Southeast D.C. Still Poised For Growth, But Pandemic Could Slow Momentum

The Southeast D.C. neighborhoods east of the Anacostia River have long suffered from underinvestment, but a series of new projects moving forward over the last two years have begun to create momentum for the area. 

The area's momentum could be dampened by the coronavirus pandemic and economic crisis, just as construction starts across the region and the country have slowed down this year. But stakeholders still see the key pieces in place for Southeast D.C. to experience the type of long-term economic development that other parts of the city have benefited from. 

The coronavirus has made it difficult for many small businesses to survive, and Menkiti Group CEO Bo Menkiti said that is particularly true in emerging neighborhoods.

"COVID has real impacts on businesses and residents across the city, and probably has greater negative impacts east of the river," Menkiti said. "COVID doesn't hit everybody the same. Especially for businesses already in areas where they operate on thin margins and were trying to flourish and grow, that's a big challenge."

These challenges could slow the development of Southeast D.C. in the near term, Menkiti said, but he remains bullish on its long-term prospects.

"I don't think [COVID] in any way stems the broader economic development going on east of the river and in Anacostia specifically, as that's driven by longer-term and more locked-in economic trends," Menkiti said. "It may slow some of it, maybe by a year or more, but it won't stop that trend."

WC Smith Senior Vice President Brad Fennell, whose firm owns a large portfolio of Southeast D.C. apartments and is partnering on the Skyland Town Center project, also remains confident about the area's future growth despite the possibility of a near-term slowdown. 

"If the pandemic didn't hit, and we were still in a robust economy, I would think we would see more activity sooner than we're going to see," Fennell said. "But I don't have a negative outlook to suggest that because of the pandemic, we're going to [see] a crippling of the development pipeline in these neighborhoods."

Menkiti in January broke ground on the first phase of the MLK Gateway project in Anacostia. The mixed-use project will be anchored by technology company Enlightened, which is moving 150 employees from downtown D.C. Menkiti signed Capital One Café to a 3,700 SF lease in the first phase for its first location east of the river. 

The developer in July landed an office anchor for MLK Gateway's second phase, when Mayor Muriel Bowser announced the Department of Housing and Community Development would shift from another Anacostia building to occupy 55K SF at Menkiti's project. 

MLK Gateway still has multiple retail spaces available for lease in the first and second phases. Menkiti said landing office anchors has helped spur interest for the retail space, but the pandemic has made retail operators more hesitant about expanding to new areas.

"We've seen a lot of interest in folks to grow, they're just more tentative," Menkiti said. "People remain interested in this area as a place to grow, but I think in general food operators are reassessing and trying to make sure they have a clear path forward on their business model."

The MLK Gateway project is one of several developments moving forward in Anacostia and the larger Southeast area. 

Redbrick LMD's 2.3M SF Columbian Quarter development on Anacostia's Poplar Point has been delayed by appeals and by the lack of an anchor office tenant, as the developer has unsuccessfully attempted to land multiple government agencies. But some portions of the project could begin construction soon.

Anacostia BID Executive Director Kristina Noell said Redbrick has told her it plans to break ground next year on the first workforce housing and apartment components of Columbian Quarter. Redbrick didn't respond to requests for comment.

"They'll be breaking ground on that in 2021," Noell said. "That is definitely in place that they'll be moving forward. They would love to have a federal agency there that's the foothold, but they are in conversations with other entities and some things look really good."

The Columbian Quarter project is planned to include 1.6M SF of office space, 700 residential units and 52K SF of retail along Howard Road. Redbrick acquired another site next to the project in July and filed a zoning application last month to allow mixed-use development on the property.

Another zoning application was filed last month for the long-planned redevelopment of the Barry Farm community in Anacostia, which has also been delayed by appeals and by a court vacating its approval. The Office of Planning filed an application to rezone the Barry Farm property to allow mixed-use buildings of up to 65 feet. 

Also in Anacostia, Four Points and Curtis Investment Group are planning more development at their Reunion Square project. The next phases of the project, planned for 143 multifamily units, 280K SF of office and retail, have received investment from the District through a tax increment financing package. The developer hasn't announced a timeline for construction and didn't respond to requests for comment. 

