12 Stories That Defined D.C. Commercial Real Estate In 2024
For D.C., it was a year of blows to the gut: punch after punch threatening to knock the city to the ground.
In 2024, the District nearly lost two of its professional sports teams. Large downtown office buildings were foreclosed on in waves. The federal workforce failed to fully return to the office, and housing providers contended with historic rent delinquencies.
There were some losses: CoStar traded its downtown home for Northern Virginia, and the deal for a new 1.2M SF headquarters for the Securities and Exchange Commission was scrapped.
But in a year of so many threats to its vibrancy and economic well-being, the city was often able to rally.
It won back its sports teams, along with a $800M arena renovation. Office-to-residential conversions gained momentum to help address the issues of office vacancy and downtown activity. And Fannie Mae decided to stay and continue anchoring one of downtown's most prominent developments.
Here is a roundup of the stories that defined D.C.’s commercial real estate landscape in 2024.
Office Foreclosures
If there were one place in the District that came to define the office environment this year it was a single, few hundred square foot suite near the Maryland border: the home of Alex Cooper Auctioneers.
Massive office building after office building moved through the auction house, as lenders sought to sell or take the keys to some of the most prominent downtown properties in the city.
It was from that tiny room that lender Starwood took over Brookfield’s vacant K Street building near Franklin Park. Blackstone did the same for four L’Enfant Plaza properties totaling more than 887K SF, as did State Farm Life Insurance Co. for a downtown property on H Street, scooping up the property for a third of its assessed value.
And those were just the properties that went to auction. Clarion Partners handed the keys of its Portrait Building to its lender, Voya Investment Management, through a deed-in-lieu-of-foreclosure in May. And last month, Blackrock handed its nearly 200K SF property at 5th and K streets NW to Pacific Retail Capital Partners, also via a deed-in-lieu.
Monumental Whiplash
D.C. went into the year worried it would lose the Capitals and Wizards to neighboring Virginia.
The deal was all but signed for Monumental Sports & Entertainment to move the hockey and basketball teams across the river to Northern Virginia’s Potomac Yard neighborhood and build them a new arena to anchor a new $2B entertainment district.
The move would have been a massive blow to the section of downtown that was already struggling with store closures and diminished foot traffic in the wake of the pandemic. Mayor Muriel Bowser put together a high-profile task force to reimagine what the neighborhood would look like in the event the teams left or if they stayed.
But just four months later, after the proposal incurred backlash from the Virginia legislature, Monumental announced it had made a deal to keep the teams in D.C. and complete an extensive renovation of the Capital One Arena with a $51M investment from the city. The council passed the funding Tuesday, and the project held a groundbreaking ceremony Thursday.
New Multifamily Distress
A series of apartment buildings that delivered over the past few years also suffered in 2024.
New buildings faced increased financial stress after floating-rate construction loans became more expensive with the Federal Reserve’s rate hikes.
The Lanes — a 110-unit Union Market building that delivered in 2023 — was purchased at a foreclosure auction after EagleBank, which had provided the construction financing, sold the loan. A few blocks away, Tribeca at NoMa, a 99-unit property that Urban Investment Partners and its partners delivered in 2021, was also foreclosed on and sold at an auction in June.
Neighborhood Development Co.’s 36-unit Arbor at Takoma is being marketed for $13.9M after it was purchased by its lender at a foreclosure sale in August. The development company quietly closed up shop the same month.
Federal Workers Still Not Back In The Office
While this year has seen the private sector implement more and more return-to-office policies, many for five days a week, the federal government is lagging behind.
A March report from the Public Buildings Reform Board found that federal government agencies were using just 12% of the space in their headquarters buildings on average. The buildings, which were originally designed to include assets like typist pools and filing rooms, have been underutilized for years, but the pandemic made the problem even more dire.
In response, the federal government has accelerated its disposition and lease reduction efforts. The General Services Administration is leasing 20% to 40% less space across the board, Bisnow reported this spring, and it has announced a series of new disposition efforts this year, including a 337K SF property in College Park, Maryland, Wednesday. Also this week, the GSA sold the Webster School for just over $4M in a public auction.
Trump Wins Election, Promising Drastic Cuts To Federal Spending
President-elect Donald Trump and his allies are coming into office with the intention of both cutting the federal workforce and bringing those who are left back to the office five days a week.
In a news conference last week, Trump said federal employees that did not return to the office would be fired. Billionaire Elon Musk and investor Vivek Ramaswamy — the duo that Trump has selected to pare down government spending by $2T annually — wrote in a Wall Street Journal opinion piece last month that the wave of terminations such a policy would ignite would be “welcome.”
At the same time, the duo would look to reduce headcounts across agencies by identifying “the minimum number of employees required at an agency for it to perform its constitutionally permissible and statutorily mandated functions.”
While President Joe Biden has urged agencies to bring more employees back more days a week, employee in-office policies are largely regulated by collective bargaining agreements. The largest federal workers union has already vowed to fight the incoming president’s in-office policies.
Moving agencies out of D.C. is also a possible implication of Trump’s win. During his first term, the former president moved two Department of Agriculture agencies to Kansas City, Missouri, and attempted to move the Bureau of Land Management to Colorado, a relocation the Biden administration reversed.
The plan announced last year to move the Federal Bureau of Investigation to Greenbelt, Maryland, could also be on the chopping block, as Trump scrapped a prior search for the FBI during his first term in office.
Office-To-Residential Conversions Picked Up
While over a dozen office-to-residential conversions had been announced prior to 2024, this year saw an acceleration of projects moving forward and completing.
