Developers ‘On The Edge’ Of Making Residential Conversions Work Want More Government Help

Office-to-residential conversions are a key pillar of D.C. Mayor Muriel Bowser’s effort to revitalize the city's central business district and meet her goal of adding 15,000 residents downtown by 2028. 

But while several downtown conversion projects have been proposed over the last two years, only a few have begun construction, including Willco’s 163-unit project at the former Peace Corps building and Lincoln Property Co.'s 222-unit project at 1313 L St. NW. 

As developers face razor-thin margins in getting these projects to pencil, they are looking toward the D.C. government to ease regulations that can stand in the way of construction starting, panelists said at Bisnow’s D.C. Office To Residential Conversions Summit on Wednesday at the Westin Washington D.C. City Center.

“We’re hinging on the edge of making these deals work or not,” Davis Construction Vice President Greg Ghent said.

“Small changes in some standards may be able to help alleviate some of the costs — things like green roofs and other building standards that we’ve come up with over the course of years. Obviously we always want to want to be sustainable and all those things we talked about to push this city forward. But there's sort of razor-edge decisions to make on these projects."

D.C. has made moves to try to bring developers downtown, including a 20-year tax abatement for developers who add at least 10 housing units and change a building’s zoning use in a designated portion of downtown. 

"We know the future's different," said Sharon Carney, chief of staff of D.C.’s Office of the Deputy Mayor for Planning and Economic Development. 

"The office isn't over. But we've got a classic supply and demand problem at least in downtown D.C. So we have tried to be proactive."

Bowser’s Comeback Plan outlines a process to review regulations to ease some of the burdens.

In its section on creating residential nodes and increasing housing supply downtown, the plan outlines a goal of “easing relevant regulatory barriers that make office to residential conversions more difficult, including the permitting process, building code and tax code.” 

Experts said that initiatives like the tax abatement have been helpful, but they pointed to additional factors that slow down the process or make it just expensive and convoluted enough to disincentivize developers to undertake these projects.

“When we're looking at these conversion projects, there's a lot more than just the incentive side,” Bohler associate Sheila Nale said.

“There are the regulatory fees that come along with the permitting processes, which are just a small portion in comparison to all of the factors that have been really weeded out during the due diligence phase and understanding the real feasibility of these structures that are there.” 

She said those additional factors include air and lighting concerns, structural considerations and hiring a "deep bench" of skilled professionals who can navigate all of these challenges. 

Former D.C. Mayor Anthony Williams, who now leads regional advocacy group Federal City Council, agreed that investment in these big structural changes is crucial. But he does see the tide changing. 

“I think this mayor — and we’re bringing the council along — are starting to make the right choices,” Williams said at the event.

“For those of you who have been around the block like me, this is a big deal."

Williams cited his administration's early funding for the developers that were planning Southwest D.C. megaproject The Wharf as an example of how investment from the city has the possibility to produce 10 times multiples.

“When we did the Wharf .. everybody said, 'Oh, you're giving away money to developers," Williams said. "Yeah, we put in eight, nine, $10M, we're getting $100M back."

Panelists pointed to zoning, affordable housing, sustainability and the Certified Business Enterprise requirements as roadblocks to moving conversion projects forward.

Gary Cohen, whose firm Willco is undertaking one of the handful of such conversions downtown, said that the city worked with them on sustainability compliance standards, pointing to the collaboration with the city as a good example of private and public interests working together. 

“We’re building an infrastructure to build solar energy on the roof, but we simply can’t afford solar energy right now, meaning panels you have to put up, we can’t afford it," he said.

“They’re saying ‘that’s fine — build the infrastructure and in the next seven to 10 years, you can put the panels on.”

In fueling these types of discussions, panelists pushed for closer collaboration from the beginning between District officials overseeing the process and developers. 

“If we can move to a point where there is more collaboration upfront from development, design teams and the agencies that are ultimately controlling [the] permitting process, I think if we can have that open mind towards talking about what the common goals are and having a little bit more flexibility on that side, I think it would help to speed up that process which would cut down on the timeline and would help make that more attractive to developers who are looking to really make an investment back in the community but are also considering the time factors and cost factors,” Bohler's Nale said.