As Petworth develops, some small businesses are losing their leases. DC needs a plan to help them stay.

Kilroy’s Cleaners closed in June 2017 after the building owner sold to a developer.

by Yuliya Panfil & Drew Schneider

Petworth property owners are cashing out, leaving local businesses displaced. But developers say they’re concerned the neighborhood’s economics can’t sustain retail right now.

On August 21, 2018, Petworth received disappointing news: Lighthouse Yoga, a neighborhood staple with stellar reviews and a loyal following, was suddenly closing. After five years renting the small building, Lighthouse lost its lease because the owners of the building decided to sell, promising the prospective buyer that the building was empty of tenants. The sale ended up not going through, but Lighthouse had to move.

The yoga studio is currently running classes out of Teatro de la Luna as it searches for a new location. It’s hardly alone in its experience. Around the corner at 826 Upshur Street, Kilroy’s Cleaners unexpectedly lost its lease in June 2017, as the building was sold to a condo developer. More than a year later, the large building remains vacant and undeveloped.

"I've been here 35 years,” Kilroys’ owner William Schaffer sardonically told Petworth News at the time. “I don't really want to move, very costly, and we have established a loyal following for our service. But, PROGRESS!"

Up the street at 4424 Georgia Avenue, Level Up Personal Training lost its ground floor lease in July 2017 after being in business for three years. The building was razed and turned into condos. Owner Cregory Boatwright says he had two years left on his lease; he accepted a buy-out from the developer in the fall of 2017 and relocated his studio to 205 Upshur Street NW. He says the Georgia Avenue building owner originally suggested Level Up could remain on the ground floor, with condos going up above it, but then changed his mind. Cregory had to move.

The Level Up Personal Training studio had to move to the 200 block of Upshur Street after its Georgia Avenue building was razed for condos.

“They lied to me, that I would be able to build the retail part,” Boatwright says, adding that he lost about 50% of his clients as a result of the move.

On the busy stretch of Georgia Avenue next to Qualia Coffee, a new performance space called Art of Noize lost its lease this fall, a year after it moved in. The building owners are planning to sell to — you guessed it — a condo developer. Art of Noize owner Adrian Ferguson says the performance arts and events space was just hitting its stride, and that he would have never signed the lease had he known that the building owner would sell from under him a year later.  

Art of Noize, a performance and arts space on Georgia Avenue, lost its lease after only a year.

“We could have been something,” Ferguson says. “Why not work to keep us there? Because we’re actually helping the neighborhood.”

All around Petworth, prices are rising, condos are popping up, and small businesses are getting pushed out more and more. Residents are upset because retail is disappearing, but developers and real estate professionals say the market economics don’t leave them much choice. They say Petworth can’t yet reliably sustain retail, and residential properties provide a higher and more stable return.

“The per square foot [price] on the residential right now is higher than commercial,” says local realtor Marc Dosik. “And the per square foot [price] for a condo without retail on the lower floor makes better financial sense for investors because they can get more for the condos.”

Dosik is part-owner of 845 Upshur Street (the building where Chef Alex McCoy was first going to put in Alfie’s, then a British pub was supposed to open). He says he plans to preserve retail on the ground floor of the building, but is honest that the decision comes at an economic loss.

“We did it for the neighborhood, to be honest,” he says. “But it made more sense for us to wipe the whole thing out and do condos.”

Local developers echo Dosik’s sentiment. Matt Scorzafava, vice president of ERB Developers, which has built several condo buildings in the neighborhood and has now almost completed a condo building at 811 Upshur Street, provided an example: the 14Spring development at 3701 14th Street. The multi-condo development has a beautiful ground floor retail space available, which ERB agreed to put in because of strong demand from the ANC. The space has been sitting empty since September. Why?

Developer ERB included a ground floor retail space in its 14Spring development at the request of the ANC. The space has been sitting empty since September, even as the condos above it have sold.

The dynamic leaves developers, residents and businesses at an impasse. On one hand, everyone agrees Petworth would be a more attractive and livable neighborhood if it had more retail. On the other hand, developers do not believe the neighborhood has the density to sustain retail quite yet, and few are willing to take the risk of opening retail without steady demand. With the notable exceptions of Timber Pizza, Taqueria Del Barrio and Himitsu, which are always mobbed, Petworth stores and restaurants sometimes appear half empty, especially during the daytime. Over the last month, several restaurants have closed due to a lack of business or a business model they couldn’t sustain.

