- The Washington Times - Monday, September 25, 2000

15 minuted with E. Randall Lennon

It may require an active imagination to see Southeast Washington as the city's next economic powerhouse unless you're E. Randall Lennon.

Mr. Lennon, a managing director in the D.C. office of Greenville, S.C.-based brokerage Insignia/ ESG, believes Southeast is on the verge of becoming the next hot office market in the city.

In the last year, some of the largest lease deals in the District are for space in Southeast.

Marconi North America has leased 90,707 square feet at 80 M St. SE, and PRC Inc. and Lockheed Martin have pledged to take more than 165,000 square feet in a building under construction at 300 M St. SE.

Marconi, PRC and Lockheed are coming to the neighborhood because they all do business with the U.S. Navy, which is credited with sparking interest in Southeast after it decided in 1995 to move more than 4,000 naval jobs from Arlington to the Washington Navy Yard on M Street SE.

But according to Mr. Lennon who has worked in the Southeast market for the last three years the much-publicized Navy move won't be the only reason behind the neighborhood's renaissance.

Question: How important has the Navy's move to Southeast been to the office market there?

Answer: It's been the driver of a lot of the activity.

Navsea [the Naval Sea Systems Command] is building 1 million square feet of new office space in the Navy Yard; that's the result of the [federal] BRAC [Branch Relocation and Closure Act] in 1995.

By July 2001, the Navy will have moved about 4,200 new jobs to the Navy Yard from Crystal City [in Arlington.] I call them new jobs because they will be new to D.C.

And then there are another 5,000 jobs that will be coming to the area as the result of Navy contractors that are coming along with the naval workers.

So all of this has resulted in a need for [office] space.

Q: How have developers responded? Did this catch them by surprise?

A: I think a lot of people that speculated on land over there three years ago thought the Southeast Federal Center [a contaminated, 55-acre site that the federal government has pledged to clean and use] was going to be the driver.

I think most [developers] thought this was going to be another Southwest. The Southwest submarket is where you have a lot of federal agencies located the Department of Energy, the Department of Education, the Department of Housing. That's always been one of the stronger submarkets in the District because of all the contractors [that do business with the federal agencies.] The vacancy rate has always been very constant.

Well, the theory that Southeast would become like Southwest has worked, but instead of the Southeast Federal Center being the driver, it's been the Navy. The Navy has brought with it a large contracting base.

Q: So what are developers building in Southeast?

A: Potomac Investment Properties, an old-line developer in D.C. they've been doing prestigious projects for years is building the first new building, an eight-story office building with 228,000 square feet [of space.]

They saw opportunity in this area. They've owned this ground for 10 years. It was fully leased by the time it broke ground to a variety of different contractors.

Spaulding & Slye is developing 80 M St. It's going to be 268,000 square feet. The Lincoln Property project [a 900,000-square-foot office-and-hotel complex] is very large.

Q: But as you have said, the Navy and naval contractor moves aren't the only things driving activity in Southeast.

A: No. The [federal] Department of Transportation has put out a procurement for 1.3 million square feet of new space. The Southeast Federal Center is being considered for that… .

When you look at NoMa [the area north of Massachusetts Avenue in Northeast], you see a lot of technology coming in. A lot of these companies are setting up in older structures that were once warehouses, and they're coming along the fiber line.

Well, that fiber line continues into Southeast, so we expect to see some technology activity there, as well.

The old Washington Star printing plant is a 400,000-square-foot building, which has the tall ceilings and heavy floor loads that these tech guys want. It's close to fiber and that's how that's being marketed.

Another old building is being looked at for tech companies. Again, that's predominantly because they are existing structures that fit the speed to market that these tech guys are looking for.

Q: Do you think most people know about this [activity]? Is this one of the District's best-kept secrets?

A: I think it has been under the radar. I think with all the new development that's been taking place in the Metro center area and the building at Lincoln Square that has gotten all the attention. And so I think this has been a bit of a "secret."

There was a GWACR [Greater Washington Association of Commercial Realtors] breakfast recently [on development in Southeast] and it was the most crowded that I've ever seen it… . People are trying to understand now what's going on over there [and asking themselves], "Have we missed out?"

Q: What are the challenges in developing Southeast?

A: It's just not an area that's rich in amenities. There is some food service. Other than that, there's not a lot of places for these folks to go [to shop and eat].

There is a shuttle bus that runs up M Street over to the Navy Yard Metro, up to Pennsylvania Avenue, along Eastern Market and down the Eighth Street corridor. But a lot of the Navy people don't have the luxury of long lunch hours, so it's hard for them to [use the shuttle].

These people are coming from an area that's rich in amenities. The underground [shopping center] in Crystal City has everything. So it's going to be a bit of a culture shock.

Q: With so many new people coming to the area [to work], will there be retail spinoff in Southeast?

A: That's an interesting question.

It's the age-old chicken and egg debate. Which is going to come first, the office or the retail? It's going to be a little bit of both, I think.

There are some retailers coming [but] a lot of retailers want something more than just a daytime [clientele]. They would like people to be there at night, too.

The government is looking again at the master plan for the Southeast Federal Center, and I believe they have plans for a retail mall, as well as some residential.

Q: What about residential [development]?

A: Well, interestingly enough, another part of the Navy, the Marine Corps, are building 300 [-person capacity] new barracks, right off A Street. So that's on its way.

You look at this and say, "Here are all these people coming from Virginia, is that going to translate into residential [development]?" I don't think so.

You look at it, and these guys [naval and contractor employees] are only [an extra] 10 or 15 minutes away [from home.] I don't think people pick up and move their residences, at least initially, just for the change of 15 minutes… .

Q: Has anything like this happened before in the city, where an area that has been neglected for years is suddenly bursting with activity?

A: Not to this degree. Capitol Hill has undergone a bit of a renaissance… .

If you look at city between Massachusetts and Pennsylvania avenues, this is where most of the commercial development is concentrated. It's creeping over eastward.

I don't [know] of anything like this. And again, this is hard, because this is creating a brand-new market. This is something brand new.

Q: What do you think Southeast Washington will look like in 10 years?

A: That's a tough one.

I think Southeast Federal Center will get developed… .

I think development will start to move away from M Street and toward Capitol Hill. I think you'll start to see some of those areas start to get developed… .

What we've been talking about is just a little concentrated area around the Navy Yard with M Street being the dominant street. I think we will see development take place on the other side of the Anacostia [River], which is also Southeast.

You've got commercial [development] over there, you've got land over there, you've got waterfront [views]. You've got Metro over there. So we will see more focus on that part of town also.



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