DOWNTOWN CLUSTER v. DC BD. OF ZON. ADJ.

• Decision Date: 25 April 1996
• Docket Number: No. 93-AA-1509.,93-AA-1509.
• Citation: 675 A.2d 484
• Parties: DOWNTOWN CLUSTER OF CONGREGATIONS, Petitioner, v. DISTRICT OF COLUMBIA BOARD OF ZONING ADJUSTMENT, Respondent, and F Street Real Estate Company, Intervenor.
• Court: D.C. Court of Appeals

675 A.2d 484

DOWNTOWN CLUSTER OF CONGREGATIONS, Petitioner, v. DISTRICT OF COLUMBIA BOARD OF ZONING ADJUSTMENT, Respondent, and F Street Real Estate Company, Intervenor.

No. 93-AA-1509.

District of Columbia Court of Appeals.

Argued December 1, 1994.

Decided April 25, 1996.

Richard B. Nettler, Washington, DC, for petitioner.

Vanessa Ruiz, Corporation Counsel at the time of briefing, and Charles L. Reischel, Deputy Corporation Counsel, filed a statement in lieu of brief for respondent.

Whayne S. Quin, with whom Louis P. Robbins, Washington, DC, was on the brief, for intervenors.

Before WAGNER, C.J., and TERRY and KING, Associate Judges.

WAGNER, Chief Judge:

Petitioner, Downtown Cluster of Congregations, petitions for review of an order of the District of Columbia Board of Zoning Adjustment (Board) granting intervenor, the F Street Real Estate Company, a use variance under the provisions of 11 DCMR §§ 1702.4,¹ 3107.2 (1994).² The variance permits the conversion of a building formerly occupied as a department store of Julius Garfinckel & Company (Garfinckel's) to mixed-use office, retail and service. Petitioner argues that the Board erred in granting intervenor's application for a variance because it failed to make the requisite showing that: (1) the subject property was affected by exceptional or extraordinary conditions; (2) it would suffer undue hardship without a variance; and (3) the variance would not have a detrimental impact on the neighborhood or the zone plan. Petitioner also argues for reversal on the ground that intervenor's hardship, if any, is self-imposed thereby defeating its entitlement to a variance. We conclude that the Board's decision is supported by substantial evidence in the record and is consistent with applicable law. Therefore, we affirm.

I.

The property which is the subject of this dispute is located at 1401 F Street, N.W., Washington, D.C. The building, at the corner of 14th & F Streets, N.W., was used as a department store of Julius Garfinckel & Company (Garfinckel's) from the time of its construction in 1929 until Garfinckel's went into bankruptcy and ceased retail operations in August 1990. The building has been designated as a historic landmark on the District's Inventory of Historic Sites. It contains nine floors and a mezzanine above grade, three cellar levels below grade and two additional levels of mechanical space above the ninth floor. The total gross floor area of the building is 249,212 square feet, excluding the cellar and penthouse. The last recorded certificate of occupancy for the building, which is vacant, was issued for a department store. At the time the certificate was issued in 1978, the zoning regulations did not define department store.

When intervenor acquired the property in July 1988, regulations were not in effect restricting the building's usage to a department store. Its location in a C-4 district then permitted a broad range of commercial uses as a matter-of-right (e.g., retail, service, arts and office). However, on May 20, 1988, the Zoning Commission published a proposed "Downtown Shopping Overlay (SHOP) District," which provided that a department store use existing as of the effective date of the chapter could not be converted to another use in whole or in part, except as specified in Schedules A & B,³ without approval of the Board as a special exception.⁴ The SHOP provisions were incorporated into the Zoning Commission's February 3, 1989 Notice of Proposed Rulemaking and finally adopted by the Commission effective March 31, 1989. The provision required any applicant seeking to convert a department store to any other use to demonstrate, inter alia, exceptional circumstances making compliance with the restrictions difficult or impossible. The restriction requiring Board approval prior to conversion of a department store first appeared in the Notice of Proposed Rulemaking published on February 3, 1989.

Intervenor purchased the store in July 1988 for $38 million, assuming the rights under a prior contract, which did not go to settlement, including a lease with Garfinckel's. The contract contained a provision for Garfinckel's to have two years' free rent and to receive up to $3 million for renovations on the first four floors. In addition, intervenor agreed to remove asbestos from the building at a cost of $1.5 million. There was evidence, and the Board found, that intervenor would receive an annual rent equivalent to a nine percent (9%) return on its investment. There was also testimony that intervenor did not learn of the limitation on converting the space to office use until 1990.

