Washingtonian Center

GENERAL DESCRIPTION

Now a retail fixture in Maryland’s I-270 Technology Corridor, Washingtonian Center was an isolated outpost when the current owner purchased the site as part of a bankruptcy sale in 1994 from the FDIC. Intending to do what the firm was accustomed to doing—identifying and developing greenfield parcels as big-box power centers—the Peterson Companies ran up against a municipality that was determined to manage shopping center growth by limiting their size and controlling aesthetic decisions. This is a case in which the public sector dictated what the private sector would do, and despite the one-sidedness of the process, the developer learned to accommodate the public requirements and even to appreciate that, in so doing, both sectors could come out ahead.

The Peterson Companies is a privately owned, Fairfax, Virginia–based development company founded in the early 1970s. In its 30 years, during which there have been two major recessions and numerous local upheavals, the Peterson Companies has remained nimble with a diversity of projects and services: land development of more than 20,000 residential lots; 3,000 for-rent and condominium multifamily units; 3 million square feet (278,700 square meters) of retail space; and over 4 million square feet (371,600 square meters) of office space. The firm’s projects are primarily in northern Virginia and in suburban jurisdictions, but all are within Washington, D.C.’s metropolitan area, with numerous projects in the District of Columbia and Maryland.

The Washingtonian Center was Peterson’s first experience with a ground-up town center, although many of its previous retail developments incorporated amenities associated with town centers, such as recreational and child care facilities, and extensive use of landscaping features to promote retail use. Jim Todd, president of the Peterson Companies, was the driving force in the Reston Town Center project while he was with Mobil Land.

SITE DESCRIPTION

Sam Eig Enterprises, now defunct, started the 300-acre (121-hectare) Washingtonian Center adjacent to Interstate 270 and within the city limits of Gaithersburg, Maryland, during the mid-1950s. In the ensuing decades, the developer built on the property the 18-hole Washingtonian Country Club and the 26-story Washingtonian Towers Apartments, the nation’s first luxury apartment building to be constructed at the center of a golf course. The surrounding area remained largely rural well into the 1980s—even in 2002, an adjacent 420-acre (170-hectare) property, one of the largest family-owned farms in Montgomery County, remains a working farm.

Eig successfully petitioned for an interchange to be constructed to serve the growing development. The enhanced vehicular accessibility maximized its value, whereupon the company sold the entire development to Ackerman Enterprises, a Washington, D.C.–based retail and office developer. In 1992, before Ackerman could realize its purchase’s development potential, the firm declared bankruptcy in the spate of real estate failures brought on by the recession of the late 1980s and the liquidity crisis in the savings and loan industry. The Federal Deposit Insurance Corporation (FDIC)—not the Resolution Trust Corporation (RTC), as one would have expected—gained ownership of the property in the foreclosure and sold it to the Peterson Companies in 1994 in a bankruptcy sale.

The site follows the contours of the trumpet interchange at I-270. Its distinctive landmark—the 26-story apartment tower—still exists and is now surrounded by 784 units of low-rise garden apartments, and 620 townhouse/apartments with an average density of 36 units per acre (90 units per hectare). Created as a golf course feature, a nine-acre (3.4-hectare) manmade lake remains the focal point of the current development.

PLANNING PROCESS

Peterson bought the 102 acres (41.2 hectares) from Ackerman Enterprises with Circle Management, the Washington, D.C.–based theater owner/operator as equity partner. Peterson fully expected to build a power center on the site, with a strategy of selling off parcels to raise funds for its own development. An early plan had four big-box anchors—with footprints up to 104,000 square feet (9,662 square meters)—surrounded by surface parking. It had the usual Peterson Companies’ amenities: a wide pedestrian walkway connecting the anchors, with a tree-lined boulevard intersecting the walkway, and the walkway leading to a lakefront gazebo.

But the city of Gaithersburg, which had annexed the property from Montgomery County in 1991, had also set up restrictions on the design and use of the property, designating it a special study area. Peterson and the city entered into protracted negotiations lasting 18 months. As part of the annexation agreement, the 23 acres (93 hectares) now constituting Washingtonian Center was zoned entirely for office use, up to 4.5 million square feet (418,050 square meters).

In order to build a retail center, Peterson petitioned the city to rezone the parcel from office to retail. In granting the rezoning in 1997, the city required Peterson to limit the allowable office area to 2 million square feet (185,800 square meters) and to build an interchange for the expected traffic from Sam Eig Highway onto the access street that serves Washingtonian Center. The trumpet interchange called for an overpass with four elevated on/off ramps, and the city required that its design be subject to city review. The brick-faced bridge cost the developer $5.9 million. In the end, the city’s parking requirements for new development would have prevented the developer from building the initially allowed 4.5 million square feet (418,050 square meters) of office space.

DESIGN AND CONSTRUCTION

The city of Gaithersburg retaliated against the tendency of developers to bring in big-box retailers by limiting the footprint of each anchor building to 80,000 square feet (7,432 square meters). It also mandated city review of all exterior finishes and materials of buildings and hardscaping, including signs, benches, lights, and other features.

