For National Harbor In Md., 7 Years Of Changes

By JONATHAN O'CONNELL

The Washington Post

OXON HILL, Md. (AP) -- On the day the Peterson Cos. began building National Harbor, the real estate market was booming and the future seemed bright. In a ceremony featuring a who's who of Maryland leaders, then-Prince George's County Executive Jack Johnson predicted a "paradigm shift in how the business community will view us."

When the seven-year anniversary of that groundbreaking arrived last week, the economy had changed. And so had the project.

The developer, based in Fairfax, Va., has put many of the project's 423 condominiums and 46 town homes under contract twice: once before the housing collapse, only to see the deals fall apart, and again after. Retailers including Starbucks canceled plans to open there, but there are still more than two dozen places to eat.

In May, the Peterson Cos. signed a joint agreement with Tanger Outlets to open about 80 discount stores, but last month learned that Disney had scrapped plans to open a 500-room resort hotel.

Walt Petrie, chairman of Petrie Ross, developer of Woodmore Towne Centre, said Peterson Cos. Chairman Milton V. Peterson has done everything he could to see the project through the rocky economy.

"He's forging ahead as best he can, like everyone else out here if you're trying to develop any kind of real estate," Petrie said.

But for a project that was ambitious even in the boom years of the real estate market, there have been countless concessions and adjustments, and there will have to be more. Wayne K. Curry, who as county executive negotiated the terms of National Harbor's original blueprint, said he agreed to the deal to "capture the tens of millions of visitors to Washington" and credited Peterson with sticking to that vision. Prince George's County dedicated $160 million toward the project.

"National Harbor could still be an extraordinary commercial location, with its entertainment and hotels," said Curry, now with the Michael Cos. "I think it still has that promise, but it's changed quite a bit."

National Harbor is a mini-city on the banks of the Potomac River, whose cornerstone is the giant Gaylord National Resort and Convention Center, the largest of six hotels.

Events such as a bass-fishing tournament and the current ICE! children's attraction consistently draw tens of thousands of visitors, said J. Matthew Neitzey, executive director of the county conference and visitors bureau. ICE!, featuring characters from the DreamWorks movie "Madagascar," is expected to draw 250,000 guests during its six-week run.

"To me it's still accelerating, things are still happening. We don't have Disney, but we have DreamWorks," Neitzey said.

But despite the fact that the state spent $200 million building roads to the waterfront development, there are still concerns about access for major attractions. The Hot Chocolate 5K/15K run that National Harbor hosted Dec. 3 attracted 20,000 participants, but caused such large traffic jams that many runners could not reach the starting line in time, and start times had to be delayed. More than 1,100 people "liked" a Facebook page calling the event an "epic fail," and race organizers e-mailed an apology to runners saying the parking company hired by National Harbor "was not even close to sufficient to handle the job, adding to the traffic issues as cars backed up on the highway waiting for access."

On a WAMU-FM radio program last week, Rocell Viniard, director of marketing for the Peterson Cos., said, "This particular event, you know, did not meet our brand standards."

Lack of other transit options likely has scared away some potential tenants. The Peterson Cos., for instance, has competed for federal leases against other sites with easy access to Metrorail but failed to land any deals. The Peterson Cos. also vied unsuccessfully to develop the headquarters for Northrop Grumman at National Harbor, something the company says "really put us on the radar for other large headquarter facilities."

When the first phase of National Harbor was completed, in 2008, it was in the midst of the country's catastrophic housing collapse.

Dozens of contracts the Peterson Cos. had with home buyers fell through. Today, 402 of 468 National Harbor's residential units, or 80 percent, are sold. With the Washington apartment market booming, the Peterson Cos. inked a deal with the Bozzuto Group to build a 371-unit apartment building, the Esplanade, beginning next spring.

Retail leasing also experienced some bumps when Starbucks and some restaurants withdrew plans to expand into National Harbor.

Last year, chef Timothy Dean, a contestant from the show "Top Chef: D.C.," shelved plans to open a white-tablecloth restaurant and jazz lounge called Timothy Dean Bistro, which would have been the first black-owned restaurant at National Harbor. He sued the Peterson Cos. for undercutting his deal; the matter was settled out of court.

But the Peterson Cos. has continued to add new restaurant and shopping concepts, both local and national, and at an increasing pace as the economy recovers. The Tanger Outlets is to add 388,000 square feet of shopping, and new restaurants sign on every few weeks. The developer inked a deal to open a Wal- Mart store nearby.

Next up: Wolfgang Puck Catering and Redeye Grill, which would bring the retail vacancy rate under 15 percent.

Jon Peterson, Peterson Cos. senior vice president, said he found out about Disney's withdrawal the week of Thanksgiving, days before it was announced to the press.

He said National Harbor was perfectly designed to adapt to changing financial climates because its zoning allows the developer to change plans quickly.

Although Disney is not required to sell back the 11 acres of land, which it bought for $11 million in 2009, Peterson said he expects to re-acquire it and said he considers the property a blank slate. "That 11 acres today -- it could be an office building, it could be a museum, it could town houses, it could be whatever."

Before inking the Disney deal, the Peterson Cos. had considered museums, aquariums and other attractions. "If they were interested in it, you never know who else is coming down," he said.

The company is fast at work trying to stir interest. On Dec. 1, Jon Peterson convened a meeting of real estate brokers to talk up a 140,000-square-foot office building the developer would like to build on the waterfront.

Three days later, the Peterson Cos. issued a press release announcing a new blog, Web site and social media presence, an effort to "engage with key constituencies including partners, tenants, investors, consumers and employees."

In the first blog post, Steven Peterson, president of the Peterson Cos., wrote: "At The Peterson Cos.' retail properties, customers come to our centers for the shopping, of course, but they also come for the experience -- to hear the local school choir and strolling Dickens Carolers, to take a horse and carriage ride, or, yes, even to see Santa waterskiing on the Potomac."

Information from: The Washington Post, http://www.washingtonpost.com

(Copyright 2011 by The Associated Press. All Rights Reserved.)