D.C.’s Development Appeals Freeze Beginning To Thaw
NEWS | July 18, 2019
Washington, DC
The wave of appeals that has delayed thousands of units of D.C. housing in recent years appears to have reached a turning point with a series of court decisions that experts say should give developers confidence. Vision McMillan A rendering of the McMillan Sand Filtration Site development The D.C. Court of Appeals earlier this month affirmed the Zoning Commission approval for the $720M McMillan development, which had its first approval vacated by the same court in 2016. The decision is meaningful not just because it will allow the long-stalled project to move forward, but because the language in the court’s order displays a shifting attitude that experts say should bode well for other projects facing appeal, experts said. “I think this really is a watershed [moment] for this litigation,” D.C. Director of Planning Andrew Trueblood said of the McMillan ruling. “It clearly outlines the boundaries of what the court is looking for … It sets the stage for what the rules of engagement are.” The McMillan decision came down within a week of two other court rulings that will also allow projects to move forward. In a June 27 ruling, the court affirmed the Zoning Commission approval of Capital City Real Estate’s 180-unit project at 1701 H St. NE, more than 26 months after the project was appealed. Capital City Real Estate A rendering of Capital City’s planned project at 1701 H St. NE Capital City President Scott Zimmerman told Bisnow he plans to regroup the project team and move forward as quickly as possible now that its approval is secure. He was glad the court ruled in the project’s favor but was not happy with the length of time it took to get there. “To put a project on hold for two and a half years is never a good thing,” Zimmerman said. “It’s obviously pretty frustrating to have to wait that long for that to get cleared up.” The third recent court decision came in an appeal over a 46-unit homeless shelter in Ward 5, with the court upholding its approval in a July 3 ruling after the project had already started construction. Additionally, the court issued a ruling March 28 affirming the approval of JBG Smith and Gallaudet University’s Union Market-area project, 20 months after the appeal was filed. In addition to the the cases that have been upheld after going through the full process, appeals have also been either withdrawn by the party that filed them or dismissed by the court. These outcomes prevent the developers from having to wait for a hearing and for the court to issue a final order, but have still caused months of delays that can prove costly. Redbrick LMD A rendering of Redbrick’s 2.3M SF Columbian Quarter development on Poplar Point The group that appealed Redbrick LMD’s 2.3M SF Poplar Point project withdrew its claim in May, 11 months after filing its appeal. Also in May, the court dismissed the appeal over MRP Realty’s Washington Gateway Phase 2 due to lack of standing, three months after the appeal was filed. “I believe there is a light at the end of the tunnel coming from the Court of Appeals,” said Cozen O’Connor partner Samantha Mazo, who has represented developers in several appeals cases. At least 10 other appeals have been withdrawn or dismissed since the start of 2018. But several appeals are still waiting for a court decision and the projects remain in limbo after lengthy delays. The appeal of the Bruce Monroe Park development, a 273-unit affordable housing project in Northwest D.C., has been in front of the court for over 25 months, including a February hearing, but the judges have yet to issue a decision. The case for EYA’s 82-unit townhouse project in Michigan Park had a hearing in March but is still awaiting a decision 16 months after the appeal was filed. The court has also yet to rule on MidCity’s 1,700-unit Rhode Island Avenue project, which was appealed 14 months ago. More recent appeals over the planned Mob Hotel near Union Market, the 600-unit Waterfront Station project in Southwest D.C. and Four Points’ Reunion Square project in Anacostia have yet to be decided after two, five and eight months, respectively. Additionally, two projects for which the court vacated the Zoning Commission’s approval, Brookland’s 901 Monroe and the Barry Farm redevelopment, haven’t had their approvals reinstated and can’t yet move forward. Menkiti Group, the developer behind the thrice-appealed 901 Monroe, has said it is waiting for the ongoing rewrite of the Comprehensive Plan to finish before moving forward. The Office of Planning hopes the Comprehensive Plan amendments will create more clarity around the process to mitigate the delays caused by appeals. Bisnow/Jon Banister The D.C. Council’s Comprehensive Plan hearing in March 2018 drew hundreds of residents to testify. The developers of the projects that still face appeal should feel some optimism about the latest rulings from the court, Mazo said. She said the Zoning Commission began writing more lengthy and detailed approval orders after the court struck down its approval of multiple projects, and the court has begun to show more deference to the commission’s decisions. “If