COMPANY ALSO ACQUIRES WESTWOOD TOWER APARTMENTS OUTRIGHT
Equity One, the development firm that "purchased" the Westwood Complex from Capital Properties via a risky mortgage arrangement last fall, has now exercised its purchase option on two of the included properties.
The Westbard Avenue bowling alley building - currently leased by Bowlmor Bethesda - now is owned outright by Florida-based Equity One. They also exercised their option to purchase the Westwood Tower apartment building, which is next door to the bowling alley.
What Equity One will do with the properties is unknown. Some believe they will wait for the next revision of the Westbard Sector Plan to be completed. I disagree. The new zoning code being rammed through by the Montgomery County Planning Board and County Council has a provision that could allow properties to be rezoned to the new developer-friendly zones, before master plan updates are completed. That maneuver was clearly worked out behind closed doors with developers, as it will greatly reduce public input in the development process. If the property is pre-upzoned, there is little legal justification to deny any plan that complies with the code.
But Equity One will now be under pressure to include a bowling alley in its future development on Westbard. There has been a bowling alley there for more than 35 years, and few are left in the county. Much like any redevelopment plan for the Apex Building in downtown Bethesda will have to include a cineplex to replace the Regal Cinemas, Equity One will have to supply a bowling alley, or they will not get much public support.
It would be helpful if Equity One were to meet with the communities surrounding Westbard to have a dialogue, before coming in with the old "here's the coloring book, but you can tell us what colors you want to use" scheme, where everything is already decided in advance. The biggest questions are: will the retail and restaurants be high quality, will services like pet stores and gas stations/auto repairs be retained, will the architecture of any new structures be unique to Westbard (great designs can go a long way in winning community support), and how much housing, if any, is appropriate in what is a neighborhood commercial services area, not a bustling regional destination? Westbard is not within walking distance of a Metro station, and 85-90% of residents use automobiles.
Surface parking is a must, and it does make a difference. Suburban areas are all about being in the outdoors, with green space and trees. An enclosed garage is beyond inappropriate for such an environment. People don't move to residential neighborhoods in Montgomery County to be surrounded and walled in by concrete.
Of course, the larger Westbard Sector Plan revision process will have to be just as open. After neglecting the area for decades, politicians and developers aren't going to be able to just come in and steamroll everybody, and take money out of the neighborhood. It's going to be a process. There is opposition to a cookie-cutter, urban town center being slapped up on Westbard Avenue. So developers would be wise to put ego aside and "get over it." Opening lines of communication now (and not simply with the Citizens Coordinating Committee on Friendship Heights, which has no legal authority to negotiate on behalf of neighborhoods most directly impacted by future development), and telling residents about what specific retail and restaurant amenities could be added, would be a far easier approach than just coming in with the demolition equipment and a bad attitude.
Speaking of Bowlmor Bethesda, check out the new multi-color stars they've attached to the exterior of the bowling alley/bar and grill.
8 comments:
Couple of corrections here:
1) No reason for purchased to have quotes. The sale was a fee simple purchase.
2) There was nothing risky at all about the mortgage arrangement. The mortgage structure was used with a purchase option because the seller is using a 1031 exchange to buy a new property so he needed time to identify them. The mortgage structure provided "cash now". Nothing risky about it.
3) It is not completely unknown what Equity will do: a) They will sell Westwood Tower to Montgomery County in 2017. b) They will not renew either Citgo or Springwood when their leases expire in 2015.
4) They have not closed on the other parcels yet and Equity is a publicly traded REIT with strict SEC reporting requirements. They cannot just go meeting with everyone and discussing their plans before even closing on the assets. The anti-establishment rhetoric is not helpful and un-informed people that read this will fear the big bad developer coming to town is going to take something away from them when the truth is this tired piece of under-utilized real estate needs redevelopment very badly.
I stand by my report regarding the sale, and risky nature of the transaction, based on recorded statements made by Equity's CEO and industry experts during 2 conference calls this year.
Mr. Olson repeatedly stated that they could do nothing until the properties were fully-acquired, and that he hoped to accomplish that in the next 1-2 years. If Equity had outright ownership, it could start today.
Several investment interests on the conference calls queried the CEO regarding the financing of this deal. Clearly, they were uncomfortable with the arrangement. They said that, not me.
How would cash-strapped Montgomery County be able to afford a property like Westwood Tower in the 20816 zip code? I think taxpayers would like to know more about that. And if the building is converted from multi income to all-subsidised units, that will certainly be an issue for nearby residents.
If you want to get specific information to "uninformed" residents, I might suggest Equity One keep me updated on future Westwood Complex developments. My email is robert (at) robertdyer (dot) net. I can then pass that info along to readers.
I never said Equity had to meet with the community tomorrow, or before it closes on the properties. But that should happen, as I did say, before a specific project is all drawn up and foisted upon the community.