In 1989, because of financial difficulties, Garfinckel's proposed to intervenor to reduce the space used by the store and relinquish the top five floors to intervenor in exchange for a rent reduction from $4,250,000 to $2,850,000, reimbursement for renovation work up to $3 million and acceleration of the asbestos abatement for the building. Garfinckel's and intervenor filed an application with the Board for a special exception from the SHOP regulations pursuant to § 1701.5 (1988) and § 1706 (1989) which the Board granted on April 19, 1990. The Board's approval was specific to Garfinckel's. The order permitted office use on floors five through nine, a ground-floor office lobby, and office use in tandem with the department store in the common areas. After obtaining the exception, intervenor removed the asbestos from the building and commenced remodeling. Garfinckel's filed for bankruptcy on June 21, 1990, ceased active retail use of the building on August 25, 1990, and vacated the building completely on December 21, 1990.

In October 1990, intervenor wrote to twenty-seven department stores, which included, with one exception, all the known department store operators in the United States, about the availability of the building for lease. Intervenor received six responses, none of which were positive. In 1990, the May Company, the parent company of Lord & Taylor and owner of Hecht's department stores, expressed an interest in the building through Garfinckel's management. Some eight months of negotiations ensued with the May Company during which various proposals were considered, and District of Columbia representatives, including the Mayor, became involved. A tax rebate to intervenor by the city was proposed to help underwrite the cost of the department store, but intervenor and the May Company were unable to reach an agreement.⁵ In June 1992, the May Company proposed a ten-year lease, with five ten-year options. Under this proposed lease, the May Company would pay rent in the amount of $550,000 a year for the first two years, $500,000 in years three through five, $575,000 in years six through ten, and during the optional period would increase rent fifteen percent above the prior rent, or approximately three percent per year. The proposed lease would have permitted the May Company, at its discretion, to reduce its space to 50,000 square feet or cease operations at any time.⁶ This proposal was premised upon receipt of a two and three-fourths percent (2.75%) rebate from the District of Columbia of the sales taxes paid by the May Company (Lord & Taylor) and projected sales of $23 million during the first year with an annual increase in sales of seven and one-half percent (7.5%). However, intervenor's witness testified that his economic experts estimated potential sales of only $15-19 million the first year and an annual increase of four percent (4%). The proposal also called for intervenor to pay for external repairs, real estate taxes and insurance, the latter two estimated at $65,000 and $415,000, respectively. According to intervenor's witness, this proposal would yield a return on investment of only approximately six percent (6%) and a substantial long-term loss.

Intervenor filed with the Board an application for a use variance to convert the building to a mixed-use retail and office building, providing a floor area equivalent to a minimum of 2.0 floor area ratio (FAR) with at least 56,460 gross square feet devoted to preferred retail and service uses.⁷ Intervenor proposed to use the ground floor, the first cellar, mezzanine and/or second floor for retail use, consisting of approximately 73,000 square feet, from which a minimum of 56,460 square feet would be devoted to retail use. The remainder of the building would be used for office space and underground parking with access through the garage of the adjoining property.

Intervenor's architect testified at the hearing on the application that there was no building in the vicinity affected by the same combination of conditions as this building. Specifically, he testified that the size of the site, 28,230 square feet, was substantially less than the other two existing department stores; that the combination ceiling height and landmark status makes it unlikely that the maximum 10.0 FAR permitted can be achieved; that the building's lack of vertical circulation presents a problem in light of present-day requirements of department stores for escalators and level-to-level visibility.

B. Thomas Miller, Jr., a senior manager at Arthur Andersen, who prepared a market analysis for retail and office use of the site, testified that it was his opinion that department stores would not be interested in leasing the building; that nine percent (9%) was a reasonable expected return; and that 56,-000 square feet of retail space, instead of a department store use of 90,000 square feet, would yield intervenor, together with office uses on other floors, a seven and four-tenths percent (7.4%) average return and a return of three and nine-tenths percent (3.9%) from 1992 through 2002. Mr. Miller testified that the May Company's rent proposal, coupled with office rental of the remaining space, would have provided a rate of return of only six percent (6%).

Hanne Merriman, intervenor's retail expert, testified that it was important to...