it is a good strong order coming out of the Zoning Commission, like most of them have been recently, then it should at least give some hope and hopefully stabilize people in the development community at the very least that the court is going to be most likely using the more deferential standard of review going forward,” Mazo said. Holland & Knight partner Philip T. Evans, who has represented developers in over a dozen appeal cases including McMillan, also sees this trend and thinks it should give developers confidence. “It’s safe to say the recent spate of decisions on Zoning Commission cases reflects a trend that the developers and the commission are doing a much more diligent job at the commission level of addressing certain issues, including objections raised by certain parties, and the court decisions reflect the legacy of giving deference to agencies,” Evans said. Attorney Andrea Ferster represented Friends of McMillan Park, the group that appealed the development’s approval, and she said she disagreed with the court’s latest decision but doesn’t think it represents a major shift on behalf of the court. “The court has always given deference to the Zoning Commission,” Ferster said. “I don’t think it’s appropriate given that the principles we have cited in our case should have been applied. Had the court taken the required hard look at the Zoning Commission’s decision, in my opinion, I think they should have not affirmed the decision.” Ferster said her primary point of objection related to the medical office building proposed for the campus, which she said doesn’t conform with the Comprehensive Plan’s goals. She also said Friends of McMillan Park and a separate group that appealed the project are pursuing additional avenues, including petitioning the court for a rehearing. The court’s perceived shift may allow more projects to move forward, but it doesn’t erase the time that they lost and the costs they incurred during the process. The costs developers must pay while waiting for court decisions include legal fees, taxes and potential loan payments on the property. What’s more escalating construction costs will likely make the projects more expensive than they would have been had they started when initially approved, Zimmerman said. “Your time is one of the biggest pieces of any development, and to add that amount of time from a cost standpoint and a market standpoint is tough to do,” Zimmerman said. Projecting what the market will look like when a development delivers is always difficult given the time it takes to design, entitle and build a project, but adding two years to the process adds more uncertainty, Zimmerman said. The potential of a looming economic downturn could make the market for new projects less appealing than if they had been able to break ground two years ago, Mazo said. “I am concerned about where we are in the economic cycle, that this will potentially set portions of the D.C. housing market back significantly as we move into the next predicted time of slower economic growth,” Mazo said. “From a financing standpoint, these past two years have been a good time to move forward with development, but if slowness occurs, then the interest will slow down.” The surge of appeals has caused developers to shy away from pursuing planned-unit developments, the process that allows greater density in exchange for community benefits but has allowed opponents to delay projects in the courts. At least two developers scrapped PUDs after being appealed, and an untold number decided not to file a PUD and instead build by-right projects that create fewer units but have less risk of appeal. The number of PUDs filed has decreased significantly over the last year and a half, a trend Mazo attributes directly to the increase in appeals. “It has absolutely caused a chilling effect,” Mazo said. “The fact that PUDs have slowed down absolutely has impacted the ability for D.C. to provide housing, and the number of units caught up in appeals is in the thousands.” The number of appeals has also decreased this year, but that is not because people have stopped opposing developments. Aristotle Theresa, the attorney who has represented groups filing appeals in over a dozen cases, told Bisnow in an email there have been fewer appeals filed because there have been fewer PUDs to appeal. He declined to comment further. Mazo said she has been telling developers that the PUD process has greater certainty now given the Zoning Commission’s more detailed orders and the court’s affirmation of them, and she hopes it leads to more developers pursuing the process. “I would hope that developers and the affordable housing community see these cases as hopefully a way to get more confidence in the PUD process, so hopefully more units can be approved and developed and the PUD tool can continue to be used as it was envisioned,” Mazo said. After waiting 26 months before the court ruled in his favor, Zimmerman is not as optimistic about the process. “The time that it takes is something you have to take into consideration doing any project that requires a PUD,” Zimmerman said. “That is still a huge hindrance to doing these types of projects.”