WASHINGTON, United States — Blocks
from the White House, an unassuming edifice in downtown Washington that once
held offices used by the
US Department of Justice is set to be converted into
homes for hundreds of people.
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The transformation of the vacant office
space is among a surge of "adaptive reuse" projects that swept the US
property market in 2021, where developers bought hotels and offices that were struggling
to get business and announced plans to turn them into apartments.
"The market spoke, and it said the
value was greater for a conversion than for it continuing as office
space," said Michael Abrams, managing director of Foulger-Pratt, the
property development firm that is turning the 14-story building on New York
Avenue into 255 apartments.
A survey by apartment listing service
RentCafe found about 20,100 apartments were built out of converted properties
in the United States last year, almost double the number converted in the year
prior.
Such conversions could offer a way forward
for US downtowns, which haven't been the same since office workers fled as COVID-19
broke out nearly two years ago, leaving landlords and local businesses
struggling.
"The slow office market recovery is
just going to make it that much more expensive to carry vacant office
buildings," Abrams said.
Conversions may also play a role in easing a
shortage of affordable housing, particularly in cities like Washington, where
notoriously high rents are a feature of life.
"From the overall perspective, we just
need increased supply. By having more supply, both the home price growth will
come down and the rents will come down," said Lawrence Yun, chief
economist of the National Association of Realtors.
Even more expensive
Despite the downturn caused by COVID-19, the
median price of existing homes climbed 15.8 percent over the course of 2021,
and by last month supply had hit an all-time low, according to
NAR data, likely
exacerbating a crisis of affordable housing that predated the pandemic.
As of 2017, 48 percent of tenants were
considered "rent burdened" by the US Government Accountability Office
— meaning they paid more than 30 percent of their income on rent — a figure
that had risen six percentage points over the preceding 16 years.
The US meanwhile has a glut of offices. With
many of them dating to the 1980s, they are now too old to be attractive to
companies, said Tracy Hadden Loh, a fellow at
Brookings Metro.
With their designs centered around outdated
needs like space for file cabinets, "Really just the entire building is
obsolete," she said in an interview.
Corporate pullout
Marc Ehrlich, chief investment officer at
Rose Associates, which has converted New York City offices into housing, said
such projects tend to be "well-located properties that need a higher and
better use."
One of his firm's latest undertakings is the
transformation of an office once used by telecommunications firm AT&T into
a place people want to live.
Lacking amenities like covered parking, the
building is unlikely to attract commercial tenants, Ehrlich said.
However, the new apartments will feature
co-working spaces, since many tenants will likely want to continue working from
home, he said.
In Washington, developers are pouncing on
properties formerly rented by the region's top employer, the federal
government.
This includes The Wray, an office building
used by the
State Department, but which has been totally renovated to house
apartments.
The only signs of its former use are in the
lobby, where the tiles are original, as is a directory listing the names of
State Department offices once based there.
"The pool of tenants that goes back
into these buildings is dramatically diminished, and that's what's putting the
stress on that tier of property, that's what's creating the opportunity,"
said Abrams.
Adaptive reuse projects tend to demand high
rents, Loh said, since they often require expensive renovations such as the
construction of new bathrooms in buildings where they were once communal.
While expanding inventory has been shown to
relieve price pressures elsewhere in the housing market, "This isn't a
solution to the housing crisis," she added.
"This is a solution to revitalize areas
like downtowns that are super dominated by places like office spaces."
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