Can 30 Feet Help D.C. Avoid 'Economic Disaster'?

The heart of the nation's capital is facing an existential crisis. To solve it, Washington, D.C.'s local political and business leaders think it is time to alter one of the city’s defining characteristics: its height limit.

In recent months, Mayor Muriel Bowser and other current and former city officials have begun to call for changes to the Height of Buildings Act, a 113-year-old federal law that set the maximum allowable height at 130 feet for most of the city.

The federal regulation on D.C.’s skyline, which makes it unique among U.S. cities, has been eyed for changes at various times throughout the last century, and the latest alterations being discussed are relatively modest. Officials have proposed raising the cap to 160 feet, a three-story bump that experts say could both be politically palatable and spur more housing development downtown. 

If Congress could be convinced to let D.C. control its height limitations — ignoring the political gridlock of the moment — how much of a difference would 30 feet or more even make?

Developers, planners and architects tell Bisnow it could make all the difference in the world for millions of square feet of offices that are effectively doomed in today's market.

“It would be very impactful,” said Stonebridge principal Doug Firstenberg, one of D.C.'s most active developers. “Three floors could make a huge difference because you’re driving more value and you’re getting scale.”

The question of exactly how effective adding three stories would be for turning old office buildings into housing comes down to a math problem. 

Any height increase would likely come with a mandate to set aside some units as affordable. So in order to make projects work, the value of three extra stories of apartments would need to more than cover the cost of constructing the addition and subsidizing those below-market units.

The amount of value added varies by property, and a financial analysis conducted by the DowntownDC BID and shared with Bisnow shows adding three stories could make the math work to convert millions of square feet of office space that has been rendered obsolete in its current form. 

Making these deals work could be crucial to help D.C. avoid an economic crisis. The downtown commercial district is an important driver of the city’s tax revenues, but falling office values are projected to slash a half-billion dollars  of D.C.'s revenue in the coming years, forcing leaders to cut spending. This risks becoming a dangerous downward spiral unless D.C. can revive its obsolete office buildings in a way that brings more economic activity downtown.

A handful of developers have already bought older office buildings in D.C. with plans to convert them to housing, but a lack of available financing has prevented most from starting construction. The majority of buildings don’t make structural sense to convert under current rules.

Some developers and advocates expressed skepticism that calling for such a change should be a priority of D.C. leaders today. They argue it is unlikely a Height Act change would pass Congress soon, and that D.C. should focus more on short-term strategies to make people want to spend more time downtown. And while having more height could create more conversion opportunities, many developers would look to tear buildings down and rebuild instead.

Still, even the long-term prospect of raising the cap on D.C. buildings would be a historic change for the nation’s capital and a dramatic boost for downtown’s struggling properties, and it has many of D.C.’s political and business leaders imagining a new era for the city. 

“This is a multigenerational shift,” said Andrew Trueblood, the former D.C. planning director who wrote a Washington Post op-ed in January advocating for raising the height limit. “It will take time to do it right and to see results. But it’s something that we need to talk about now so people start envisioning a different downtown.”

‘It’s A Solution To A Real Problem’

The rapid decline in value of the District's 128M SF office market due to remote work and rising interest rates poses a “serious long-term risk” to its economy and its tax base, Glen Lee, the city’s chief financial officer, said in a letter last month.

The CFO projected a reduction in real estate tax collections will cause a $464M drop in city revenues over the next three years. Bowser called the forecast “sobering” and said it will force D.C. leaders to make difficult choices.

Daily occupancy of D.C. office buildings is still less than 46% of pre-pandemic levels in D.C., according to Kastle Systems, below the 47.3% average of the 10 cities it tracks.

D.C.’s office vacancy soared to a record high of over 20% last year as tenants gave back roughly 1.2M SF of space, according to CBRE. Nearly a quarter of the offices are empty in the city's downtown core, which has more than three-quarters of its office stock.

A group of the city’s largest commercial property owners wrote a letter to D.C. officials in November raising the alarms over looming distress in the office market that one developer said could “lead to economic disaster.” 

The pandemic-era remote work shift dramatically reduced the number of people coming downtown daily, hurting retail businesses that depend on that traffic and tanking demand for offices, especially older buildings. 

The deepening crisis has put pressure on Bowser to come up with solutions, and this year, she took the first official steps in a decade to explore raising the city’s height limit. 

Bowser released the D.C. Comeback Plan in January, laying out a series of goals and strategies for reviving the downtown. She aims to add 15,000 residents by 2028 to the downtown area, which today has a population of around 25,000. The plan calls for an additional 6M SF of residential development beyond what is in the pipeline today.

One of the strategies it laid out for adding new residential is “exploring opportunities” to add density through changes to the Height Act. The Comeback Plan calls for raising the limit in other areas to match Pennsylvania Avenue, which the Height Act allowed to have 160-foot-tall buildings on a stretch of its north side.

A Bowser administration official told Bisnow the Comeback Plan doesn’t represent an official proposal to change the Height Act, but rather a first step in a strategy to pursue height increases as a way to build more housing downtown. 