Some local restaurant owners tell Petworth News that they are more sanguine about the current economic and development climate, hoping that the increased density the new condo developments represent will translate into more customers. “We’re doing fine right now,” said one Upshur restaurant owner, “and with so many condos going in nearby, we think we’ll see increased business. But that’s a few years away, obviously.”

It’s a hopeful strategy — if they can afford to wait, and their leases don’t cause future problems.

Petworth’s rising real estate prices exacerbate the issue; many small businesses are unable to purchase, and are therefore stuck in a tenuous rental situation. Jordan Haferbier, Executive Director of Uptown Main Street, an organization that supports local businesses, says many businesses get trapped in month-to-month lease situations which give them little recourse in case their building gets sold out from under them.

“A lot of the business owners would like to be able to buy the space [they lease] but it’s a little unaffordable right now,” Haferbier says. “What I’d love to see is for the city to support business owners to buy their space.”

Julie Eisenberg, owner of Lighthouse Yoga, pointed out another quirk in Petworth’s retail game: commercial spaces have a tiny footprint, and are often in poor condition.  

“There isn’t a lot of retail to start with, and the retail that exists is very small: 1,000 square feet or less,” Eisenberg says. “It’s really hard to run a profitable business in that small of a footprint. And, a lot of existing retail stock is old and in bad shape. Costs are too much to renovate.”

Eisenberg gave the example of Ruta del Vino, a beautifully renovated and popular restaurant at 800 Upshur Street that suddenly closed in November. Though Ruta’s owners have yet to give an interview on why they closed, local businesses are saying they think the costly renovation Ruta del Vino undertook to bring the former Riyad Market space up to code put the owners of Ruta in a financial bind that they never recovered from.

Ruta’s closing, followed quickly by the closings of Hank’s Cocktail Bar and Slim’s Diner, is sending a strong chilling signal through the Petworth real estate market. Several local businesses and real estate professionals brought up Ruta as an example of why retail doesn’t work in Petworth.

Developers like ERB say their condos will actually help sustain Petworth retail down the road because they are creating density. But Dosik points out that small retail strips like the 800 block of Upshur Street only have a finite number of buildings, and when even a single would-be store or restaurant gets taken up by a condo, the retail strip feels the loss.

“Upshur street is sort of unique because it’s very small,” Dosik says. “[Large condo development] would be OK on H Street because there’s so much there. But Upshur is a small street and when you start taking the 800 and 900 block, and you start taking two or three commercial spots away, you’ve affected a big percentage of the block.”

That being said, existing retail is still going strong: Fia Fabulous Finds, Willows, Lulabelle’s Sweet Shop, Virgin Remy, and Upshur Street Books continue to serve the community, and a new coffee shop is coming to Webster and Georgia Avenue in the Uneeda Market space (4400 Georgia Ave NW).

UNeeda convenience store at Webster and Georgia Avenue is converting to a coffee shop (photo: @YoungBBE on Twitter)

In the near term, Holley Simmons is set to open She Loves Me, a flower and craft shop at 808 Upshur Street (in what used to be Philip’s Shoe Repair). Next door, 810 Upshur St remains under-utilized, with the lease currently held by Andrew Dana from Timber. It’s currently being used as a pop-up event space. But retail and small businesses are extremely thin overall in Petworth, and as leases come up, building owners are eyeing the money to be made from condo developments, leaving those that hold the leases at the mercy of profit margin.

A strategy is needed

As DC continues to swell with new residents, (now reportedly at a population of 700,000), development needs to be strategic, while allowing the market to grow as it will. The issue of sustainability of small businesses needs to be a priority for the DC Council.

Whether it’s offering low or no interest loans in order for businesses to renovate or purchase buildings, providing tax relief, an easier Great Street grants process, providing more funding to non-profit organizations like Uptown Main Street and District Bridges or other ideas, DC can’t wait until the real estate boom cools off to start prioritizing retail along with restaurants and condos in neighborhoods like Petworth.

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