HPA No. 2006-171 (In re. Former Italian Embassy)

• HPA Number: 2006-171
• Case Name: In Re: Application of Embassy Real Estate Holdings, LLC For Demolition, Alteration And Renovation, New Construction of Former Italian Embassy
• Location of Property: 2700 16th Street, N.W., Square 2578, Lot 26
• Date of Order: 08/29/06
• Type of Case: Appeal of HPRB decision that issuance of certain construction permits (prior to landmark status of structure) was inconsistent with purposes of the Act; also alteration, demolition and new construction permit applications.
• Disposition: Denied
• Date of Case Summary: 06/12/07

Summary:

Embassy Real Estate Holdings, LLC ("Applicant") sought three construction-related permits from the D.C. Department of Consumer and Regulatory Affairs ("DCRA") to construct a condominium project on the site of the former Italian Embassy, including making alterations to an existing structure at the site. Subsequent to Applicant's filing of one such permit, the D.C. Historic Preservation Office ("HPO") filed an application to designate the site as an historic landmark on the D.C. Inventory of Historic Sites, which landmark application was granted. After the three construction-related permits were issued, HPO formally requested that DCRA revoke the permits as mistakenly issued because they should have been subject to historic preservation review before approval.

Concluding that the Mayor's Agent had jurisdiction in this case because the property became subject to the D.C. Landmark and Historic District Protection Act of 1978 (the "Act") from the date the landmark application was filed, the Mayor's Agent found that the permits were null and void because they were granted without historic preservation review as required pursuant to D.C. Code §§ 6-1104 - 6-1108. The Mayor's Agent then reviewed the case on its merits (as if the permit applications had been properly submitted to historic preservation review prior to their issuance), and denied all of them, finding that partial demolition was a necessary part of the project, and that the demolition proposed here was not consistent with the Act, nor was it necessary to construct a project of special merit based on exemplary architecture or community benefits. The Mayor's Agent also found that denial of the applications would not impose an unreasonable economic hardship.

DISCUSSION OF PRELIMINARY PROCEDURAL MOTIONS:

Prior to discussing the merits of the case in view of the standards set forth in the Act, the Mayor's Agent responded to two preliminary procedural motions made by Applicant, each discussed below:

1. Applicant's Motion to Strike. Applicant argued that because HPO filed its proposed final order three days after an already-extended deadline, its Proposed Finding of Facts and Conclusions of Law should be excluded from the record because such delay violated fundamental notions of fairness, and exacerbated the financial hardship on Applicant by further delaying the Mayor's Agent's final decision. The Mayor's Agent denied the motion to strike HPO's late submission, finding that although HPO should have filed for an extension, the time lag of three days was sufficiently short, and the document sufficiently necessary, as it represented the official position of the D.C. Government in this proceeding, that the document should be accepted into the record.

2. Applicant's Motion to Dismiss/Lack of Jurisdiction. Applicant filed a motion to dismiss arguing that both the Historic Preservation Review Board ("HPRB") and the Mayor's Agent lack jurisdiction to render a decision because the Act's review procedures cannot be retroactively applied, and the Applicant is entitled to equitable estoppel and laches relief.

First, Applicant argued that the case before the Mayor's Agent should be dismissed because the Act's review procedures cannot be retroactively applied to permit applications that were filed before the property became the subject of a landmark designation application. One construction-related permit had been issued, and the two others were pending when the landmark designation application was filed on January 6, 2006. The Mayor's Agent held that HPRB's regulations contain no time limit on when landmark applications may be filed, and to preclude consideration would allow owners to thwart the purpose of the Act, simply by filing a permit application even if it were defective. Instead, the Mayor's Agent held two of the three permits were issued in error because the property became subject to the Act on the date the landmark application was submitted, and thus they should have been referred to HPRB review before approval.

Applicant next asserted that he was entitled to equitable estoppel relief in part because he relied upon verbal assurances during two meetings with a State Historic Preservation Officer (held in 2001 and 2004) that the HPO would not file a landmark designation application, and, in reliance thereof, invested millions of dollars in the project. The Mayor's Agent was not persuaded by this claim, finding that to show estoppel against the government, one must demonstrate, among other elements, that it relied upon "affirmative acts of the District," and that two "possible informal meeting(s)" with the State Historic Preservation Officer "neither of which produced any documentation or other basis upon which to support a claim of reasonable reliance," falls short of meeting the high standard for estoppel claims against the government.

