Two years ago, a new development at 14th and W streets, N.W., in Washington, D.C., that would house the new YMCA Anthony Bowen facility was announced. But before the Perseus Realty project could begin, the credit markets collapsed. The development was put on hold and many in the industry thought that was the end of the 14W project.
Those naysayers underestimated the determination of D.C.-based Perseus and its president, Robert L. Cohen.
Today, the long-awaited development is rising on the site. The approximately 300,000-square-foot (27,870-sq-m) 14W will be a new mixed-use building with 231 apartments on six floors with 10,000 square feet (929 sq m) of ground-floor retail space and 170 below-grade parking spaces. The project will also house the new YMCA Anthony Bowen facility, a 44,000-square-foot (4,087-sq-m) athletic and community center to include a pool, state-of-the-art cardiovascular and resistance equipment, group exercise studios, and a child care area.
Perseus Realty is permanently reserving 8 percent of the rental units for families whose wages fall below 60 percent of the area median income.
Cohen claims that Perseus never actually abandoned the project. “We worked it every day until we came up with a formula that made sense,” he says. “We decided to complement our development team by joining forces with Jefferson Apartment Group [JAG], a residentially focused development company that has built over 18,000 units. The combination of our new joint venture and the improving capital market for residential projects enabled us to proceed with construction.”
Perseus not only revised its business plan by bringing in a larger residential development player, JAG, as co-developer to complement its own development expertise, but it benefited from JAG’s connections. Through its relationship with JAG, Perseus replaced a capital partner who was no longer in a position to finance the development. As the credit markets began to show signs of life, Perseus, JAG, and its new equity partner, Rockpoint, were now well positioned to take advantage of this improved availability of construction financing. “We were confident that once construction lenders returned to the market, our well-located development with strong sponsorship would be financed,” Cohen adds.
Not only that, says Cohen, but also Perseus discovered that in some instances, a multiyear delay could actually be beneficial. “Although construction financing dried up, the construction costs decreased by 25 percent and interest rates plummeted,” he continues. “Meanwhile, the rental market in the neighborhood stayed stable and strong. In addition, our experience reinforced our view that structuring deals properly from the onset is critical. By limiting carrying costs and developing in triple-A locations, one can survive a downturn.”
Realizing that other projects have been stalled because of financing issues, Cohen advises developers to make productive use of the “downtime” caused by a down market or recession. “Specifically, when a developer ‘shelves’ something, make sure his/her plans and permits remain current [or renew, if possible],” he cautions. “So, when the time comes, he/she can spring into action without a long delay. As we all know, development has such a long lead time, and removing these potential delays will enable developers to be more responsive to the market.”