In February 2020, Duncan Slidell bought a brown brick 1980s-era office building near 13th and L streets NW. When he looked at the aging facade, the developer saw an opportunity — not for another office building, but for housing.
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Slidell couldn’t have known then that just weeks later, a deadly virus would send millions of workers home, shutter downtown offices and change the way many Americans think about work — a seismic shift that businesses and city leaders have been forced to confront.
Slidell, the executive vice president at Lincoln Property, is overseeing two projects to transform vacant office buildings into residences in the heart of D.C.'s central business district. He had planned to do so quietly, he said. But then, this week, Mayor Muriel E. Bowser (D) announced she would launch an effort to solicit feedback from developers and businesses to determine how feasible it would be to do more of this: commercial-to-residential conversions that some experts say could help revitalize office-heavy downtown corridors.
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“Before the pandemic, the District was adding just as much office space as it was absorbing. We were in this office building boom, but the pandemic threw that into a place where we have a vacancy rate that’s higher than many other urban centers around the country,” said John Falcicchio, deputy mayor for planning and economic development. “Many have said — what about conversions to residential? But that’s not as easy as it sounds. You really need an empty building to start.”
Bowser’s plan to issue a request for information on housing options in downtown D.C. is meant to formally launch a process of gathering input from current and prospective property owners on what they would need to consider transforming office structures into residences. Informal conversations have already begun.
The mayor’s office expects to hear primarily from owners of Class C office buildings — the District’s oldest and least desirable. Most of these structures are several decades old and lack the amenities that would allow them to remain competitive in today’s commercial real estate market, which has a glut of office space.
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But the path forward is somewhat uncharted. No other major metropolitan city has successfully incentivized the kind of commercial-to-residential transformations that the District is discussing, Falcicchio said.
“We don’t have any good case studies that have put forward a successful program. That’s why we’re looking to specific property owners,” he said. “We want property owners to tell us what it would take for them to convert this space and what would be the incentive they’d be looking for to do so.”
The solution, officials hope, would be twofold: revitalize downtown while adding more housing stock, including affordable housing units, to combat D.C.'s deepening housing crisis.
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On Tuesday, members of Bowser’s administration and D.C. Councilwoman Brooke Pinto (D-Ward 2) described a future in which downtown feels more like a community than a commercial center.
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“We pride ourselves in the District of Columbia as being a city of neighborhoods. But I’m not sure if you asked what neighborhood we’re in people would say downtown is a neighborhood,” said Andrew Trueblood, the director of D.C.'s Office of Planning as he stood outside the brick building at 1313 L St., which was draped in tarps and netting.
Commercial-to-residential conversion is “hard to do downtown” and “expensive,” Trueblood said. But “if we zoom in and focus on those opportunities, those buildings, those sites, those willing property owners, we can start to bend the curve and start to create more neighbors downtown.”
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This is not the first time D.C. has explored the possibility of looking to commercial vacancies to address housing deficits.
For years, downtown has been losing contracts with companies and residents who wanted to live and work in neighborhoods where they could do both, like Navy Yard, NoMa and parts of Northern Virginia.
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“Downtown and its uses are very much commercial, and what people are looking for both as residents and as businesses are more vibrant communities, so we see downtown really moving east to places where there is more mixed use — commercial, residential and public — space,” Falcicchio said.
In 2019, when the vacancy rate for D.C. office buildings hovered around 11 percent, a report from the Office-to-Affordable Housing Task Force indicated that conversions would not produce enough residential units to put a meaningful dent in the District’s need for housing. The report cited residences’ lower profitability margins compared with office space and detailed how difficult it would be to conduct such conversions without having a fully empty building — a difficult circumstance in an industry where staggered leases often lead to checkered vacancies that rarely empty entire buildings at once.
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But then the coronavirus pandemic hit and sent D.C.'s central business district into a tailspin.
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According to a report released by the Business Improvement District for downtown D.C., the office vacancy rate in the fall was at record highs: nearly 17 percent, with more than 9.6 million square feet unoccupied. Falcicchio said in parts of the central business district, vacancy rates have soared above 20 percent.
As of September, before a winter coronavirus surge and fears of the new omicron variant took hold, just a quarter of the District’s office workers were working from their offices. Several big-name companies have since announced another delay in return-to-office plans.
High office vacancy rates mean that tenants can negotiate for lower rates on leases and drive down the cost of renting an office downtown, which, in turn, decreases tax revenue. The D.C. Office of the Chief Financial Officer anticipates that the District will see tax revenue from large office buildings drop by an estimated $121 million in fiscal year 2022, spurred on by a nearly 10 percent reduction in the total assessed value of these properties. This decline is expected to continue the following year, into fiscal year 2023 and beyond.
Even the most optimistic projections show commercial vacancies will continue to grow for the next several years. The Business Improvement District puts its projection for full economic recovery at least seven years out.
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Shopping, dining and hotel stays in the District’s downtown corridor continue to lag, even as D.C. has sought to signal that the city is open for business. The one sector that seems to be driving downtown’s economic recovery is housing, the Business Improvement District reported.
Slidell’s project — which involves building an amenity-rich building of 222 new apartments on top of a parking garage where an aging six-story office building now stands — is the first residential groundbreaking the District has seen in its downtown business corridor in 10 years.
Just two blocks away, Slidell has another commercial-to-residential transformation in the works. All told, he said, the two will create about 500 new market-rate housing units.
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“I certainly hope we are not the first and the last to do this,” Slidell said. “I don’t think you can do this in every situation and we’re fortunate to find the right opportunity at the right time, but in a city like D.C., especially in a downtown that’s already so dense, you’ve got to get creative to find an opportunity to create housing.”
Slidell said building this type of housing is an act of hope and belief in the future of downtown D.C.
The federal government — a steady guarantor of employment and opportunity in the District — will continue to draw people downtown, officials and business leaders said. But other industries may not be as tied to a location, especially as workers become more comfortable and adept at conducting business virtually.
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“You’ve got to look at this as an investment into the long-term viability and value of downtown D.C. Do you believe in it or not? And we do,” Slidell said. “By adding housing, we believe it’s a way for us to bet on that community’s viability and growth. The other easy way to look at this is the District needs housing.”
Slidell will finalize the purchase of a second commercial building he plans to covert into housing in 2022. It will include two floors of office space, not for any one company, but for residents who would like to work from home in a setting more reminiscent of a co-working space than their living room.
It’s an idea Slidell said his company is playing with — and a way to market the new residences to young professionals who want to live and work in a bustling downtown, near public transportation, arts, amenities and the federal government, while also not being tied to a traditional office space.
“We have all come through some very difficult times recently, so it can be hard to think very far into the future,” Slidell said. “But I would like to think that’s what we’re doing: trying to envision what it might look like for our downtown to make a meaningful recovery.”