Peterson hired RTKL as master architect to draw up a master plan and set design guidelines. Because Peterson was trying to attract national credit tenants, individual store designs would be executed by the architecture firms desired by the tenants, and RTKL had no involvement in the contract documents except to review them and to support the developer in the city’s permitting process.

Predominant exterior building and paving materials are brick, natural stone veneers, and concrete masonry units (CMUs) in various colors and surface textures. Variety is achieved despite the regularity of the structural grid by overlaying it with colored curtain wall storefronts, store signage, and awnings.

In addition to the city of Gaithersburg’s control over finishes and materials, the city required that no blank walls over 18 feet (5.5 meters) long face the street. In other words, streetfronts had to be punctuated with fenestration, avoiding inward-looking structures. That counters the big-box concept, which eschews fenestrations because they are a waste of space and money, and because they minimize interior wall space. In big-box stores, displays—if any—face inward, and not the street. Further, big-box retailers consider streetfront displays difficult and expensive to keep current. Peterson and RTKL compromised with the city by proposing shallow glazed display windows on the streetfronts of the big-box retailers that contain banners and seasonal signage.

Vehicular traffic is encouraged on the main street through the provision of 38 on-street nonmetered parking spaces. They are arrayed parallel to the street, which minimizes street width. The buildings are 74 feet (22.6 meters) apart, face to face, but have generous 12-foot-wide (3.7-meter-wide) brick and paving block sidewalks with in-ground tree planters along the curb. The developer planted relatively mature shade trees to enliven the streetscape. Street lights, public benches, and curb cuts for handicapped access add to the human scale of a town center ambience.

Traffic is quieted with numerous crosswalks. The dogleg in the street’s length helps, as do the parallel parking and the two skybridges, which give a sense of enclosure to the spaces.

The bulk of the parking is accommodated in parking structures, although some surface parking is available in leftover ground-level spaces. (The pitched open spaces are planted in rye grasses.) All parking not on the street is located behind the retail buildings so that only shops face the street. Most of the structured parking is integrated with the buildings they serve and forms a single footprint; in others, parking is on the upper level, with the street-level space facing the street used as retail stores. Peterson has found that the 2,200 spaces are more than adequate.

At the lake end of the street, the main street terminates as a public plaza, the pedestrian flow interrupted only by a cross street with stop signs. The public center of the plaza is a paved area 80 feet square (7.4 square meters), and facing it are two pad restaurants, with another stand-alone restaurant nearby. Beyond the plaza is a ten-foot-wide (three-meter-wide) boardwalk promenade that rings the west, bulkheaded edge of the lake. On axis with Washingtonian Center’s main street and the public plaza is a 12-foot-wide (3.7-meter-wide) arched footbridge, which provides a link to the Rio multiplex and office buildings along the west side of the lake. The east edge of the lake is greenscaped, with a walkway along the shoreline. A fenced-in children’s public play area with a lake view is nearby.

Currently awaiting construction is an approved plan to complete Washingtonian Center as a town center by building the second phase on the other side of the lake. As mentioned previously, the already built footbridge will link the two phases and reinforce the lake’s status as an amenity-surrounded focal point. The planned second phase will add 800 spaces of structured parking; 180,000 square feet (16,722 square meters) of restaurants; a 210-room hotel; an 87,000-square-foot (8,082-square-meter) office building; and 47,000 square feet (4,366 square meters) of retail uses. The second phase, which is expected to cost $63 million, will also renovate the existing mixed-use Rio entertainment complex and theaters. (The Rio multiplex is owned and operated by Circle Management, the aforementioned equity investor in the Washingtonian Center with Peterson.) Construction is scheduled to start in January 2003.

FINANCING AND TENANTS

The project has been financed privately, aided by the controlled sell-off of pads and parcels that made up the initial 102-acre (41.2-hectare) purchase. For example, the 28-acre (11.3-hectare) discontiguous parcel north of Sam Eig Highway was sold to Boston Properties in 1997; seven- and five-acre (2.8- and two-hectare) parcels at the other end of the site have been sold to office and hotel interests, respectively; and a 15-acre (six-hectare) parcel across the street from the development has been sold to a townhouse developer that has built 94 units on it.

The first big tenant was Galyan’s, a national retailer of outdoor recreational and sports equipment. Galyan’s built a two-story store facing the main street, and a detached two-level parking garage to one side. The store’s footprint is 51,000 square feet (4,738 square meters). Across the main street is additional parking, and the two are connected by an elevated skybridge.

The critical catalyst for success came with the signing of Target, a big-box retailer of household goods presented in a non-big-box environment. Target prefers to build its stores on a single level, but it had previous installations in renovated stores that spanned two floors. The store at Washingtonian Center was its first two-story store built from the ground up, and features “cart escalators” that allow patrons to use shopping carts throughout the store. The store’s footprint is 77,000 square feet (7,153 square meters); of all the project’s stores, it come the closest to the city-mandated limit of 80,000 square feet (7,432 square meters). Target’s parking spaces are primarily in a parking deck across the street. The parking deck connects Target with the development’s second skybridge.