Applicant also argued that equitable estoppel was an appropriate remedy because HPO knew the site was being developed as early as 2001, but failed to file the landmark application until 2006, which frustrated Applicant's "vested" property rights in the permits, akin to a partial taking. The Mayor's Agent held that one cannot have vested rights in erroneously issued permits, and because Applicant was always aware that the property was a historic house and a landmark application might be filed, Applicant assumed the risk in going forward with development and did not properly prepare for the contingencies "such that could later give rise to a claim of unreasonable economic hardship or a taking."

Applicant lastly argued the case should be dismissed on account of the doctrine of laches (i.e., equity does not favor those who slumber on their rights), because delays in filing the landmark designation application prejudiced Applicant and such delays were unreasonable. Applicant asserted that HPO knew about the project in 2001, and was reminded of the nature of the project in 2004, and unreasonably delayed acting on any objections it may have had to the project by waiting until 2006 to file the landmark application. HPO argued that it filed the application once it became aware of the final design of the project. The Mayor's Agent did not consider the merit of either claim, holding instead that any delays in filing landmark applications have no relevance to the question before the Mayor (i.e., determining whether the construction-related permits were properly issued in light of the landmark status), and that the Mayor's Agent does not have the authority to address or correct alleged procedural errors by HPRB on landmark designation.

Additional procedural issues raised in this case:

• The Mayor's Agent stated that his jurisdiction does not permit him to "address or correct" any errors in a landmark designation, and that applicants have no right to de novo review of a landmark designation decision as part of a Mayor's Agent decision regarding whether an alteration or demolition permit should be granted. The Mayor's Agent also stated, however, that judicial review of HPRB landmark designations is available through the courts, citing Donnelly Associates v. District of Columbia Historic Preservation Review Board , 520 A.2d 270, 281 (D.C. 1987).

DISCUSSION OF CASE ON THE MERITS:

Consistent with the Purposes of the Act:

The Mayor's Agent concluded that the significant removal of building fabric "... not less than 10% of the existing floor area ratio (the FAR) above grade will be destroyed." was not consistent with the purposes of the Act, because the project would require demolition of significant exterior features of the existing building (the original Italian Embassy, a Beaux Art style structure), including twin chimneys, which were recognized as architecturally and historically significant by the D.C. Commission of Fine Arts, and major portions of the building visible from the courtyard. The Mayor's Agent decided to "defer to and adopt" the HPRB's findings regarding the proposed demolition (that it was not consistent with the purposes of the Act), "as the expert agency charged with reviewing proposed demolitions under the Act." The finding of significant demolition, thus, inconsistency with the Act, required the Mayor's Agent to consider whether the project was one of special merit.

Project of Special Merit - Balancing Test:

Citing In the Matter of Webster School , HPA 00-462 (Feb. 16, 2001), the Mayor's Agent reiterated the test for evaluating a project of special merit, i.e., that the merit of a project must be balanced against the historic value of the contributing building, because only projects that offer significant benefits to the District of Columbia or to the community offset the D.C. Council's policy in favor of protecting, enhancing and perpetuating the use of properties with "historical, cultural and aesthetic merit."

Project of Special Merit - Exemplary Architecture:

The Mayor's Agent found that the proposed addition of an attached 90-foot condominium tower and another separate 50-foot condominium building were not exemplary. He stated exemplary architecture is not simply "high end" or more expensive, but must include bold and innovative improvements and represent "design work of the highest caliber," citing proposed additions to the Corcoran Gallery of Art and Arena Stage as the type of proposals that would meet this exemplary architecture standard. Applicant testified the tower was exemplary because of its variation in fenestration, predominant use of glass and some intentional asymmetry with the original structure. However, the State Historic Preservation Officer testified that the materials of the new structure reflected a "machine-made modernism" and that the project was not characterized by an extremely high level of finish, design or details that would make it exemplary, nor is it of the same exceptional quality as the original landmark. An expert architectural historian witness representing the Committee of 100 also testified that the structure was a "monster tower" and that it did not qualify as exemplary.

