Museum Square Saga Just Beginning

Earlier this month we highlighted news that Museum Square Apartments will not be renewing its Section 8 housing status. In order to adhere to the Tenant Opportunity to Purchase Act (TOPA) an offer of sale has been issued to the tenants of $250,000,000 – which equates to over $830,000 per unit. Clearly not fair market value for the existing state of the units and more of a price driven by the raze and redevelopment potential of the land. The assessed value of the property is $36 million.

Museum Square Apartments at 401 K Street NW

Museum Square Apartments at 401 K Street NW

Aaron Wiener of the Washington City Paper’s Housing Complex recently penned a two-part update on this situation. Part one outlined many of the details and is supported by quotes from affected residents. Part two highlights legislation At-large Councilmember David Catania is trying to push through to regulate TOPA for Section 8 housing buildings to make it adhere strictly to the assessed value. Considering Catania is the major opponent for Murial Bowser in the 2014 Mayoral election this issue could become a major political lightning rod.

I don’t pretend to fully understand all the aspects to this issue. Much is yet to be revealed. On the one hand, Mount Vernon Triangle has been able to develop without any large scale displacement until now. Many would like to see that pattern continue. I think most of us at least support the idea of keeping the Mount Vernon Triangle as a mixed-income community.

On the other hand, if Catania’s proposed legislation allows the Tenant Organization to buy the building for the assessed value of $36 million (~119K/unit) and then the tenants then turnaround and sell their building for $80-$100 million (or more) to another developer to capture the windfall from the redevelopment potential for themselves would that seem fair to you? Should tenants have that much power to essentially capture the gains the property owner typically has the right to?

This saga will undoubtedly continue on throughout 2014 and beyond. We will attempt to provide updates as we learn them.

Hat Tip: PQResident, TedW

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Comments

  1. 1

    Alejandro Guerrero says

    Creating a Tenant Organization involving dozens and dozens of tenants, and then getting a consensus among all of them on whether, when and how to sell the property (the *whole* building) right after is not something is going to happen quickly.

    It is the responsibility of DC government to make accurate assessments of property values. If they have done their job, then $36 million is accurate given the age and quality of the structure. The building owner could consider waiting as prices in the neighborhood are meant to be adjusted upwards over time, given the number of luxury properties being built around, the commercial rise of the neighborhood, the arrival of the DC tram to K street, etc. Then, by waiting, he will be able to capture a bigger share of the windfall.

    I don’t think the low income families are “taking advantage” of the system or will be able to do so easily. And given the limited number of opportunities DC offers to low income families, I am happy if, for once, they get a bigger share of the cake than usual. It seems fair to me. They chose to live in this area when it was literally the wild west, with extreme crime around, prostitution and very poor urban landscape, not to mention the quality of some schools around. It would be a happy story if the sacrifices from the past are compensated now. Social welfare should prevail over individual profit, in my humble opinion.

  2. 2

    jeffb says

    If the building/property is assessed at only $34 million but could easily be resold for $80 – 100 million more then the issue is why isn’t the District accurately assessing the building in the first place?

    I have a condo in PQ and, in my case (i’m not a fancy rich developer), the District has been very aggressive in increasing my assessment every year.

  3. 3

    FourthandEye says

    I waded through the comments section of one of the WCP articles and found this:

    “Yes, the property is assessed at 36 million. Why? Couple reasons. It’s registered as a section 8 building which keeps its assesible tax value low, and the building is a POS, which further lowers its value, so your per unit calculation is highly flawed as the buildings underlying zoning and FAR allows far more units if redeveloped.

    Half that value, 17 million is the land. The complex is on a two acre parcel, meaning the land is currently valued at about 8.5 million an acre.

    The new apartment building literally across the street are on a 17,000 sf parcel whose land value is assesed at 13 million, or 33 million an acre which is the true market value.

    Point being, the land alone under this section 8 complex is worth about 65 million all by its self”

    Those back of the envelope calculations on the land value are unofficial but seem to be based on simple and straightforward assumptions. The assessment for the property’s land is low compared to properties on the same block. There may be regulations regarding assessments that are artificially suppressing the number but it’s clearly suppressed.

  4. 4

    Alejandro Guerrero says

    My bet is that, given that tenants are asked to pay 30% of their income (which it’s really low, in the hundreds per month, according to the quoted City Paper story), the District (and the Department of Housing, if I am correct) shall pay the remaining of the rent. High property reassessments would go in detriment of the District’s finances. That said, I am sure there are regulations in place that override these considerations.

