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PENTAGON ROW GIVES ARLINGTON, VA., A CENTER

By Maura K. Ammenheuser

Federal Realty’s new project provides a community gathering place.

The skating rink was an unexpected twist.

When Federal Realty Investment Trust, Rockville, Md., planned a mixed-use, Main Street project for Arlington, Va., it recognized the demand there for housing and the right kind of retail. A Metro subway station is within walking distance and the project hugs Interstate 395, linking Washington, D.C., to the Virginia suburbs; 20,000 people, with an average household income of $68,500, live within a mile. So upon completion, Pentagon Row — within sight of the Defense Department headquarters for which it is named — will offer 300,000 square feet of retail and 500 apartments.

But the community’s demand for a rink was a surprise.

“The neighbors insisted we do an ice rink,” said Robin Mosle, Federal Realty’s vice president of development. “We were very uncomfortable with it. We were flabbergasted.” Federal Realty has no experience with such things, so an outside company manages the rink.

“It’s hugely successful,” Mosle said. In summertime the rink, sans the ice, will offer performing and dining space.

Year-round, Pentagon Row is the centerpiece of a place Mosle describes as a new “heart” for Arlington, a dense, affluent area that has lacked a central gathering spot.

“It’s a stunningly beautiful center,” said Wendy Rukmini Walker, owner of As Kindred Spirits, a 1,500-square-foot, upscale crafts and gifts store that opened there Sept. 1. “What’s especially nice is that in that area there’s never been a community center,” but now people head there for ice cream or linger over the paper.

Pentagon Row’s first phase, with a Harris Teeter supermarket and a Bed Bath & Beyond, opened a year ago; another, with smaller shops and restaurants, debuted in the fall. The grand opening for Phase III occurred in the spring. Other tenants include Aveda Lifestyle Store Spa and Salon; Bally’s Fitness; Sur La Table, the Seattle-based upscale cooking supply store; and 15 restaurants. Post Properties, Atlanta, has built luxury apartments above the retail space, nearly all of them leased by press time.

Pentagon Row “really has worked,” said Tom Newman, a commercial development specialist with the Arlington County Department of Economic Development. “I like how Federal merchandises their retail projects,” balancing national and local tenants to offer mall-type shopping plus basic neighborhood needs, such as the grocery and restaurants.

Federal is heavily committed to the concept. Its eight-year-old Street Retail subsidiary has completed about 65 projects and has several hundred million dollars worth of mixed-use developments, plus individual building rehabs, in the pipeline. The mixed-use projects include:

• The Village at Shirlington, an Arlington office/residential complex that Federal bought in 1996 and retenanted. Federal plans a hotel and street-level retail.

• Bethesda (Md.) Row. Four phases have opened since 1997; ultimately, the project will include seven or eight phases, with seven blocks of office and retail in the downtown business district.

• Santana Row, San Jose, Calif. Now under construction, the project is expected to include 680,000 square feet of retail and restaurants, plus 1,200 apartments, a hotel and outdoor plazas.

• Houston Street, San Antonio. At press time Federal was converting a series of buildings to 300,000 square feet of retail and entertainment near RiverWalk, a tourist-oriented project across from the Alamo.

These projects are prime examples of “new urbanism.” A backlash against sprawl, this is a development philosophy encouraging pedestrian-friendly streetside retail near housing and/or offices. It favors building in dense areas, over developing single-use projects on virgin land.

“Nationally, the hottest wave for development in retail is the town center or mixed-use [project] — they’re being done everywhere,” said Robert Wennett, president of Washington, D.C.-based Urban Investments Advisors, which is among several developers embracing mixed-use. “People are looking for a sense of place.” Too often towns separate retail from homes and offices, forcing people to drive everywhere. Clusters of single-use areas — malls versus subdivisions versus office towers — deprive communities of distinctive features, Wennett said. People are tired of the landscape and the traffic.

“It can be called smart growth,” Mosle said. “We think new urbanism can be applied to planning communities [within] communities,” as Pentagon Row created a neighborhood within Arlington.

Another retail/residential project opened recently in Arlington with the debut of Market Common’s first phase in Clarendon, a 15-minute drive from Pentagon Row. McCaffery Interests, Chicago, plans 220,000 square feet of retail with 300 apartments and 87 townhouses, according to Arlington County’s Newman. “It’s going great guns,” he said.

But Federal doesn’t consider Market Common or anyone else a direct or complete competitor.

“Different uses have different competition,” Mosle said. Market Common includes mostly national tenants, she pointed out; Pentagon Row offers more entertainment.

Pentagon Row’s restaurants compete with those in Georgetown, the posh university section of Washington across the Potomac River, she noted, and it certainly competes for shoe shoppers with Fashion Centre at Pentagon City, the 1 million-square-foot, four-level mall, and with Nordstrom and Macy’s next door. But “people go to the mall for a much more serious apparel trip,” Mosle said. Pentagon Row is for immediate needs, such as pharmacy or take-out food.

New urbanism sounds attractive on paper, but is it profitable? Mosle said in mid-January that the project was too new and declined to disclose sales figures, but she predicted they would reach the $450-per-square-foot annual level that other Street Retail projects enjoy.

One analyst who asked not to be named criticized Federal, however, saying its Street Retail projects are “mediocre” and that the company has had more success with its core product, community centers. (Federal owns about 60 shopping centers outside its Main Street program.)

Craig Schmidt, a Merrill Lynch & Co. analyst, disagreed, saying that completed Street Retail projects have given Federal a roughly 11 percent return. Pentagon Row is going overbudget thanks to a change in contractors (according to Federal’s most recent quarterly report, it will now cost $87 million), but it’s still expected to yield a 9 percent return, Schmidt said. “The company overall has been very successful with the Main Street concept,” he said, adding that the reason more developers aren’t following suit is that it’s more expensive and complicated to build in dense areas than in the outer reaches of suburbia.

Another indicator of success, said Andrew Blocher, Federal’s investor relations director, is that Federal has been able to significantly increase rents at some completed Street Retail projects, such as Third Street Promenade, Santa Monica, Calif. “We believe we’re building a superior product.”

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