completed 1200 17th Street, a 170,000-square-foot (16,000 sq m) office building developed by Akridge and Mitsui Fudosan America with law firm Pillsbury as the primary tenant. The 11-story building includes a full-service, 2,500-square-foot (232 sq m) fitness center, and a rooftop terrace. It recently received Platinum certification under the Leadership in Energy and Environmental Design (LEED) program, Davis notes.

Federal Capital Partners also is involved in a wide range of activity in the Mid-Atlantic, ranging from converting historic buildings into luxury apartments and office properties, to financing new multifamily projects in Washington, as well as in Charlotte, Durham, and Raleigh, North Carolina, along with other projects.

While the Mid-Atlantic office market is slowly strengthening, multifamily development—particularly with a mix of uses—continues to represent the lion’s share of work for companies such as Bonstra | Haresign. “Developer energy for new product starts is robust, with funding achievable in existing and reestablishing urban markets near established transportation routes,” Bonstra says.

ZGF Architects designed the 11-story, 170,000-square-foot (16,000 sq m) 1200 Seventeenth Street, an office building developed by Akridge and Mitsui Fudosan America. The new speculative building has achieved LEED Platinum certification. (ALAN SCHINDLER)

ZGF Architects designed the 11-story, 170,000-square-foot (16,000 sq m) 1200 Seventeenth Street, an office building developed by Akridge and Mitsui Fudosan America. The new speculative building has achieved LEED Platinum certification. (ALAN SCHINDLER)

“We have a strong backlog of multifamily work this year, with two 150-unit affordable housing projects under construction in D.C. near the Rhode Island Metro station and adjacent to Potomac Yards [a former railroad property] in Alexandria, Virginia.” Bonstra | Haresign also designed the $32 million, 116- unit affordable multifamily development under construction along Rhode Island Avenue in the District. The building is expected to be completed by May 2016.

“We are designing and entitling at least eight substantial new projects, with many others in design for the next few years,” Bonstra says.

Because many millennials and others want to live downtown, rejuvenation has increased in older areas that have become more desirable thanks to their close-in locations, adds Michael K. Medick, market leader/land planning at BSB Design in Alexandria.

“Building uses have changed over time, but the same building is adaptable because of the scale, character, and placement of the structure within the community,” he says. “Warehouses become offices, become hotels, or [become] condos. Sustainable neighborhoods begin with the physical form of our communities—including access to transportation and services—and simply the physical nature of our planning efforts.”

Federal Capital Partners (FCP) with partner McMullin Revocable Family Trust renovated 4040 North Fairfax Drive in Arlington, Virginia. Federal Capital bought the nearly 50-year-old building in 2012 and undertook a $7.4 million renovation. Marymount University leased 87,000 square feet (8,100 sq m) of the structure. FCP and its partner sold the structure to a venture of Lionstone and Penzance in December 2014. (FEDERAL CAPITAL PARTNERS)

Federal Capital Partners (FCP) with partner

“It seems 20 years ago only a few of us were advocating mixed-use, walkable neighborhoods,” says Medick. “Nowadays, everyone seems to be an expert in mixed-use development. The change in areas such as [Washington suburbs] Arlington, Virginia, and Hyattsville, Maryland, had been phenomenal, propelled by a desire for mixed-use development within older, close-in suburbs.”

BSB’s work on a variety of development projects in the region includes St. John Properties’ Melford Village in Bowie, Maryland—a mixed-use development of 2,500 dwellings, planned for certification under the LEED for Neighborhood Development program, Medick says. Development there is expected to begin soon.

Virginia

Mixed-use development is also on the ascent in Virginia, where real estate activity is being driven not only by millennials, but also by a tremendous amount of liquidity in the market, points out John Levy, founder of John B. Levy & Company, a real estate investment bank. This is a unique time for real estate, Levy says. “Construction floating-rate money is less than 2.5 percent a year,” he notes. “That’s not a price. That’s free! If your real estate deal doesn’t work at current financing levels, there’s something wrong with your deal, not the rates.”

Levy notes that the Richmond real estate sector is well balanced, as is the Tidewater area—a metropolitan area in the state’s southeast that includes Virginia Beach, Norfolk,
and Newport News and hosts a large military presence.

However, decreased government spending over the past several years has left the northern Virginia commercial real estate market struggling. “It used to be impervious to economic ups and downs,” says Levy. “The last downturn showed it wasn’t.”

Maryland

Maryland-based developer St. John Properties is planning Melford Village, a retail and residential complex in Bowie, Maryland, that could include up to 2,500 homes and apartments. BSB Design did the master plan. (BSB DESIGN)

Maryland-based developer St. John Properties is planning Melford Village, a retail and residential complex in Bowie, Maryland, that could include up to 2,500 homes and apartments. BSB Design did the master plan. (BSB DESIGN)

To the north, the Old Line State is seeing an improved economy, boosted by increased employment. Maryland added almost 40,000 jobs in 2014, almost twice as many as originally estimated, says Laura Ratz, associate economist at Moody’s Analytics in West Chester, Pennsylvania. “Professional/business services, health care, government, and leisure/hospitality are leading job growth,” she explains. “Employment revisions further reveal that the labor force has turned the corner and has been slowly expanding since early last year.”