Noell said she sees the Anacostia neighborhood as one of three major nodes of growth in the Southeast D.C. area, along with the St. Elizabeths East campus and the Skyland Town Center developments.

Skyland Town Center, the major Southeast development from Rappaport and WC Smith, is preparing to welcome its first residents early next year. The project's first phase, featuring 263 apartments and 84,500 SF of retail, is scheduled to deliver in January, Fennell said.

While the pandemic has decreased apartment demand in D.C. and created downward pressure on rents, Fennell said WC Smith has continued to sign leases at its projects on H Street and in Capitol Riverfront. He said the Skyland area is more of an unproven market, but he thinks there is interest in the neighborhood for new apartments. 

"If I had my druthers I wouldn't be delivering in the middle of a pandemic, and certainly there's trepidation there, but all things equal, we are still seeing people signing leases and absorbing apartments, and housing is a critical need and there's a shortage," Fennell said. "We think it's exciting to be opening in a new market."

Skyland has also landed several retailers that will bring new food and service offerings to the neighborhood. It has landed CVS, Chase Bank and Starbucks plus grocery store Lidl, which last year inked a 29K SF lease for the project's second phase. 

Rappaport President Henry Fonvielle, whose firm is managing the project's retail, said it is currently in talks with multiple potential restaurant operators to open full-service and fast-casual concepts. 

Fonvielle said the pandemic's impact on retail has been most pronounced in the office-heavy downtown area, and neighborhoods like Skyland could benefit from operators looking to open new locations during the recovery. 

"Right now there's not much focus on downtown D.C., so there's space to consider markets that are underserved, and Southeast and Skyland specifically have been underserved for so many years," Fonvielle said. "I think people are pausing and saying, 'This is something we need to do.' And it's the right thing to do."

The St. Elizabeths East campus is also welcoming residents to new apartment buildings. 

The Bowser administration and the development team of Anacostia Economic Development Corp. and Flaherty & Collins Properties announced last month they are nearing completion on the final buildings of the Residences at St. Elizabeths East. 

The $107M project was a renovation of seven historic buildings that delivered 202 affordable units and 50 market-rate units. The project was already 55% pre-leased as of the Sept. 16 announcement, which said it anticipates being fully leased by year-end. 

“The St. Elizabeths East Campus is brimming with potential for the District to be bold and innovative when it comes to building and delivering housing for families and residents across the income spectrum,” Bowser said in the September release. “With this newest project nearing completion, we remain focused on ensuring that Ward 8 residents not only are benefiting from new housing, but also the new amenities and opportunities that are coming to the site.” 

The residential buildings come after the 2018 opening of the Entertainment and Sports Arena on the St. Elizabeths East campus, a 4,200-seat facility where, when a pandemic isn't getting in the way, the WNBA's Mystics play their home games and where the NBA's Wizards practice. 

In April, Bowser announced D.C. reached an agreement with George Washington University to build a 136-bed hospital on the St. Elizabeths East campus. The $306M project is expected to open in fall 2024. 

Developers agreed that the District's investments have been critical in spurring growth in Southeast, from St. Elizabeths East and financial assistance for other developments to major public infrastructure projects like the new Frederick Douglas Memorial Bridge and the 11th Street Bridge Park. 

While it has continued to invest heavily in these neighborhoods, the District now faces major budget challenges, with the coronavirus causing projected tax revenues to drop by more than $200M for the current fiscal year. This budget crisis will force it to find ways to cut spending, but stakeholders don't think it will reduce funding for economic development in Southeast. 

"I can imagine the stretch with the tax situation ... but there were things already in the hopper that dollars will remain for," Noell said. "I could see that depending on where we go this winter, with regard to COVID and everything, but I also feel that there's energy around at least maintaining the status quo. But we have had the status quo for a long time, so we are looking for more."

Menkiti said he thinks investing in Southeast D.C. projects will create returns for the District in the form of future tax revenues that will help solve its budget challenges over the long term. MLK Gateway received $3M in tax abatements from the District. 

"What they give to support us at MLK Gateway they get back millions of times over," Menkiti said. "I don't think of those things as subsidies, they are investments and they have huge returns for the District. So east of the river, some of the investments the District makes are fairly small, and the returns are not immediate, that's the only issue. But the returns over the next five to 10 years are huge."