The next step, the administration official said, is to speak with community members through engagement processes that D.C. agencies are launching this year. The administration wants to ensure it has buy-in from residents before making an official proposal to Congress. 

The last time changing the Height Act came up was in 2013, when then-Mayor Vincent Gray proposed raising the height limit in areas outside downtown, such as the Connecticut Avenue NW and New York Avenue NE corridors, where taller buildings wouldn’t obstruct views of the Capitol or Washington Monument. That proposal was ultimately rejected by the National Capital Planning Commission before reaching Congress. 

Trueblood, who began his nine-year career in D.C. government in 2013, said Bowser has a better case than her predecessor.

“In some ways it feels like it was a solution looking for a problem, raising the height limit without a clear reason,” Trueblood said of the 2013 efforts. “Now we have a clear problem that needs a solution, and the Height Act can be part of that.” 

Housing affordability has also risen to become a chief concern for D.C. since the last efforts, and District leaders see its sea of empty office space as a prime target to address it. 

D.C.'s Inclusionary Zoning policy has never applied to the built-out downtown because the Height Act prevents bonus density from being offered, a key aspect of making the mandates work in other neighborhoods. But a three-story height increase could make it feasible to create hundreds of new affordable units. 

“We do believe the height limit needs to be raised in order for that density to occur, and it’s going to spur the rest of the growth in the downtown,” said Ella Faulkner, DowntownDC BID’s vice president of planning and economic development.

Former Mayor Anthony Williams, speaking on a December Bisnow event, said D.C. should “seriously consider modifications” to the Height Act to bring down the cost of housing. Post Brothers President Matt Pestronk, who was on stage with Williams and is pursuing a conversion near Dupont Circle, said that would make a huge difference for spurring more downtown residential projects. 

“That would be gasoline,” Pestronk said.

Making The Math Work 

Financial realities are the most difficult roadblock standing in the way of obsolete buildings eyed for residential conversions, but a close look at the numbers shows three additional stories could meaningfully move the needle. 

Developers would need the acquisition price of an office building to be low enough that they can make a profit after factoring in construction costs and the ultimate value of the property once it is leased up as apartments. 

Even older office space still rents for more than new apartment buildings in D.C. — Class A apartments in the District have an average annual rent of $40.56 per SF, according to Delta Associates, while Class B office asking rents in the fourth quarter were $48.65 per SF, per CBRE. 

D.C.’s record-high office vacancies have depressed office values and narrowed that gap in recent years, but allowing developers to build three stories higher would be a game-changer. 

“You’re adding a couple million dollars of value per floor, which would not be insignificant in bridging the gap between the bid and the ask that could drive a project,” Stonebridge’s Firstenberg said. 

DowntownDC BID's analysis estimates that a typical floor can hold around 25 apartments, meaning a three-story height increase could yield 75 new units that otherwise wouldn’t be allowed today. The developers Bisnow spoke to for this story, some of whom are pursuing conversions, affirmed the BID’s estimates.

To make the math simple, the BID imagined a 10-story building that could house 250 apartments under existing policy that could yield 325 units with a three-story bump. 

That analysis hinges on one key variable: the value that each floor of additional height would bring, a number that can differ greatly depending on property-specific factors. 

The analysis looked at three scenarios of buildings where a conversion would add $100 per SF, $200 per SF and $300 per SF of value. For each, the BID looked at possible Inclusionary Zoning requirements for affordable units and made assumptions for how much subsidizing those units would cost developers. 

If a developer gains $200 per SF of value for three additional stories and has an 8% IZ requirement, the analysis found the developer would have a comfortable cushion to make the project work. The developer would gain $13.8M in value, and the affordable units would cost it roughly $7.8M. 

Two scenarios with conditions that are slightly less favorable for the developer, in which the addition would yield only $100 per SF of value and in which the affordability minimum is raised to 15%, would each put the developer within $1M of making the math work. Downtown D.C. BID Director of Economic Development Gerry Widdicombe, who prepared the analysis, said he thinks incentives and other creative financing methods could move projects forward in those scenarios.

Foulger-Pratt Managing Director Michael Abrams said he has analyzed around 30 buildings for potential conversions and $200 per SF is a fair estimate in D.C.’s urban core. Abrams also confirmed the BID’s assumption about the cost of IZ units to developers: $300K in lost value for each apartment unit with rents affordable to those making 60% of the area median income.

Abrams said he thinks adding 30 feet to the height limit would make the math work for many projects that may have otherwise had too wide of a financial gap to move forward. 

“If it’s in an area where there’s a large quantity of obsolete buildings that are already headed in the direction of redevelopment, it’s going to accelerate that redevelopment,” Abrams said.

Several downtown redevelopments could use an accelerant. While a series of conversions have been planned, and it has been touted as a growing trend, Widdicombe said many of them have not yet obtained financing and begun construction.

“One of the things I’m afraid of is the announced deals are paused,” Widdicombe said. “At least I know the ones downtown are not moving forward because of the current disruption in the credit markets … the Height Act would be another way to incentivize sooner construction.”

