A Falls Church fuel distributor has acquired prime property at the corner of 15th and U streets NW, formerly home to a Sunoco gas station, with plans to build a new gas station after the seller's representative concluded the site could not support new housing.
An affiliate of Petroleum Marketing Group Inc., an authorized fuel distributor for a number of major gas brands, bought 1442 U St. NW for $7 million, according to D.C.'s Recorder of Deeds. Sunoco, the property's tenant for roughly three decades, recently razed the site's fuel infrastructure ahead of a September lease expiration.
Josh Feldman, managing director of brokerage Feldman Ruel, represented the sellers, a family that has owned the property for 80 years. He said his team initially wanted to market the property as a development site for more than 100 new units because his land use attorney assured him that a multifamily project was unlikely to face historic preservation hurdles or be subject to a 1976 law that limits the redevelopment potential of some gas stations.
But it quickly became clear that the economics didn't work. Interest rates and building costs remain elevated and many institutional investors are steering clear of new construction in D.C. due to what they view as overly strict regulations.
There are “very, very few ground-up development deals being sold right now,” said Feldman, whose firm is very active in brokering sales of potential development sites across the District. Investors, he added, "have pivoted to just buying existing product instead of building new product right now.”
The next most obvious play, Feldman said, was to target large gas station operators in the area. His team identified a buyer and closed the deal in less than 30 days. Petroleum Marketing Group, or PMG, had already operated on the property for years under a sublease with Sunoco, according to Feldman.
PMG was drawn to the U Street site, which spans just under a half-acre, because of its proximity to the 14th Street retail corridor and nightlife activity on U, according to Feldman. Should PMG decide to sell one day, the property could become another use, increasing its potential value, Feldman said. The convenience store on the site still stands, and the buyer plans to keep it.
The sellers, through Feldman, declined to comment. Feldman Ruel Senior Associate Hannah McCann also represented the previous owners.
PMG did not immediately respond to a request for comment.
Feldman said Sunoco razed the infrastructure on the site because gas station leases generally obligate tenants to deliver a site back to the landlord free of petroleum contamination. Feldman said his team had no reason to believe there was contamination at the site.