This fall saw Willco deliver the first major downtown office-to-residential conversion since the pandemic: the transformation of the former Peace Corps headquarters on L Street into a 163-unit apartment building. In Southwest, Carmel Partners also completed its conversion of the federal Cotton Annex Building into 562 units.
Foulger Pratt is scheduled to complete its conversion of 1425 New York Ave. NW into 243 units in the third quarter of next year, while Transwestern Development Co. took over the developer’s conversion project at the former MCI Communications Corp. headquarters on 19th Street.
The market for future conversions was helped by the city’s 20-year office-to-residential tax abatement, which opened for applications in March. The city announced the first three projects receive the abatement this fall.
SEC Headquarters Plans Foiled
One of the federal government's largest development projects planned in recent history was killed this year.
This fall, the General Services Administration terminated the lease with the developer that it had selected to build the 1.2M SF headquarters for the Securities and Exchange Commission three years earlier.
A joint venture between Douglas Development and Midtown Equities was selected to develop the project in D.C.’s NoMa neighborhood as a permanent replacement to its leased space near Union Station. But the GSA revealed in the lease cancellation that it had been unable to secure financing.
Bisnow reported in the summer of 2023 that the developer had yet to secure financing for the project and that the deal was on the verge of collapse. That fall, the agency signed a five-year lease extension at Station Place.
Fannie Mae Terminates, Re-Leases Half Of HQ Footprint
One of D.C.'s largest downtown office tenants renewed its lease after fears emerged that it would leave the city, but it still substantially downsized its footprint.
In January, Fannie Mae listed its 720K SF headquarters space at Midtown Center headquarters for sublease and indicated it might exercise an early-exit clause in 2029. Midtown Center, developed for Fannie by Carr Properties in 2018, is one of the largest downtown office properties, and the anchor tenant's departure would have dealt a major blow to the city.
But in August, Carr announced the company signed a deal to stay in the building until 2045. The catch: the new lease is for 340K SF, about half of its current footprint.
CoStar Leaves D.C. For Rosslyn
Though Fannie Mae ended up staying downtown, another big D.C. anchor traded the District for Northern Virginia this year.
After more than a decade in downtown D.C., real estate data giant CoStar Group moved its headquarters to a building it purchased in Northern Virginia. The company bought JBG Smith’s 31-story Central Place Tower, one of the tallest buildings in the region, where it’s moving 500 existing jobs and adding 150 new jobs. The price tag came to $339M.
The move was a loss for a downtown office district that has been hitting record vacancy numbers quarter after quarter — the District reached 22.7% of vacancy at the end of Q3.
Eviction Policy Turmoil
The unexpected announcement in August that Adrian Washington would be shutting down his 25-year-old affordable housing firm Neighborhood Development Co. served as a wake-up call for D.C. leaders on the growing crisis that housing providers faced this year.
The problem stemmed from pandemic-era policies that allowed tenants to delay eviction for months while racking up tens of thousands in unpaid rent. The proliferation of this practice led landlords to see soaring delinquency rates that cut into their revenues and put their financial stability at risk. The fear was not only that housing providers would lose buildings to foreclosure or go out of business, but that affordable properties would be stripped of their covenants and turned into market-rate housing.
Council Chairman Phil Mendelson introduced an emergency bill to reform the Emergency Rental Assistance Program, a bill that received Mayor Muriel Bowser’s support and ultimately passed. Her administration also diverted funding from the Housing Production Trust Fund that would have gone to new affordable housing development to instead provide bridge loans to prevent struggling affordable housing owners from losing buildings to foreclosure.
While these steps appear to have helped, housing leaders say they still want to see more actions taken next year to stabilize the industry.
Waldorf Astoria Foreclosed
One of the most high-profile hotels in D.C. was foreclosed on and purchased by its lender at auction. The Waldorf Astoria, the 263-room hotel in the Old Post Office building on Pennsylvania Avenue is now under the control of its lender, BDT & MSD Partners, after its owner defaulted on its loan.
The federal government owns the land, but Miami-based CGI Merchant Group purchased the ground lease in 2022 for $375M from the previous owner, The Trump Organization. BDT & MSD Partners was the sole bidder at the Alex Cooper auction for the property in August and won the property with a $100M bid.
The building was previously the Trump International Hotel during Trump’s first term, and The Trump Organization is weighing the idea of buying it back, the New York Post reported last week.
Power Shortage Plagues Virginia Data Center Market As AI Drives Boom
The data center industry has seen soaring demand this year as Big Tech companies pour hundreds of billions of dollars into artificial intelligence, but Northern Virginia — the world’s largest data center market — has faced challenges as it tries to accommodate that growth.
The region has been dealing with power shortages since 2022 as utility Dominion Energy has had a hard time keeping up with the demand from the booming data center industry. This led to a slowdown in new data center development in Northern Virginia, and the industry has spread to new markets across the country as tech giants gobble up data centers anywhere developers can build and power them.
Northern Virginia has also faced mounting political opposition to data center development. A series of local and statewide legislative proposals earlier this year sought to restrict the growth of data centers in communities across Virginia, but many of them were punted to next year as lawmakers awaited a report from Virginia’s Joint Legislative Audit and Review Commission that would provide more detailed information on the data center industry’s projected growth in the state. That report was released last week and found that it would be nearly impossible to expand the state’s power grid fast enough to meet the demand for data centers. Its release is expected to restart the efforts of data center opponents to stall the industry’s growth next year.
