Development Proposal for a Mixed-Use Property Arlington ...

DEVELOPMENT PROPOSAL FOR A MIXED-USE PROJECT ARLINGTON, VA Drew T Morettini

Practicum Advisor: David Sislen A practicum thesis submitted to Johns Hopkins University in conformity with the requirements

for the degree of Master of Science in Real Estate Baltimore, Maryland April 2012

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Table of Contents Executive Summary..........................................................................................5 Site Overview..................................................................................................5 Ownership History.............................................................................................6 Location Analysis.............................................................................................8 Adjacent Properties and Land Use.........................................................................10 Notable Developments Near the Subject Site............................................................13 Zoning and Land Use........................................................................................14 Clarendon Sector Plan.......................................................................................15 Arlington Economic Drivers................................................................................18 Washington Metropolitan Area Economic Drivers......................................................24 Washington Metropolitan Real Estate Forecast..........................................................27 Market and Feasibility Analysis..............................................................................................28 Retail Market Analysis.....................................................................................28 Arlington Retail Submarket Analysis......................................................................29 Office Market Analysis......................................................................................32 Arlington Office Market Analysis..........................................................................34 Apartment Market Analysis...............................................................................36 Northern Virginia Apartment Market Analysis...........................................................37 Arlington Apartment Market Analysis....................................................................38 Condominium Market Analysis...........................................................................47 Arlington Condominium Market Analysis................................................................48 Market Analysis Conclusion................................................................................54 Development Options.......................................................................................55 Return on Cost Analysis.....................................................................................56 Return on Equity Analysis...................................................................................56

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Development Potential and Site Plan...................................................................57 Site Plan and Entitlements.................................................................................58 Development Plan and Timeline..........................................................................59 Building and Site Design...................................................................................62 Parking Requirements........................................................................................64 Affordable Dwelling Unit Requirements.................................................................65 Financial Analysis...........................................................................................66 Site Acquisition Costs........................................................................................66 Real Estate Taxes.............................................................................................69 Hard Costs......................................................................................................69 Soft Costs......................................................................................................70 Equity Terms..................................................................................................71 Equity Partnership Agreement..............................................................................72 Construction Financing......................................................................................72 Permanent Financing........................................................................................73 Market and Vacancy Rate...................................................................................74 Operating Expenses...........................................................................................75 Reversion......................................................................................................76 IRR and NPV..................................................................................................76 Equity Partnership Returns with Cap Rate Sensitivity.................................................77 Disposition Strategy...........................................................................................78 Risks and Challenges........................................................................................79 Conclusion....................................................................................................80 Bibliography..................................................................................................83 Appendices

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Appendix A: Financial Models Appendix B: Construction Budget Appendix C: Equity Partnership Returns with Cap Rate Sensitivity Appendix D: FAR and Square Foot Summary Appendix E: Return on Cost and Equity Analysis

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Executive Summary This project proposal will explore the highest and best use for a mixed-use development

project located at 1200 North Irving Street Arlington, VA 22201 in Clarendon. The site area includes 10 parcels of land totaling 51,902 SF with a 3.0 FAR. The land was recently purchased by USAA from ZOM Clarendon L.P. in 2011 for $13,500,000 (Deed Book / Page: 4482 / 1337). In 2005, Arlington County Zoning Office approved ZOM Clarendon's site plan for 155 apartment units and 18,540 SF of retail, but the proposal never came to fruition due to the downturn of the market and the residual effect of the financial crisis. With a site plan that is seven years old and the site available for sale, 1200 North Irving Development LLC is interested in purchasing and developing the land but first an analysis of the highest and best must be executed to determine the most feasible investment in the current market. After a thorough market and financial feasibility analysis of potential uses for the site, 1200 North Irving LLC has determined that a mixed-use development featuring 146 apartment units with 15,000 SF of retail would garner the least risk and greatest return from the market. The following proposal will describe in more detail the specific elements of this mixed-use development project.

Site Overview The project site is located in Arlington, VA at 1200 North Irving Street in the neighborhood of Clarendon. The site offers frontage on Washington Boulevard with ingress and egress located on 13th Street North and North Irving Street. The site is bounded by Washington Blvd, North Irving Street and 13th Street North with close proximity to main thoroughfares including Fairfax Drive, Wilson and Clarendon Blvd.

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