Project of Special Merit - Social or Other Benefits Having a High Priority for Community Services:

The Mayor's Agent held that the production of 79 "high end" condominiums did not constitute a community benefit. Applicant argued that the city's Comprehensive Plan highlights the need for housing production, and that the Mayor has called for attracting 100,000 new D.C. residents. The Mayor's Agent countered that the assertion that high-end condominiums will fill a need for housing is "hardly sufficiently 'special'," citing Kalorama Heights Ltd. Partnership v. D.C.R.A. , 655 A.2d 865, 873 (D.C. 1995). Nor is an increase in real estate and personal tax revenues "special enough" To get over the "exemplary architecture" bar which has only been overcome in a "very limited number of circumstances in the past."

Unreasonable Economic Hardship:

The Mayor's Agent stated that to prove unreasonable economic hardship, Applicant must establish that its reasonable investment-backed expectations were "thwarted to the extent that there is no reasonable alternative economic use for the Property" and that the hardship amounted to a Constitutional taking such that "denial of a demolition permit would amount to a deprivation of property without due process," citing Kalorama, supra , 655 A.2d at 870-71.

Applicant argued that if the application was not granted, "its investment-backed expectations will be thwarted and it will suffer substantial economic losses, the effect of which will result in a partial taking." Applicant's investment-backed expectations included a $31.5 million loan to secure financing for the project, plus placement of $5.2 million in equity to secure the loan; preparation of the required documents; sales of some $30 million in condos; and $17.7 million in incurred costs including acquisition of land. The Mayor's agent found that there was no unreasonable economic hardship. Applying Webster School , supra, he noted, "the unreasonable economic hardship test under the Act is whether the Applicant can establish that there are no reasonable economic uses for the building as it exists... .If a reasonable economic use exists, there is no unreasonable economic hardship from the denial of the demolition permit, no matter how diminished the property may become in value and even if a more beneficial use of the property has been found." Further, the regulation itself (the landmark designation application process) did not constitute a taking, as Applicant was not challenging it and knew there was a possibility that the site would be landmarked.

Compatibility of New Construction:

Applicant contended the tower to be erected should be considered "new construction" and enjoy a presumption of compatibility with the landmark as provided in D.C. Code § 6-1107(f). The Mayor's Agent found that construction of the 90-foot tower would require removal of a considerable portion of the embassy and thus should be treated as a demolition project and not strictly new construction. Experts testified that at the time the landmark was constructed, symmetry, rather than contrast, and space, rather than "tight infill," were valued, and that the height and mass of the tower would also impede the views of nearby landmark steeples. The Mayor's Agent therefore held that even if the project could be considered new construction, the proposed glass tower would be too large, too close and too much of a contrast with the architectural intent of the landmark to be determined compatible.

Private Agreements with Interested Parties:

A private agreement between Applicant and the D.C. Preservation League ("DCPL"), in which DCPL a

reed not to file a landmark application for the property in exchange for certain design considerations and other terms and conditions of the agreement. The Mayor's Agent stated that although such private agreements are "occasionally entered into...as an alternative to the landmark or preservation review process, such side agreements may not be in compliance with the statutory or regulatory mandates, and their enforceability in court, in the event there is a breakdown in the process, is questionable." The HPO was not a party to such private agreement, and was thus not bound by the covenant regarding non- filing of a landmark application. The Mayor's Agent cautioned that it was risky to bypass the established HPRB review process.

Advisory Neighborhood Commission Determination:

The Mayor's Agent gave great weight, as required by D.C. Code § 1-309.10(d), to two resolutions in favor of the project passed by the applicable Advisory Neighborhood Commission. However, he concluded that both resolutions needed to be discounted for purposes of his decision, as both failed to address the relevant historic preservation standards discussed in this case including consistent with the purposes of the act, special merit, economic hardship and compatibility. The first resolution focused almost entirely on zoning variances, which the Mayor's Agent found to be issues outside his jurisdiction, and the second resolution focused only on a general ANC conclusion that the proposal was "historically and architecturally sensitive and appropriate," without addressing with particularity the statutory standards such as consistent with the purposes of the Act, whether the tower was "compatible" etc.

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