by Michael K. Wilkinson
Pedro Petrovitch’s compatriots from Brazil called him crazy every time he did it.
But he has done it three times over the course of his nearly 40 years in business in downtown Washington: moved his business into an urban frontier and made himself, in his words, “a guest in the area” in order to gain the respect--and the business--of the local population.
A Washington Institution
Petrovitch opened his first auto repair shop in 1969 on 13th Street just south of Logan Circle, behind what is now a
Then, in 1987, an opportunity came along for Petrovitch to move his business into a larger building farther up 14th Street, at Florida Avenue. He leased, and later sold, the building at the corner of 14th and P Streets to Joy Zinoman, founding artistic director of the Studio Theater, setting in motion a series of events that have transformed that organization into the model local theater company that it is today.
During 18 years at his current location, Petrovitch jovially told The InTowner, “Every time I had a headache, I wanted to sell that goddamned building,” while making the point that he never seriously considered selling until fairly recently. “I survived a lot of bad weather around here, but I never had any problems with anyone,” he added. “We treated the neighborhood as if we were guests--this is your neighborhood, we are here to serve you.”
As the real estate market in the area turned white hot, though, temptation became harder and harder to resist. Still, he viewed his business as something of a local institution, and most offers he received did not seem to take that into consideration; he described most of these early suitors as, “I buy, you’re out.”
After several years of fielding offers, brothers Pedro, Paolo and George finally found the right buyers in David Franco and Jeff Blum, principals of Level 2 Development, a relatively new U Street firm with one completed 12-unit project and one upcoming six-unit project under their belts.
Level 2, in a joint venture with Chicago-based Centrum Properties, settled last month on the purchase of the landmark structure that became known locally as the Petrovitch Auto building, at a price described as “in the very low eight-figures.” They plan to build a 165-170 unit condominium with 14,000 square feet of retail and three levels of underground parking.
The acquisition actually encompasses more than just the Petrovitch Auto building; it also includes the Latino Auto Sales lot to the north, at 14th and Belmont; and half of the parcel at 14th and Florida on which a antenna tower and a group of large satellite dishes are located. Comcast owns the prominent corner lot, and the satellite farm on it supplies many area households with their cable signals. The developers are negotiating a fee to be paid to Comcast, which would allow the cable service provider to deploy technology enabling it to move the
satellite signal collection to another location and/or use much less intrusive equipment. A small, nondescript building on the parcel, used to process signals, will be retained.
Ward 1 Councilmember Jim Graham, who issued a letter of support on the proposed development, has been encouraging Comcast to take advantage of the opportunity presented. The council member commented to The InTowner, “I think they realize how much they stand to gain here. They have an antiquated piece of equipment on a very valuable point of land. With the technologies that have been developed since the satellite dishes were installed in the early 1990s], no one has to sustain these Star Wars-sized dishes any more.”
Altogether, the purchase means that the entire east side of the 2300 block of 14th Street will be transformed from light industrial and surface-oriented commercial uses into a mixed-use residential and retail development, much like what is happening along the three blocks immediately to the south to U Street, as recently reported by this newspaper. (“New Projects Bridging Gap on 14th Street; U Street & Columbia Heights Linking Up,” May 2005, page 1.) This latest burst of development, for that matter, is a further extension of activity up and down 14th Street, from Logan Circle to Columbia Heights.
Part of the 14th Street “Auto Mile”
Level 2’s Franco told The InTowner that architectural design services for the development, to be called “View 14,” will be provided by SK&I architects, whose recent commissions in the area include PN Hoffman’s Union Square (one block to the south on 14th Street), and Bozzuto Homes’ Fedora Condominium (one block to the west on Belmont Street); both are in early stages of construction, with the Fedora somewhat
ahead of Union Square.
The developers, admittedly in the early stages of design, have stated their intention to create a design that communicates with the neighborhood’s rich history as well as its modern-day buzz.
The retail portion of the structure, which will occupy two levels at the bottom of the hill and be reduced to one level closer to Belmont Street, will pay homage to the early 20th century buildings lining 14th Street that originally served as automotive dealerships and repair facilities, echoing the use of masonry and repeating retail bays found in those buildings. The developers plan to lease the 14,000 square feet of retail space to pedestrian-oriented businesses that cater to the residents in the immediate neighborhood; parking set aside for the retail portion
of the development will be kept at the minimum allowable under zoning regulations to amplify the local, pedestrian-oriented nature of the retail section.
The designers have taken a more contemporary pen to the residential portion of the building, with a lighter, glassy international-style building above the retail base. (Franco noted specifically that they did not plan to market the building as “lofts,” with “exposed ducts and such.” He stated that the main marketing push would center on the building’s commanding view of the city, hence the project name “View 14.”)
One person familiar with the design, speaking to The InTowner on background, noted that while the overall design was very promising and attractive as a concept, one of the challenges moving forward would be to refine how the historic and contemporary sections of the design relate to each other. (Because of the preliminary nature of the design, the developer declined to provide an architectural rendering at this time for use with this report.)
