ULI members gathered for a conversation with Amer Hammour, Chairman of Madison Marquette and Managing Director of Capital Guidance Corp. where he has been focusing on real estate since 1983.
The discussion began with Mr. Hammour describing Madison Marquette’s local project, The Wharf. The Wharf is one of the biggest mixed-use projects in the country and its location on the waterfront in DC gives it a huge advantage towards success because of the views, the amenities and the location. An original RFP in 2006 was awarded to another bidder and PN Hoffman, the current co-developer of the Wharf. In 2008, during the recession, one of the companies folded, and PN Hoffman approached Madison Marquette to form a partnership, and the new partnership renegotiated the deal with the City.,
There will be five office buildings, all Class A and currently 60% leased. In addition, the project targets a wide demographic with apartments for younger people without families in apartments as small as 400 sq ft. The average size among all units is 700-800 sq ft, with some rental units that are larger, potentially for small families or empty nesters. There are also several hotels on the site from a 5-star hotel to one more reasonably priced. The project will also include a 6,000 seat auditorium, retail, and a yacht club.
One of the main challenges of the project has been to select the right retail tenants. Once the project opens, it will likely be easier to attract soft goods retailers but it’s like the chicken and the egg because having the retailers in place for the opening will improve the acceptance of the project. The complementary uses on the site will create the community, and the target audience for the project goes beyond the Millennials in DC.
The project is geared to providing an authentic experience by incorporating the existing fish market. That is the real thing that has always been there and while it’s a small component of the project, it sets a tone for the history and setting and will help make the project feel organic rather than manufactured.
Mr. Hammour talked about general retail development trends. Instead of being for pure acquisition of goods, retail serves the community. Brick and mortar stores are competing with online sales and don’t have the ability or desire to keep the inventory anymore. Today, across the real estate formats, amenitization and activation are important and that leads to more food options within retail project components. In the past, people spent about 50 cents on food consumption in restaurants compared to every dollar spent on groceries. Presently, about as much is spent in restaurants as on tradition grocery shopping. Mr. Hammour mentioned a book called The Great Inversion and the Future of the American City (book review) that describes how, over a long cycle, people moved out of the cities and are now moving back in. People with money are wanting to be at the center active places.
Mr. Hammour said that retail itself has not been hurt by e-commerce but by technology. Phones can provide the price points regarding where the same product is cheaper in retail stores or on the web; it gives consumers the perfect information and more power. One of the few ways that retailers can compete is when they own their brand and no one else can sell their products. Some retailers are minimizing the amount of inventory in their stores and keep only sample products in different sizes that consumers can try on and have it sent to your house the next day. This makes the retail space smaller and more of a showcase.
Another retail trend described by Mr. Hammour is the leasing of space by department stores to create small stores within the store. The department store provides marketing and a location in return for a percentage of sales and the rent. They are basically leasing pieces of their building. To counteract this trend, real estate developers are now getting into the retail business by running the retail operations. Popups are part of this trend as retailers can find locations without investments in tenant fit-outs and a full line of inventory.
The discussion turned to retail in DC. In order to be successful, retail areas have to draw from surrounding areas. Georgetown, Chevy Chase and 14th Street are all retail neighborhoods. It remains to be seen if City Center DC retail will be successful, and Tysons remains the largest retail destination. The Tysons’ redevelopment is a reaction to the fact that people are tired of the mall concept and Tysons is working to create a town in Tysons where you can live and hang out in addition to shopping.
Mr. Hammour quoted a study that noted that in 2008 the average American spent about 2 ¾ hours of time on machines (cell phones, computers) per day, in 2015, that number was close to 6 hrs. The reaction to that we are seeing is that people get tired of machines and they want to be with real people. So, in apartment buildings, there are areas, where people plug in their computers and spend time “alone together.”
A question was asked about the impact of see level rise on waterfront properties. Mr. Hammour said that they have not considered this at the Wharf because they are designing the project to be 12 feet above the water. Another waterfront development, National Harbor, was discussed. Mr. Hammour said that it struggled because it was not staged correctly; when it first opened there was no real “place” there. At The Wharf, the scale of the first phase was increased because a project should open with a lot of things happening so people will be excited and want to come back.
The discussion turned to foreign investors and Mr. Hammour said that for investors, worse than bad news is uncertainty. He is concerned about foreign investors’ reactions to U.S. elections, particularly the Middle Eastern investor but to date, there hasn’t been any decline in the desire to invest in the U.S. It is still a great economy, a safe place, and many of the foreign investors are staffed with American personnel so they know the markets well. Mr. Hammour believes that investors in Malaysia will be interested in the United States. Malaysian pension funds are huge, but they have been focusing on the UK, partly because a lot of them were educated there. US visas can be complicated for investors and this creates hurdles because people don’t want to invest in places they cannot access.