- The Washington Times - Friday, January 21, 2005

Fannie Mae’s decision this week to pull out of a huge leasing deal in Southwest Washington will have little effect on redevelopment of the area, according to local economic development officials.

Other employers will fill the space soon, they say.

“In the short term, it will certainly take a small hit,” said Chris Bender, spokesman for the Mayor’s Office of Planning and Economic Development.

Fannie Mae, the nation’s largest buyer of mortgages on the secondary market, canceled its agreement to lease as much as 1.5 million square feet of office space in Southwest at the site of the former Environmental Protection Agency headquarters.

Fannie Mae officials said they were trying to “reduce future costs.”

The company is being investigated by the Justice Department and the Securities and Exchange Commission for accounting errors, which forced the resignation last month of Franklin D. Raines, Fannie Mae’s chief executive officer.

The lease agreement, signed in May with developers led by Cleveland-based Forest City Enterprises, was supposed to make the mortgage-financing company an economic engine of redevelopment in Southwest.

Fannie Mae, one of the District’s largest employers, planned to move about 4,000 of its more than 5,000 employees to the Waterside Mall at Fourth and M streets SW from its headquarters on Wisconsin Avenue. The headquarters would have remained in the same location.

“There will be other tenants that will come on board,” Mr. Bender said. “No one deal is going to make or break the waterfront community.”

The planned Washington Nationals baseball stadium in Southeast also should help draw interest, officials said.

Mr. Bender predicted a combination of retail, restaurant and office tenants would take over some of the space Fannie Mae would have leased. He could not name any specific organizations that would lease the space.

He also said the Mayor’s Office of Planning and Economic Development might rethink its strategy for redeveloping Southwest after Fannie Mae’s announcement to pull out.

“I think it’s a little too early to tell,” Mr. Bender said.

Susan Pepper, senior vice president of the real estate firm Grubb & Ellis, said the Southwest waterfront has assets that make it attractive for “institutional types of organizations.”

The assets include easy access to downtown, Maryland and Virginia as well as a location along the Potomac River.

Major tenants likely to lease the space include government agencies or major corporations, she said.

Michael Stevens, chief executive officer of the Washington, D.C., Marketing Center, a nonprofit company that promotes economic development for the region, said the loss of Fannie Mae would create “some lag time” before other companies or federal agencies move into the space.

“There are a number of plans in the works for Southwest, including the Arena Stage renovation,” Mr. Stevens said. “The new ballpark site in Southeast will certainly have a ripple effect along the waterfronts in Southeast and Southwest Washington.”

Tim Priest, vice president of business development for the Greater Washington Initiative, a public-private organization that promotes the region’s business, said: “With all of the stuff the District is doing down there, with the ballpark and the new retail, someone’s going to take that office space. It’s not the end of the world.”

Company officials acknowledge that recent disclosures of financial problems influenced their decision.

“We’re in a different situation now,” Fannie Mae spokes-man Alfred King said yesterday.

Accounting errors are forcing the company to restate its earnings by as much as $9 billion, or 40 percent of reported profits from 2001 through mid-2004.

In addition, the federal Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae, said the company is underfunded. In response, Fannie Mae said it would sell $5 billion in preferred stock to build its cash reserves and reduce the dividend it pays common shareholders.

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