Interestingly, a recent successful example of the precarious balance of historic and ultra-contemporary can be found in the dramatic renovation and expansion of the Studio Theater, making “View 14” the second such building owned and sold by Petrovitch and thus cementing the Brazilian auto repair shop owner’s place in 14th Street’s distinguished architectural history.
Contributing to the Community
As part of the development package, the development team has agreed to make contributions to a number of neighborhood organizations, including most notably a $1 million contribution to the tenants’ association of the Hill Crest Apartments in an adjacent block on Belmont Street. This contribution makes it possible for the building’s tenants to purchase their building by closing the equity gap, preserving 48 units of affordable housing in the neighborhood while increasing homeownership opportunities for low- and moderate-income families. Ownership in the Hill Crest will be restricted to families at or below 50 percent of the Area Median Income (AMI). In addition, the developers have set six units aside directly in the “View 14” project for families making up to 80 percent AMI, bringing the total number of affordable units created or preserved to 54.
Level 2 Development has also agreed to provide a grant of $20,000 to the Parents’ Association of the Boys’ and Girls’ Club, as well as grants to other neighborhood associations, including the Meridian Hill Neighborhood Association and the Cardozo-Shaw Neighborhood Association.
How’d They Do That?
While most suitors lusting after this largescale project would approach the owners dangling all manner of offers, Franco and Blum hit on the combination that the Petrovitch family needed but no one else thought to offer: numbers that made sense to both sides, plus a well-thought-out exit strategy for the sellers.
Most sellers who are not professional real estate investors would probably not look too far past settlement, and the large check that comes a couple days later in the mail. But the Petrovitch family wanted more than anything to be able to keep their money working effectively for them--with a minimum of tax liability--and also needed the flexibility to be able to vacate the building and wind down their operations in an orderly fashion.
Tax rules concerning the reinvestment of proceeds from the sale of real estate investment property require sellers to identify properties for reinvestment within 45 days of the sale of their property, with settlement occurring on the new purchase within 180 days. This strict timeline places sellers under intense pressure to find good deals that will actually close; the hypercompetitive nature of the current real estate market only amplifies that pressure, with many outstanding purchase offers being outgunned by more aggressive buyers. (If an investor “identifies”
his purchase but loses out to a more aggressive bidder, the tax deferral on his profits is lost.)
Franco and Blum, who had been negotiating the deal for over a year, worked closely with the Petrovitch family to identify a strategy for reinvesting the proceeds, doing the research and mapping out a strategy for the family to reinvest in triple-net leases. They went so far as to identify specific properties, with a full financial analysis, and walked the sellers through each prospective deal. In addition, the parties negotiated a settlement date that synchronized with the strict timeline of the sellers’ re-investment strategy, and added a six-month post-settlement occupancy period that allowed the Petrovitch family to wind up their operations, as they had hoped. “The most important thing was that Franco had the patience and understanding to work gently with us on the timing for us to close our business.”
So Who Are These Guys, Anyway?
It also helped Level 2 Development that principals Franco and Blum are native Washingtonians with deep ties to the neighborhood and a familiarity with neighborhood dynamics. The company is based in the 1600 block of U Street, and Franco lives around the corner from his new purchase, across from Meridian Hill Park. Both have been active members of the Meridian Hill and Cardozo-Shaw neighborhood associations, and Franco’s family owns the well known retail store Universal Gear on 17th Street (along with sister stores in New York, Chicago and Atlanta.
After a career in industrial engineering, Blum shifted to real estate development with a four-unit condominium conversion on R Street, completed two years ago. Level 2 Development recently completed a 12-unit condominium conversion, the Mercury at Meridian Hill, in the 1400 block of Chapin Street, and is preparing to break ground on an all-new six-unit building, the Aventura Condominium, on a tricky sloped lot in the 1400 block of Florida Avenue NW. While Franco and Blum’s combined real estate experience may not point to the 165-unit “View 14” as a natural progression for the company, the team has lined its bench with some heavy hitters, such as architects SK&I, a firm with extensive experience in designing and managing construction of projects of similar complexity and scope.
In addition, as noted above, Level 2 is joint venturing with real estate development firm Centrum Properties, which built a name in its home market of Chicago by converting large industrial and waterfront buildings into new, high-end residential developments. And, the company has recently branched out into other markets across the country, with similar projects in South Florida, Kansas City and now, here in Washington.
Another New Frontier
As for the Petrovitch family, they are scheduled to purchase a number of commercial buildings, using the proceeds from the sale of the 14th and Florida property, in a frontier that is new to them: the Baltimore/Washington suburbs. And rather than buying the buildings to house the
auto business, the family is moving into an arena known as “triple-net leases,” in which tenants are responsible for build-out, maintenance, insurance and taxes. These are easily recognized as stand-alone buildings with stores and restaurants such as CVS, Olive Garden and Office Depot. In other words, the Petrovitch family will no longer have to repair cars to make the mortgage payments; instead, they’ll just
have to drive to the bank. It is likely that Pedro Petrovitch’s compatriots are calling him something other than crazy these days.