Montgomery County Passes Bills To Accelerate Office-To-Residential Conversions

Montgomery County lawmakers are looking to catch up with neighboring D.C. in incentivizing developers to convert vacant offices to housing, but the county executive is pushing back. 

The affluent Maryland suburb's County Council on Tuesday passed a zoning amendment to accelerate the approval process for office-to-residential conversions, and it passed a bill establishing tax incentives for developers that include affordable units in such projects. 

The zoning amendment creates a new use for an office building of two or more stories that is at least 50% vacant that is replaced with a residential building — either through conversion or demolition — and it creates an expedited approval process for that use.

That amendment doesn't need County Executive Marc Elrich's approval, but he does have the power to veto the tax incentive bill and has spoken out against it, Bethesda Magazine reported. 

The incentive takes the form of a payment-in-lieu-of-taxes program that would exempt qualified developers from paying property tax for 20 years. To qualify, a conversion project would need to reserve 17.5% of its units as affordable to those making up to 60% of the county's median income. 

During a media briefing Wednesday morning, Elrich said he would wait until the bill formally reaches his desk before making an announcement, but he said he is “pretty sure I'm going to veto it.”

“It’s very disappointing the council did what it did, but we’re not going to be quiet about this,” he said. “This is a serious problem. Our focus should be on doing the most we can as a government to advance affordable housing options in the county, not creating more corporate welfare opportunities that won’t do enough to bring down the cost of housing in our community.” 

Elrich said the program would cost the county hundreds of millions in property taxes, and he said the council provided no evidence that the incentives were necessary for developers to convert buildings. He pointed to projects that have already moved forward without the incentive, including the conversion of the Guardian Building in Silver Spring to apartments. 

Council Member Andrew Friedson, who co-sponsored the bill with Council Member Natali Fani-González, said in a statement that the tax incentive is necessary because the county's office vacancies are “a scourge on our communities and a drain on our local economy.”

“Transforming vacant buildings into housing is a win for our residents and our businesses, and a strategic investment that will ultimately yield more housing, more revenue, and more opportunities to live and work in Montgomery County,” Friedson said. 

Montgomery County had a 20.6% office vacancy rate at the end of the first quarter, according to CBRE, with the Bethesda-Chevy Chase and Silver Spring submarkets above the county average, at 23.7% and 24.9%, respectively. 

In D.C., where the office vacancy rate is 22.6%, the District government has implemented a 20-year tax abatement for office-to-residential conversions and awarded the first three projects through the program in September.