I haven't said Equity One is a "big bad developer." When I decide whether it is or not, it will be solely the result of how the company treats current residents and business owners during this process. Capital Properties certainly earned the "big bad" label, attempting to ram through a 12-story mini Manhattan, refusing to have community dialogue, and having strange, private meetings with an ad hoc group (Coordinating Committee on Friendship Heights) that has no legal authority to negotiate on behalf of the residents most impacted by future redevelopment.
My admittedly naive hope would be that Equity One is a different kind of company. And that by getting some citizen input, it could put its demonstrated experience in retail and restaurant leasing into filling some of the vacuums that have existed on Westbard since the mid-80s. Sit-down family restaurants, ice cream store, fast food restaurants, hardware store, additional retail.
It is ironic you said "uninformed" people will read my blog and think Equity is going to "take something away from them." Because you went on to announce that Equity is going to take away the only full-service gas station left in the town of Bethesda. And a nursing home, where nearby residents have placed their elderly parents so they can easily visit them. So Equity is taking. But what is it going to give?
Finally, your characterization of Westwood as a "tired, underutilized" property is simply your opinion. Have you visited the Westwood Shopping Center on a weekday during business hours? You will find the "vast" parking lot filled with cars. The only empty parking area is on that plot over past Rite Aid, which, as you know, is zoned residential. That is space that could be developed, and where restaurants could be brought to the center. You can't really eliminate any other part of the parking lot without building a parking deck or garage.
So, aside from that empty parking lot section, no property on Westbard can be described as "underutilized." It is fully developed, and the businesses are being "utilized" every day by residents. Westbard is not an urban area, and should not become one.
There is are 2 Citgo's on Westbard. The one next to Park Bethesda will remain. How is it not underutilized to have 2 gas stations 200 yards apart?
Also, questioning the financing doesn't imply that there are risks, it means that there needs to be clarification. You can stand by your statements, doesn't make them any less inaccurate.
Lastly, I live in the community so yes I have visited the shopping center at all hours.
The one by Park Bethesda doesn't have full service, which some of the many nearby elderly residents rely on. If one was to close, it should have been the self-service one. That used to be a Texaco that competed with the other station before the Bonds bought it. The Citgo you say is closing was the only station in Bethesda that had gas during the storm shortages, so it's really going to be a public safety issue to close more gas stations. I think if an educated financial professional raises questions on a conference call, it's credible to take those concerns seriously. I wouldn't rely simply on the firm's own characterization of the risk, which would obviously not be entirely objective. If you can point me to an unbiased source that says there is no risk, I will take a look at that. Again, I'm simply relaying what was said during the calls, and the CEO did not really give a detailed answer to those concerns, in my opinion.
It does raise questions when a "Friendship Heights" committee is negotiating for all the 20816 zip neighborhoods that use the Westbard retail/gas/restaurants.
The fact is that those of us who live in the neighborhoods deserve input.
Let's clear up a few points that we've addressed in this dialouge:
1) I agree 100% that the developers should in include members on the community in the redevelopment discussion AS LONG AS the community can realize this company had nothing to do with the old owner and is as equally open-minded.
2) The second gas station by Park Bethesda should be thrilled if the full service gas station closes. That is an opportunity for them to fill a void in the market if one truly exists as you say it does (because the elderly need full service). If that is the case, it would be very easy for them to fill that void. Still remains, there is not a need for two gas stations so close together in this neighborhood.
Now, I want everyone to read this and they can decide for themselves if what you are purporting is accurate and described as risky OR if the hyper-educated analysts that you describe were so concerned about this loan. This is the transcript for the conference calls you keep referring to:
Ross Nussbaum - UBS
Okay. Final question from me on the Westwood mezz loan was that a modification to the original terms or was that originally contemplated I guess that’s part one and then part two is the 5% rate if I got that correctly looked a little light for a mezzanine can you talk about that a little more?
Jeff Olson
I mean it’s really more of a mortgaging loan and that was negotiated when we initially structured this transaction from the on-set. And basically what it did is that allow the seller sometime to find an exchange property because he is going to consummate a 1031 transaction.
Mark Langer
So the pricing reflecting Ross the clear ability intend for us there – we knew we were going to capture the asset within a year so it wasn’t from our standpoint any undue risk the intend of it was to acquire the asset.
Ross Nussbaum - UBS
Is there any contingency in the acquisition to their finding another property or not?
Mark Langer
No.
Jeff Olson
No.
Ross Nussbaum - UBS
Okay. Thanks guys.
Jeff Olson
Contractually by I think its January 15th of next year contractually…
Mark Langer
There is a hard stop.
Jeff Olson
He is obligated to sell to us.
Ross Nussbaum - UBS
Appreciate it, thank you.
That's all well and good but inquiring minds want to know if Equity One is going to tear down community's the bowling alley.
Only if Bowlmor agrees. You can't just tear buildings down when there is a long term lease in place. If they do agree, then the community should blame themself for not going bowling more often.
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