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The Neighborhood Development Co. (NDC) focuses on the revitalization of emerging neighborhoods in Washington, D.C. Two of the company's executives, its president, Adrian Washington, and its vice president of sales and marketing, Steve Cassell, spoke recently with Angela Allen, MHN's associate editor.
MHN: Neighborhood Development (NDC) has been active in the D.C. Metro area since 1999. Discuss some of the market changes the company has seen over time that time.
Washington: When we began, condo development in emerging neighborhoods was a rarity—it was a real struggle to convince lenders and equity providers to invest in this product. But the buyers were snapping them up as soon as we could build them. Buyers were willing to bet on these chancy neighborhoods because they wanted to get in on the ground floor before prices shot up. Today, we see condo projects by us and other developers on land that you could buy for almost nothing a few years ago.
MHN: NDC focuses on development projects in the $5 million to $15 million range? Why?
Washington: Most of our current pipeline products fall into this range, although we have one or two projects under review which would be considerably larger. We find this to be an attractive "Goldilocks" niche—bigger than the mom and pops, but smaller than the national players. There is less competition in this niche and thus more opportunity for profit. Also, these projects typically are easier to entitle and quicker to get built, reducing market risk and increasing time-adjusted return on investment.
MHN: The D.C. Metro market has long been one of extremes, with wealthy neighborhoods like Georgetown and others existing within blocks of subsidized housing. Discuss the unique challenges of developing in urban infill areas such as this.
Washington: In 1999, it was much more challenging. Today, savvy buyers see neighborhoods where a few years ago you were scared to walk down the street at night. Now, properties in these same neighborhoods are selling at price points above that of the city's best areas back [in 1999].
The current challenge is finding available sites of sufficient scale for us and creating product that appeals to the ever-more-sophisticated buyer that can be built at a reasonable cost in today's rapidly escalating construction- cost environment.
There are also the negative sentiments, some legitimate, some not, of those who oppose what they feel to be the "gentrification" of a previously low-income neighborhood. The loss of affordable housing is a real issue for our city; we believe that on balance we have been a positive force in the revitalization of our city's neighborhoods and have provided homeownership and wealth-building opportunities for many residents that would not have otherwise been available.
MHN: NDC has focused on for-sale. What are your plans on the rental front?
Washington: Until recently, we had focused almost exclusively on the for-sale product. As our company matures, we are devoting more attention to developing a portfolio of residential and commercial rental properties to build long-term value.
MHN: The D.C. Metro area is expected to add an additional two million residents to the region by 2025. What do you see ahead in terms of the area handling this growing population and the need to build high-density developments?
Cassell: Demand for new housing in Washington D.C. itself is running at approximately 25,000 new units per year. Currently, the development community is delivering around 2,500 new units per year. Most experts believe that we are at or near our maximum capacity due to limitations of vacant buildings, available land and land prices.
Therefore, this skew in the supply-and-demand curve is driving apartment-to-condo conversions and the strong growth in prices in recent years. In order to keep up with this growing demand, we're going to have to see continued developer-friendly relations with the D.C. government, as well as improvements in the permitting process to speed the pace of developments.
We expect to see continued high-density development downtown and in neighborhoods like Columbia Heights and U Street extend further into Petworth, Brightwood, Brookland and the neighborhoods near the Rhode Island Avenue and Fort Totten Metro stations. Finally, look to see a major increase in development in D.C.'s long forgotten neighborhoods east of the Anacostia River.
MHN: Do you anticipate developing more mixed-use projects?
Cassell: We approach each project with an eye on the characteristics of the particular site upon which we are considering pursuing a development. We do not prefer mixed-use over a pure residential play, or vice-versa, but rather attempt to plan developments that are the most appropriate for the site and neighborhood in which we are operating.
It is always our goal to enhance the fabric of the neighborhoods in which wedevelop, while maintaining a diverse pipeline of projects. Included in this mix of projects is mid-sized condo and mixed-use developments in our key neighborhoods, as well as joint ventures with large regional and national developers. We also include charter-school development in our portfolio, which enables us to bring new educational opportunities to our neighborhoods while adding long-term lease income as a hedge against fluctuations in the condo market.
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