Gaslight Square Rendering
In 2008, Abdo Development faced a situation that many developers did – they had control of a great condominium development site, but no one would touch it with a 10-foot pole because the real estate market had imploded so magnificently.
As we all know, true developers don’t give up easily, and Abdo kept reworking the project until it was in a form that could be financed when the market freefall halted. They succeeded in doing so. How? Keep reading.
Overview. Abdo had an as-of-right 117 residential unit project named Gaslight Square approved by the County, but finding debt and equity for a $85MM condominium project was a total fantasy at the time.
Mercer Interior
Serving the Market. Abdo had very successfully developed a large project literally across the street from the site (The Wooster and Mercer Lofts, which when it was introduced was the edgiest product in Arlington), and knew the submarket’s product preferences intimately from their sales and from conversations with potential buyers.
A Phased Approach That Self-Funds. As a result of these conversations and the shyness of equity and debt sources, Abdo had an idea: instead of developing a single building housing all 117 residential units, why not break the project up into 3 separate buildings, catering to the desire of the market to have more of a townhome product (with some edgy elements), thus flattening the construction budget spend over a longer period of time. This way the net sales proceeds on units from Building 1 would partially fund the construction of Building 2, and sales from Building 2 would partially fund the construction of Building 3. This would also keep construction loan interest down, and give the market some more time to recover, thus in theory allowing for higher prices in Building 3.
Matching Construction to Financing. To facilitate this approach, Abdo phased the construction as follows:
Site Plan
- Dig the hole for Buildings 1 and 2, and stage on the pad for where Building 3 would eventually sit.
- Construct Building 1 fully (with its underground garage), and construct just the underground garage for Building 2.
- Construct Building 2.
- Dig the hole for Building 3, and construct the building fully including its underground garage.
So Far, So Good. As we can see, Building 1 is well underway, and pre-sales have been strong. Hats off to Abdo for being clever and keeping quality development marching forward. A true developer doesn’t count his chickens before they hatch, though, so the Abdo team members are keeping their heads down and pedaling like crazy.
Construction status as of last week; Building 2 garage in foreground
There were a lot of great projects built during the boom years which fell victim to the economy. Looks like Abdo is taking a number of creative measures to make sure that they’re not one of them.
Building the project in phases to hedge exposure, working in a market they know really well, utilizing pre-fab construction, and obtaining competitive financing are all aspects of this project that are necessary to make it successful. It’s creativity like this that’s needed on all projects today to be successful.
I look forward to future photo and post updates on Gaslight Square.
Bruce, I belatedly noticed your comment/request about my Twitter post concerning the Gaslight Square project. Your mini case study on this project illustrates some key points about how to make a niche product work in a slow market–particularly the “self funding” aspect of the revised approach. A follow-up that would be interesting–if the Abdo folks would be willing to share–would be a summary of how this made the numbers work.
Hi Pike, thanks for the comment. I actually underwrote this deal once upon a time, and it was complicated because there was a land loan in place, more equity to go in, mezz, and then a senior. Made my head turn to mush. I will see if the Abdo camp is able to share the before and after numbers. – Bruce