Kohl’s, a national department store, terminates the street with a stand-alone, non-in-line, two-story building with a 50,000-square-foot (4,645-square-meter) footprint. Its parking lies behind the store in an open parking deck whose height is disguised by grade-level changes.

Other national credit tenants, each occupying stand-alone buildings, are Pier 1, Barnes & Noble, Macaroni Grill, Joe’s Crab Shack, and the locally owned Rio Grande restaurant.

Kohl’s and Target each have another store within the three-mile (4.8-kilometer) radius of the city of Gaithersburg. The duplicate stores have not siphoned off customers from each other because of regional growth; Kohl’s sister store has the additional advantage of being located across I-270 and further north, in its own center of growth. In 1994, when Peterson completed its site acquisition, the population within a three-mile (4.8-kilometer) radius of Washingtonian Center was 103,575, with a mean household income of $68,515; within a five-mile (eight-kilometer) radius, 224,924 people and $74,483, respectively. The region has experienced phenomenal growth since, with a current estimated 261,411 people and a mean household income of $79,490 within a five-mile (eight-kilometer) ring.

Tenants’ common area maintenance (CAM) costs have been $3.50 per square foot ($37.63 per square meter), compared with the $8.50 per square foot ($91.50 per square meter) industry average for interior malls.

EXPERIENCE GAINED

Peterson contends that a development at this site would have made more money as a big-box center. But it would have involved protracted negotiations with the city of Gaithersburg with no assurance of a successful outcome while gaining an unwanted reputation as an uncooperative developer. In the end, Peterson learned how to work within a more regulated environment than the one the developer was accustomed to in its home base in Virginia, and is now in a position to apply these lessons for future retail developments with town center themes. The company will continue to seek to build big-box centers because of their greater profitability with lesser exposure to risk.

The display windows—masquerading as storefronts—that Target built to satisfy the city’s requirement for fenestration along all streetfronts have turned out to be a nonperforming asset. On one side of Target’s main entrance is a drop-off area, with a setback in the store’s facade, which Peterson is now proposing to fill in with small shops. They will be only 16 feet (4.8 meters) deep and a total of 70 feet (21.3 meters) in width, with room for up to three shops. It is based on a concept that Peterson noted at The Avenue at White Marsh, a just-completed project at the time Peterson was studying similar models on which to base Washingtonian Center. (The Avenue at White Marsh was also designed by RTKL, Washingtonian Center’s architect.) At White Marsh, seven small retail sidewalk-fronting stores flank the main entry to the project’s centerpiece multiplex. The Washingtonian Center does not have a multiplex, nor does it have a centerpiece store, but the developer adapted that model to this circumstance. Similarly, a corner of a garage at grade level—considered dead space—is being infilled with a small shop that will contribute to the variety available to the shopping center’s patrons. Though these two adjustments may not “pencil out” as an investment, the return on them is expected to be what patrons will consider an amenity.

The developer is finding that tenants, especially national chains, moving into developer-constructed spaces have removed the developer’s storefronts and installed their own in headquarters-mandated colors and configurations. Likewise, whenever tenants fitted their spaces with new interiors, they usually replaced the developer’s mechanical systems and lighting layout with new ducts, registers, and lighting fixtures. In many cases, the tenant fittings were upgrades; in others, the general-purpose layout of the mechanical and lighting systems was inflexible for the customized retail experiences that distinguish them from their competitors.

Peterson did not anticipate the need for a larger public plaza along the lake. Its paved area is approximately 80 square feet (24 square meters), and though the space is proportionate to the two restaurants that face it, and to the lake that it overlooks, occasional programmed public events overflow the space. The success of the two existing restaurants, and a third one nearby, indicates that the public space could have been twice as long with two additional restaurants facing the plaza.

DIRECTIONS

From Dulles International Airport: The Washingtonian Center is across the Potomac River in Maryland, generally 30 driving miles (48 kilometers) northeast of the airport. Depart the airport toward Washington, D.C., on the Dulles Access Road (Route 267). At approximately 13 miles (20.9 kilometers), exit onto Interstate 495, heading north, toward Bethesda/Baltimore. At approximately seven miles (11.3 kilometers), exit from the lefthand lanes onto Interstate 270 north. At approximately 8.5 miles (13.7 kilometers), exit onto the Sam Eig Highway/Interstate 370 exit access road, and take exit 9. Turn left onto Sam Eig Highway and drive 0.5 mile (800 meters) to the Washingtonian Center exit at right onto the overpass. Continue on Washingtonian Boulevard for one-quarter mile (400 meters).

Driving time: approximately 45 minutes in nonpeak traffic.

David Takesuye, report author
Leslie Holst, editor, Development Case Studies
David James Rose, copy editor
Joanne Nanez, online production manager

This Development Case Study is intended as a resource for subscribers in improving the quality of future projects. Data contained herein were made available by the project's development team and constitute a report on, not an endorsement of, the project by ULI–the Urban Land Institute.

Copyright © 2002 by ULI–the Urban Land Institute
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