It may be a gateway destination, but DC has been affected by slowing investment sales like just about every other city. So the area was thrilled when Mayor Adrian Fenty announced that the District and Forest City Washington are forming a public-private partnership to build a $42 million waterfront park along the Anacostia River. Not only is it a new project — but it is one that is receiving a significant boost from the local government.

Public-private real estate development has always been a complex affair, with the participants having to balance competing goals, such as job creation, profit motivation and tax payer approval, as they build the capital stack. Still, though, this give-and-take has usually been worth it for developers over the last several years as cities, flush with funds, happily invested in their local landscape. That DC, which last quarter began running a deficit, is still investing in these projects is a good sign, observers say. Forest City will begin construction on the 5.5-acre park, using $42 million Payment-in-Lieu-of-Taxes funding.

Unfortunately, though, the project may well prove to be more the exception than the rule going forward – and not just for DC, but for most cities. Simply put, these projects are suffering from twin forces: a dwindling tax base thanks to recessionary pressures, and the tight credit market.

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