New Center for Maryland’s Second City

New Center for Maryland’s Second City

The Wall Street Journal

By ANN CARRNS

ROCKVILLE, MD. - Here, on the site of an earlier costly failure, Mitchell Rutter wants to build one of the region’s largest commercial real-estate projects.

What he has in mind is a $300 million, mixed-use development that includes 1.3 million square feet of office space, a retail pavilion, private housing and a multiscreen movie theater. But six years ago, an eight-acre shopping mall on the same location went bust and has since been razed—a fate the 39-year-old Mr. Rutter believes he can avoid.

“They made a bad assumption by putting a suburban style mall in a downtown area,” says Mr. Rutter, president of Essex Capital Partners Ltd., a real-estate investment firm in New York. “But the driving force on this project is office space, not retail.”

Located 15 miles north of downtown Washington, Rockville has roots that predate the American Revolution. As a historian with the group Peerless Rockville is quick to relate, local citizens back in 1774 drafted the so-called Hungerford Resolve, a protest of the British blockage of Boston Harbor. Today Rockville is the state’s second-largest city after Baltimore.

All of which appeals to Mr. Rutter, a real-estate lawyer who formed Essex Capital Partners in 1992 as an “opportunistic” venture. Through Essex Capital, he buys distressed office and retail properties, but Rockville Center will be his first start-to-finish development.

Local, county and state governments have agreed to kick in $6 million apiece to build new roads and sidewalks for the project. Infrastructure work is now underway, but there is still a huge hole in the ground where that mall once stood. However, Mr. Rutter has succeeded in winning a key new tenant that he hopes will attract others. Regal Cinemas Inc., a publicly traded theater chain based in Knoxville, Tenn., just signed a lease for a 13-screen movie theater, which will kick off the center’s $22 million retail pavilion. With that lease in hand, Mr. Rutter is negotiating with several restaurants, which he declines to identify.

He already has won strong local political support, including that of Rockville Mayor Rose Krasnow, who says Mr. Rutter has so far delivered on all his promises. She would welcome a new restaurant. “It’s embarrassing that when I have out-of-town company, I have to take them someplace else for lunch,” she says.

Yet hurdles await before Ms. Krasnow breaks bread with visitors. In order to minimize the project’s scale, the movie theater is being constructed partly underground. But plans call for the center’s new main street to be paved with cobblestones, so cars driving over them probably will create noise and vibration for subterranean moviegoers. “We’ll deal with it,” Mr. Rutter shrugs.

Perhaps the riskiest aspect of the project is the office component. Demand for space in suburban Maryland is strong, with vacancies under 12%. But Mr. Rutter must attract corporate tenants who have traditionally shunned downtown Rockville for outlying office parks, or more vibrant downtowns like that of nearby Bethesda.

“It’s always been a market that big, corporate users have stayed away from,” says Neil Narcisenfeld, managing director of the suburban-Washington office for real-estate brokerage firm Julien Studley Inc. “But if they do the development right, I think it will attract tenants.” Partial tax abatements from the city, he adds, will allow Rockville Center to charge reasonable rents. Another plus is direct access to the Metro, Washington’s mass-transit system. Workers at Rockville Center can be in down-town Washington in fewer than 30 minutes.

Mr. Rutter says he can afford to be patient. Essex Capital Partners bought the mall property for an undisclosed amount of cash, so it has no debt payments. He also plans to seek financing for each component as he goes; it could take more than 10 years to complete the projects.

“If you look to make a quick hit on a job like this, you’ll get killed,” he says.

© Essex Capital, 2012