Maryland’s housing market is improving, albeit slowly, she adds. “While multifamily permit issuance is near an all-time high, the singlefamily component has barely risen from the trough,” Ratz says. “Construction employment is rebounding, buoyed by nonresidential investment. A tightening labor market will help the state reduce foreclosure inventory, and house price gains will accelerate by early 2016 and outpace the nation’s by 2018.”

In particular, Baltimore’s fundamentals remain strong, says William Rich, senior vice president at Delta Associates, a real estate research and consulting firm based in Washington, D.C. “The city is seeing good job growth, and there is a demographic shift in the market, with more people moving into the downtown area,” he says. “It’s mainly the millennial generation, as experienced in many other cities, including D.C.”

Federal Capital Partners this February completed the third phase of West Village in Durham, North Carolina, which includes 156 luxury apartments. The new six-story building complements the initial phases of the project, which include the historic rehab of tobacco warehouses as 453 apartments and 120,000 square feet (11,000 sq m) of commercial space. (FEDERAL CAPITAL PARTNERS)

Federal Capital Partners this February completed the third phase of West Village in Durham, North Carolina, which includes 156 luxury apartments. The new six-story building complements the initial phases of the project, which include the historic rehab of tobacco warehouses as 453 apartments and 120,000 square feet (11,000 sq m) of commercial space. (FEDERAL CAPITAL PARTNERS)

Over the past 12 months, nearly 850 multifamily units have been absorbed in downtown Baltimore, with an anticipated 5,900 units slated to come on the market over the next 36 months, Rich says. “It’s going to be very competitive over the next three years,” he says. “But absorption has been fairly strong recently.”

North Carolina

Twenty-somethings are contributing to the growth of the multifamily sector in North Carolina, says Scott Mingonet, vice president at Kimley-Horn, a MAY/land planning and design firm based in Cary, North Carolina. “Our clients remain bullish,” he notes. “To meet the demand of millennials and others, we are seeing a lot more pure mixed use, or a mixture of uses on one site with more density than in the past.”

Kimley-Horn’s work across the Carolinas is growing, and the lines between North and South [Carolina] are blurring,especially in the Charlotte, North Carolina, market, he adds. “We are doing work for major retailers like Publix [a supermarket chain] and Cabellas [a sporting-goods retailer] just over the border in South Carolina, and they call it Charlotte,” Mingonet says.

The Tar Heel State is reporting population growth that is translating into a robust real estate market, says Bob Otten, president of Lat Purser & Associates (LPA), a real estate firm based in Charlotte. “Real estate in Charlotte and Raleigh should remain strong through the coming years because of population growth,” he says. “This growth . . . should benefit all sectors of commercial real estate.”

Kimley-Horn and Associates performed the civil engineering and landscape architecture for BB&T BallPark, a baseball stadium in Charlotte, North Carolina. The Uptown-area arena is the home of the Charlotte Knights, a Triple-A minor league baseball team. (Kimley-Horn and Associates)

Kimley-Horn and Associates performed the civil engineering and landscape architecture for BB&T BallPark, a baseball stadium in Charlotte, North Carolina. The Uptown-area arena is the home of the Charlotte Knights, a Triple-A minor league baseball team. (Kimley-Horn and Associates)

As with the other Mid-Atlantic states, North Carolina boasts a healthy multifamily sector. LPA broke ground in May for a four-story, 162-unit multifamily mixed-use complex with 5,800 square feet (540 sq m) of retail space in Davidson, a town on Lake Norman near Charlotte. Occupancy is planned for July 2016. “We are also developing a 76,500-square-feet [7,100 sq m] grocery-anchored shopping center with small shops and out parcels in the greater Charlotte area [that is] expected to be completed the summer of 2017,” Otten adds.

“Our pipeline of activity remains very strong. We are currently working on 12 other opportunities that include new grocery-anchored shopping center developments, redevelopment of an existing shopping center, free-standing single-tenant developments, and acquisition of existing assets.”

While real estate is recovering in Washington, D.C., Virginia, Maryland, and North Carolina, Anderton notes that the region still faces challenges. “The need for making urban developments and transit-oriented developments more profitable for private developers, thus encouraging more development near multimodal transportation hubs, needs to become a priority for public officials,” he says. “One way would be offering density credits that work to encourage urban development.”

Still, Davis notes that millennials in D.C. not only are adding to the population, but also support investments that improve the quality of life in the city. “These include improving transportation options for the new workforce moving in the city, including dedicated bike lanes, [a] streetcar, and infrastructure.”

As the largest segment of the U.S. population, millennials are affecting, and will continue to affect, all aspects of real estate.

Mike Sheridan is a freelance writer in Parsippany, New Jersey.

Mike Sheridan is a freelance writer in Richmond, Virginia.
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