  5. 5

    says

    I see two issues to grapple with…

    a) what is the fair market value of the property both “as-is” and as a raze project where one is valuing the land + the construction of a new edifice?

    b) should the current residents of Museum Square receive any kind of special dispensation from the DC government via a city agency or DC law? (my understanding is that this is what TOPA is supposed to do.)

    it would seem that if the building’s owner received a “bona fide” offer of $250M then they should have nothing to fear about disclosing to the city who offered that amount or how they arrived at that number. if it’s a laughable calculation or a strawman offer, then some other method should be used to arrive at a fair number. (BTW, I am not proposing that it be the pure assessed value which has its own pitfalls as property owners know.)

    if part of the mission of the DC government is to encourage affordable housing and that mission extends beyond 100% DC or Federal government owned projects to Section 8 subsidies provided to the private sector then the government has a vested interest in not allowing the permanent uprooting of a few hundred vulnerable households or at the least providing a pathway to a roughly equivalent housing situation perhaps in another location. if this is not the government’s mission, then let pure market forces take effect.

    redevelopment of the Capitol Waterfront neighborhood near Nats Park strikes me as a balanced and currently successful way to renew an area while providing a pathway for lower income and public housing residents who resided in the neighborhood to stay if they like the area and wish to stay. it can be done.

  6. 6

    FourthandEye says

    >> “Redevelopment of the Capitol Waterfront neighborhood near Nats Park strikes me as a balanced and currently successful way to renew an area while providing a pathway for lower income and public housing residents who resided in the neighborhood to stay if they like the area and wish to stay. it can be done.”

    I think your are probably referring to the Capper/Carrollsburg redevelopment in the Capitol Riverront that received a HUD HOPE VI initiative. Does anyone know if the government owned those former housing projects or if those properties were owned by a private landlord as with Museum Square?

  7. 7

    Batman says

    Capitol quarter or capper/carollsburg was a joint venture between dc gov and a private developer(eya)

  8. 8

    FourthandEye says

    >> Capitol quarter or capper/carollsburg was a joint venture between dc gov and a private developer(eya)

    I’m familiar with EYA and the townhomes they built in Capitol Quarter. But I guarantee EYA was not the owner of the housing projects while they were still housing projects. EYA redeveloped the site sure… but did they redevelop it as part of an RFP the District issued and selected them for? If so, then it was likely either the District owned the capper/carollsburg housing projects or bought them from a private landholder prior to putting redevelopment into motion via an RFP/HOPE IV grant etc…

    This is all just a roundabout way of saying that you can point to other cases where Section 8 housing projects were developed into mix-use, but the circumstances may not be the same. The government can have much more control if they are the property owner.

  9. 9

    says

    I don’t know for sure (can’t find any references) but I think Capper may have been publicly owned whereas Museum Square is certainly privately owned. this could be a very real material difference and a fair point. on the other hand, it was government subsidies that allowed MS to charge whatever it is they charged and get a rate of return all these years.

    if the MS owner is meeting the letter of the law it would seem they’re not meeting the spirit of it. I think that’s part of why Catania is acting and there’s a ruckus. (there’s this Mayoral contest thing happening too…)

    again, I think one has to ask what the DC government’s role is and then act accordingly.

  10. 10

    rezident says

    Looking forward to redevelopment — that surface parking lot is a big waste of space in the middle of the city.

  11. 11

    City.Vista.rez says

    Growing up, as my family’s fortune ebbed and flowed we bounced back and forth more than once between being renters and homeowners. As renters we knew the score. When we had to move before we were ready because the owner decided he wanted to occupy the house himself along with his new wife, it never occurred to us to say “No, that’s not fair.” It’s just how it goes and when you own you expect the same freedom. Just because someone has rented someone else’s property for a lifetime doesn’t give them any kind of entitlement to the space or the neighborhood.

    If the owners of Museum Square have satisfied the terms of their Section 8 agreement and now want to sell the property to the highest bidder then that should be the end of it. I don’t understand why David Catania feels the need to draft emergency legislation aimed at curtailing the rights of legitimate property holders.

    According to City Paper, “David Catania drafted emergency legislation to…regulate the price that developers can charge tenants for a building slated for demolition.” “The emergency legislation would require that the offer for sale made to residents of a Section 8 building…be based on the assessed value of the property. ”

    The assessed value of the current “as-is” property is $36 million, but that’s not the value of its redevelopment potential in this newly hot neighborhood and everyone knows that, so why all the hyper-focusing on the difference between $36 million and $250 million?

    It sounds like Catania is trying to force the owners to sell the building and not demolish it, which is their prerogative, and to legislatively deny them the true value of their property. That kind of government strong arming gives Democrats a bad name, and I do count myself among them. I’m all for social services but they must be administered intelligently. Give the vulnerable subsidized housing, but it doesn’t have to be in the neighborhood of their choice.

    The current residents of Museum Square will not be left homeless; there is more Section 8 housing in the DC metro area. It may not be in an up and coming neighborhood with all the amenities and conveniences of Mount Vernon Triangle and it may not even be in the District, but when you are dependent on government subsidies you have to expect to make compromises.