The office market in the nation's capital has been a punching bag for years, but a wave of new investment is giving some buildings a fighting chance.

With available space in the top 10% of D.C. office buildings at its lowest level in more than a decade and tenants continuing to trade up for better-quality space, a moment for renovations has arrived.

Owners new and old are pouring millions into a variety of repositioning programs, capitalizing on the lack of high-quality space in the city as leasing has perked up this year.

“There's too much commodity office, but that doesn't mean there's too much good office,” Garfield Investments CEO John Mason said.

Garfield partnered on a deal last month to buy an office building next to Farragut Square, where he is planning a $10M repositioning and reserving millions more for tenant improvement allowances and brokerage fees. 

He is one of a growing number of owners kicking off major upgrades at office buildings in the city, building new penthouses, lobbies, conference rooms and fitness centers to lure tenants that are increasingly looking to upgrade their space. 

More than $210M has been spent across 10 renovation projects in D.C.'s commercial core since 2022, according to CBRE.

“Flight to quality doesn't mean flight to the newest building,” Mason said. “It can mean a renovated building in an exceptional location that can compete with top-drawer amenities.”

The redevelopment play is happening across a spectrum.

There are the new owners buying buildings on the cheap and putting in large amounts of capital to improve shared tenant amenities, lease ground-floor restaurant spaces, bring in top brokerage teams and capitalize tenant improvement allowances. 

Then there are the existing owners undertaking large-scale overhauls. These have been well-capitalized landlords who usually have a major tenant in tow and can shell out the cash needed for massive revamps. 

But they both equate to large amounts of money being poured into revamps of existing buildings, with owners betting on the future of high-quality office demand in the city. 

“There's unequivocal momentum for both of those scenarios, and it's intuitive,” CBRE Executive Vice President Tommy Cleaver said. “Users have stopped shopping on comps alone and started shopping on experience, and so those reposition executions and unique locations and views are being rewarded.” 

The Overhaul

D.C’s trophy market is the second tightest in the nation, behind Manhattan, according to CBRE’s midyear report.

The city’s 14M SF of trophy product — defined as the 10% of buildings fetching the highest rents — has just 9.3% vacancy, according to the brokerage. There are just eight blocks of space bigger than 50K SF, and none of them include their building’s top floor. 

And the pipeline is dry. The two announced ground-up projects from BXP are already 75% and 87% preleased to law firms that signed on to kick off development.

But the market overall is still 22% vacant, suggesting a dislocation between what tenants want and what is available. That is fueling a new strategy: the eight-figure redevelopment. 

At this moment, Grosvenor and Ponte Gadea, the real estate vehicles of two billionaires, are doing expansive overhauls of their White House-adjacent properties for new law firm anchors. 

Ponte Gadea, the investment company of Zara founder and billionaire Amancio Ortega, appears to be in discussions with law firm Simpson Thacher at 1445 New York Ave. NW, Bisnow reported last month. The company filed plans with the Commission of Fine Arts in June, seeking to make the property “more competitive in the DC market and more attractive to top tenants.” The firm plans to add a rooftop amenity space and habitable penthouse, partially replace the facade with glass, modify the entryway and create a new atrium.

Meanwhile, Grosvenor is redeveloping 1701 Pennsylvania for White & Case, which is taking nearly the entire building. The company, owned by the Duke of Westminster, plans to fully replace the building's exterior windows, add a rooftop penthouse, upgrade the lobby and common areas, and redo the fitness center. Triple-net rents for that deal hit $105 per SF, according to Stream Realty's second-quarter report, setting a new high bar for the city.

Cleaver said he expects that in addition to ground-up developments like BXP’s projects, the market will also see more large-scale overhauls announced before the end of the year. 

Cushman & Wakefield’s second-quarter report says that “older, renovated trophy buildings” are inking rents 15% higher than those in the "immediate aftermath” of the pandemic.

“If there's substantial and true trophy renovations, it's going to require north of $100 net to justify that work, and we're seeing that play out in both instances in ground-up development and in the significant repositionings,” Cleaver said. 

The Touchup

Drawbridge Realty is taking a lighter touch at its office property at 1331 L St. NW, which was left vacant when its sole tenant, CoStar Group, moved to Rosslyn last year. That is because the property was built in 2008, so it already has modern finishes, said Lincoln Property Co. Senior Vice President Tim Whitebread, who is on its leasing team

The owner is completing a $10M renovation to upgrade the lobby and create an amenity penthouse for tenants, Whitebread said.

“Tenant preferences have changed, and so it was a perfect opportunity to reintroduce the building and convey how we accommodate those new preferences of the building,” he said. 

Most of these smaller renovation projects are a byproduct of new ownership. D.C. office values have plummeted since the pandemic, with some trading for a quarter of their prior values. New investors pay low enough prices to have cash left over to execute improvement plans that the prior owners couldn’t.

“You're buying something for a fragment of what it costs to build it new, so like 15%, 20% of replacement cost,” Eastbanc CEO Philippe Lanier said. “And when you buy something at that basis and then put the money in to fix it, you're left with lower money invested and the ability to be very flexible on how to lease it and get a good return, so it is a very interesting business model.” 

Garfield and Broad Creek Capital paid $26.2M last month for 1667 K St. — less than half of its prior sale price — and now plan $10M in renovations to kick off this fall, including a new lobby and a new 12th floor with a conference center, a lounge and a rooftop terrace.

It is Garfield’s second such deal in the past year. The company, founded in 2023, also purchased 300 M St. SE, a 285K SF Navy Yard building, last June for $28M and put $3M into common area renovations. And it has gotten results, inking 76K SF of leases at the property so far. 

But Mason isn’t done yet. He said he is in due diligence to acquire another D.C. office and is in the process of underwriting “several others.” 

“I think this is one of the more interesting moments that I've seen in Washington real estate in a long time,” Mason said. “Distress is creating the opportunity to acquire very good real estate at a basis we haven't seen in decades.” 

“I think if you combine the right basis with the right location and very thoughtful capital investment and a specific lease-up strategy, there's real opportunity to create the next generation of competitive D.C. office buildings,” he added.

Other investors following the same playbook include Taicoon Property Partners, which has purchased three office buildings in the District over the past two years, all of which were in distress, and is putting money into renovating all of them.

FarmViewVentures CEO John Wolf purchased the mortgage and foreclosed on two distressed properties in downtown D.C. last summer and said he has a similar deal in Dupont Circle in the works. 

Wolf is targeting properties that are 50% to 60% leased that he can bring to 80% to 90% occupancy. If he buys an office building for around $150 per SF, he would put another $100 per SF into the renovation plan, he said.

“How do we lease space? We put in restaurants. We put in gyms. We put in conference centers,” he said. “We put in rooftops because we want to make our hair and our makeup look the best possible for the dating pool of tenants.”

He is spending $40M on 1625 Eye St. NW, where planned renovations include a rooftop enlargement, adding a second-floor lounge and conference facility, and adding a steakhouse and café.

Law firm O'Melveny & Myers renewed for 100K SF at the property last quarter, according to multiple brokerage reports.

“Investors are getting more excited about office, and they want to put their money in, and they want to double it,” Wolf said.