The Kennedys' sweetheart deal.

ABOVE the Federal Center Southwest Metro station in Washington, D.C., is a prime piece of real estate belonging to America's most famous political family, the Kennedys. The property has proved to be both a highly profitable investment and an instructive example of how Washington really works.

In 1978 Senator Edward Kennedy took up the cudgels in Congress on behalf of home rule for the District of Columbia. He pressed for greater autonomy for the city government (since then, he has sponsored legislation for D.C. statehood), and he was a vocal supporter of the new mayor, Marion Barry. Kennedy voted for, among other things, more federal subsidies for public housing in the city, and the outright transfer of millions of dollars of federal property to the D.C. Redevelopment Land Agency (RLA).

None of this is out of character for Senator Kennedy. But it is at least interesting that the property mentioned above, which the Kennedys acquired in 1981, was purchased from the RLA in what one Washington lawyer calls "a real sweetheart deal."

In the late 1970s an estimated $100 million in federal property was transferred to the D.C. government. The RLA was put in charge of selling the transferred property, as well as other tracts already owned by the city. The parcel sold to the Kennedys consisted of an entire city block between Third and Fourth Streets and D and Virginia Avenues, SW.

According to real-estate documents, the Kennedy deal involved two limited partnerships, Fourth and D Street Partners and WDC Associates. WDC Associates consists of the children of Joseph P. Kennedy, Fourth and D Street Partners of his grandchildren. Both have the same managing partner-Joseph P. Kennedy Enterprises Inc., which is run "for the benefit of the direct lineal descendants of Joseph P. Kennedy." Signing the 1981 documents for JPK Enterprises Inc. was R. Sargent Shriver.

The Kennedys did not have to compete for the property, because it was never put up for public bidding. Public bidding was not required under Chapter 7 * 5-701 of the D.C. Code, under which the property was ostensibly offered. But Chapter 7 * 5-701 does not apply to city-owned property at all: it applies to privately held property that has been condemned. The sale was made possible through a federally funded program called Southwest Urban Renewal Area Project C, which received "substantial aid and assistance" from the Federal Government, according to real-estate records.

The Kennedys paid a mere $3 million for the property and a warehouse located on it, or approximately $29 per square foot. A look at other properties in the immediate vicinity illustrates how low that price was. In 1980 a vacant lot one block to the east was sold by the RLA for $42 per square foot. In 1981 two properties across the street from the warehouse were renting for between $35 and $40 per square foot. Commercial appraisers contacted by the author confirmed that the sale price was extremely low. Two separate appraisers concluded that it should have gone for double the actual purchase price to $6 $7 million. They point out that being on top of a Metro station greatly increases the value of commercial property. It guarantees heavy foot traffic for businesses, and makes the property highly desirable to the Federal Government, Washington's predominant employer.

Mutual Benefit

THE SALE took place at a time when the D.C. government was financially strapped, and having a difficult time funding social programs and other commitments. It owed HUD $80 million that it could not pay. Mayor Barry was lobbying for more federal funds to solve these problems, and Senator Kennedy was sympathetic.

One reason adduced at the time for the city's financial trouble was questionable real-estate transactions by the RLA. The General Accounting Office (GAO) was openly critical of the RLA in 1982, charging that city property (much of it a gift from the Federal Government) was being sold for bargain-basement prices, often to political friends of the mayor. In March of that year, a GAO report criticized the RLA for failing to have clear criteria for determining "why one developer is selected over another." Some transactions, said the report, give the appearance of a loosely run activity, and, as a result, much controversy exists concerning the sale of urbanrenewal property, sales prices, and selection of developers." Nathan Landow, for example, a prominent Democratic Party fundraiser, paid less than one-third the market price for a piece of downtown real estate he purchased from the RLA in early 1982.

The extremely low purchase price was not the only "sweet" element of the Kennedy deal. Thanks to the personal intervention of Marion Barry, the Kennedys avoided stringent minority-ownership requirements. The RLA had an unwritten rule that required development teams purchasing city property to be at least one-quarter minority-owned. According to an RLA official, that unwritten rule was strictly enforced." Indeed, a search of other commercial-real-estate transactions involving the RLA reveals no other instance in which such a waiver was made. Barry intervened to waive the requirement for the Kennedys because, according to the Washington Post, he "strongly supported" the Kennedy purchase.

Mayor Barry was not the only one wanting to do business with the Kennedys. They landed a multi-million-dollar lease from the best tenant possible-the Federal Government, specifically the Small Business Administration.

But the deal almost fell through. According to a senior official at the General Services Administration (GSA), which reviews such transactions, the initial lease submitted in the fall of 1989 was rejected when it became clear that Senator "Kennedy was an "interested party." Federal regulations prohibit commercial transactions between elected federal officials and the Federal Government. According to the GSA official, the paperwork was "reworked" by Kennedy family lawyers when the problem emerged. They submitted a new proposal several weeks later, adding another layer of partnership; because Senator Kennedy was now a beneficiary of a beneficiary of the deal, rather than a direct beneficiary, his name no longer needed to appear on the documents, and the lease was signed.

The Kennedys are one of the wealthiest families in the country, and one of the politically most powerful. It would be wrong to suggest any connection between their wealth and their influence, or indeed vice versa.