In the Words of Douglas Jemal...
Real estate development, and particularly revitalization and rehabilitation of historic, iconic, landmark properties, is about so much more than the numbers. While – at the end of the day – it is the developer himself – and the decisions that he or she makes – that will determine the success or failure of the project, it also depends on the state of the real estate market, the development of the surrounding neighborhood, the existing and future political climate – and perhaps above all else – patience and timing.
I feel the story of my acquisition and redevelopment of the Woodies Building…
1025 F Street, NW, Washington, DC, perhaps provides the most complete example of a development that faced the entire gamut of typical hurdles to overcome, and, due to its history, its high profile and its location – quite a few additional challenges.
The Woodward & Lothrop department store building was constructed in stages in the late 19th and early 20th century. The department store was the sole occupant in the building until it closed in 1994 due to the bankruptcy of the parent company. In 1996, the building was put up for sale at auction. I was one of the three final bidders, but the Washington Opera submitted the successful high bid of $18 million. They planned to turn the building into the site into a Downtown Opera House. However, they soon found several insurmountable obstacles made this conversion impossible from both an engineering and an economic perspective. For example, in order to convert the building to an Opera House, they needed to reconfigure the exterior of the building as well as remove the interior columns. The additional structural support that this would have required would have been impossible due to the building’s location, right on top of Metro Center. The Opera soon realized that their only course of action was to put the building up for sale again. I was determined that this time, I would be the successful bidder.
In February 1999, while traveling in California on a short business trip, I was informed that in fact my bid for the building had been accepted, $28.3 million with a 30 day close, contingent to nothing. I soon arranged the logistics for this purchase, and by late March 1999 I had this treasured asset under my control. My excitement was evident, as I was quoted in a March 4, 1999 article (Corridor Real Estate Journal) “It’s a magnificent piece of property and the catalyst of the whole area. It’s got its own Metro Stop and 50,000 square foot floor plates.”
Despite the iconic nature of building and fantastic location, I faced an array of challenges that had to be overcome before the redevelopment could actually occur. First of all, and most importantly, was the zoning, the building was zoned as a department store, its alternative uses were “arts related retail” and by matter of right, residential. In the late 1990’s, there was a tremendous focus on attracting residents back in to the City, and tremendous pressure on developers to dedicate all or part of any redevelopment to residential uses.
However, I always understood that the Woodies Building was unsuited to a residential use, as its vast (50,000 square foot) floorplates precluded the layout of viable apartment space. The only way this would have been possible would have been to create an enormous atrium – literally to cut out the entire middle of the building. Not only would this have resulted in a tragic disfigurement of a beautiful, valuable historic asset, it also made no sense economically. I was not willing to destroy this asset to suit the purposes of a shortsighted political agenda. If the City was not willing to allow me to do what was right with this Building, I was perfectly happy to live in the building myself, with my dog, until the time was right.
I always knew that the proper use for the upper floors of the building was for office space, this was the only use where the floor plate size would be an advantage rather than a handicap. Therefore, I patiently and determinedly endured the attacks on me regarding the zoning and uses for the building from housing activists and others. No less than Senator Daniel Patrick Moynihan weighed in on the fate of the building, in a letter he wrote to the Zoning Commission in late 1999, citing “the building’s long downtown history and presidential interest in keeping the building zoned for residential and “begged” Chairperson Clarens not to permit office space on this site”. How the preferred use of my building became the business of a longtime U.S. Senator from New York I have never figured out.
My response to these pressures was best summarized by a quote in a September 1999 article: “There has been a tremendous amount of injustice done to me over this property. But I am the pitcher, I own the property, and nothing happens until the ball is thrown”. I was determined that, with time, patience and the proper plan, the optimum use for the asset could be achieved, and what I knew to be the Correct Plan for the building could be executed.
In the spring of 2001, my patience was finally rewarded. In return for my agreeing to build residential projects at two alternate sites (910-916 F Street and 400 Massachusetts Avenue), the leading downtown housing activist groups agreed to support my zoning petition for office use above the second floor of the building. In April 2001 the Zoning Commission unanimously approved the petition and granted the Order that allowed office use.
Now that I had the zoning in place, I could actually get to work on leasing the building. However, the downtown housing pressure was not the only pressure at work at Woodies. There was tremendous desire for the return of a department store downtown, and in fact at the time the zoning order was granted I was working closely with Macy’s on making this a reality. This was no small achievement, not so many years before, the downtown department stores had completed their exodus of Downtown D.C., to the suburban shopping malls. I was tasked with reversing this trend, and beginning the process of luring them back. Despite a pledge of tax increment financing from D.C., Macy’s ultimately balked, and I began to court other retailers, looking at broader alternatives to the tenant mix. I held my leasing meetings at the loading dock of Woodies, to the sound of an Otis Redding tape (Sitting on the Dock of the Bay).
In 2003, I began to finalize my negotiations with my first retail tenant at the property, the popular international clothing chain H&M. At the time the building was under construction and had a tower crane welded to the roof. I leased the space to H&M solely on the basis of a percentage of sales. I also funded all of their tenant improvements out of pocket, and gave them a kick out clause in their lease whereby they could walk away if they were not happy with the store’s performance. For these concessions, I insisted that H&M open a true Flagship Store, with all the bells and whistles, a store worthy of the Woodies Building and its location (Metro Center). We agreed to terms and H&M opened late in the summer of 2003. Since F Street had not yet begun the “renaissance” then underway at some other parts of the East End sub market (7th Street), this was considered a gamble, but a gamble that I was confident would ultimately pay off. It did, H&M’s initial sales far exceeded expectations and now – 9 years later – they have continued to increase at an impressive rate each year.
By early 2004, my base building renovations were largely complete, these improvements included the addition of a new, all glass, 9th and 10th floors, with setbacks that maintained the historic appearance of the property. The office portion of the building began to be occupied, largely by full floor users. The initial office leases were to the GSA, first the EPA, then to the FBI. Then the building continued to fill, basically leasing up a floor at a time to a variety of private users, with the Recording Industry Association of America occupying the 10th floor by 2007. Also by 2007, the remaining retail spaces at the building were being occupied by significant tenants, Zara, Madame Tussauds Wax Museum, and finally by Forever 21.
Woodies has become everything I had envisioned that it could be and should be, and along with it, the F Street Corridor and the entire East End of Downtown has been converted to a vibrant, 24 hour Destination for retail, restaurants, entertainment, residential and office uses.
Although it became an incredibly successful project from an economic standpoint, the redevelopment of the Woodies Building was never about ROI, IRR, NOI or DSC. It was about Vision, Patience and Confidence. The Vision to see what the Asset, the Neighborhood, and indeed the entire City could be and would be with the right leadership to get it there. The Patience to take the time, devote the effort and wait until the forces aligned to ensure that the development was done the Right Way. And the Confidence to believe in your plan and see it through, for if you don’t truly believe in what you are doing, you will never convince others who are crucial to the success of your development (tenants, zoning board members, surrounding property owners, etc.) to believe in and support your efforts.
– Douglas Jemal, 2012