That is the case for the two conversion projects Foulger-Pratt has planned. The first office-to-residential conversion it proposed in December 2021 at 1425 New York Ave. NW has received permits and is in the “final stages of raising capital,” Abrams said. At 1133 19th St. NW, where it revealed conversion plans in August, he said the project “needs more work to get to viability.”

“The issue is that we spent two years managing the cost inflation, and battling that, and now on top of it, we have the current situation with interest rates that now has changed the parameters under which capital is willing to come into projects,” Abrams said. “These buildings are shockingly risky in terms of how relatively thin the margins are.”

Abrams said tearing down a building and going back up is likely a better option for most properties. It isn’t significantly more expensive than trying to convert an existing office structure into apartments, and it allows architects to design floors with greater efficiencies for residential. He said he has studied scenarios for conversion projects where a developer could add floors under the existing height limit. 

“We’ve found that the structural implications of adding that additional height starts to eat into the value of the additional density,” he said. “If you are going to add that quantity of additional space, you’re better off tearing the building down and starting fresh.”

Developers pursuing a teardown could still keep a building’s underground parking garage and some lower floors to save on construction costs. That is the strategy Lincoln Property Co. pursued for its office-to-residential conversion at 1313 L St. NW. 

The developer took a seven-story office building and demolished it down to the second floor before building back up from there with new floors for apartments. Hickok Cole Director of Housing Laurence Caudle, who designed the project for LPC, said the team’s financial analysis found this was the most effective way to turn the property into residential. 

“That’s what makes office-to-residential conversions challenging is if you don’t own it, you’re buying a building that already exists and trying to rebuild it again, so the costs are pretty enormous for these types of conversions,” he said. “So adding that [three stories of] density would pay off a little bit more.”

Caudle also said the three additional floors could make residential conversions work for some large office buildings with floor plates that are too deep to create the window lines needed for apartments. 

If a developer can go up in height, it could cut out part of the building as a courtyard and allow interior units to have direct light. Caudle said there are instances in which the square footage lost from the courtyard could be more than replaced by the additional floors atop the building.

“I can only think going to 160 feet would be helpful to find solutions,” he said. 

Should D.C. Make Taller Buildings A Priority? 

While there is broad agreement among real estate experts that raising the height limit would help more housing projects move forward downtown, there isn’t agreement about whether that political push is the best place for D.C. leaders to put their efforts today.

Developer Richard Lake — a partner at Roadside Development who holds leadership roles in multiple industry groups — said the mayor should be focused on more short-term ways to bring activity back downtown. 

“We seem to have a demand problem more so than a density problem at this point,” Lake said. “The demand for wanting to be downtown has dwindled, and we need to fix that.”

Lake said two reasons people don’t want to come downtown are concerns about crime and congestion, and he suggested focusing on public safety and traffic mitigation could make a short-term impact.

He added that a 30-foot bump wouldn’t meaningfully change the aesthetic feel of the city, but he thinks the current era of divided government makes it a long shot. 

“I don’t think it’s a silver bullet by itself. I think it’s helpful, it gives you more flexibility in your development,” Lake said. “But I think by the time we got around to being able to have that ability, this cycle is going to be already done.”

The political hurdles to changing the Height Act aren’t just in Congress. D.C. Council Chairman Phil Mendelson, who has a large influence on what local laws are passed, is opposed to raising the limit. He lobbied against the 2013 plan, and he addressed the latest proposal in January on his public “Meet up with Mendo” Zoom meeting. In addition to the existing height limit being a “defining characteristic of our city,” Mendelson said he isn’t convinced that raising it would spur more housing development. 

“There’s plenty of room for development within existing zoning and there’s plenty of room within the Height Act for increases in zoning to allow more development,” Mendelson said. “There is enough development envelope available right now, and yet there isn’t more housing being built, and that’s because of economic factors.”

Some local preservation groups are also opposed to changing the Height Act. The Committee of 100 for the Federal City — which describes its mission as “to sustain and safeguard the fundamental values of the L’Enfant and McMillan Plans that give the nation’s capital much of its distinction, beauty and rich community character” — also spoke out against the 2013 proposal. The group’s vice chair, Nancy MacWood, said in an interview it opposes Bowser's height limit proposal. 

“We’re very supportive of trying to revitalize downtown,” she said. “We think there are ways to do that without changing the Height Act, and we’re actually a little perplexed with why the mayor thinks changing the Height Act would accomplish what we would want downtown, which is to reinvigorate it, to bring people back.”

But the Bowser administration and other proponents of raising the limit argue that more housing downtown is the key to its revitalization, and more height is needed to make projects viable. The pandemic permanently changed the downtown real estate market, threatening D.C.’s financial health, and the city’s leaders are under pressure to respond.

“We’re already on the precipice of a very different real estate future, it’s not going to be the downtown everyone’s been operating in,” Trueblood said. “There’s a lot of angst in commercial real estate, and as the rules are changing, let’s try to adjust our policies to make it easier to adjust to the new world.”

CORRECTION, MARCH 22, 9:55 A.M. ET: A previous version of this story misstated the per square foot apartment rent in the District. This story has been updated.