Foulger-Pratt Buys Vacant Office Near White House, Plans Apartment Conversion
Foulger-Pratt is moving forward with plans for a major office-to-residential conversion project in Downtown D.C., a new example of a strategy that city leaders have pushed for despite the challenges associated with conversions.
The Potomac, Maryland-based developer acquired the vacant office building at 1425 New York Ave. NW, two blocks from the White House, for $56M from a partnership of Monument Realty and Ares Management. The deal was posted Tuesday morning to the D.C. Recorder of Deeds.
Foulger-Pratt plans to convert the 13-story building to 255 apartments, Bisnow has learned. The developer said it would be the closest apartment building to the White House.
“The submarket was built out years ago with heavy office uses, with few sites available now for redevelopment, which creates a high barrier to entry," Foulger-Pratt CEO Cameron Pratt said in a statement to Bisnow. "This building has a unique floorplate with window heights that lays out well for residential conversion, plus ample below-grade parking.”
The property sits at the intersection of New York Avenue and 14th Street NW, two blocks east of the White House. It was developed in 1991 and leased for years to the Department of Justice, which left the building in 2019 to move to NoMa's Constitution Square complex.
The deal was financed with a $30.6M acquisition loan from EagleBank and $14M in equity from 300 investors using crowdfunding platform CrowdStreet. Foulger-Pratt raised equity on CrowdStreet in a separate deal in August for a 197-unit project on the site of a Southwest D.C. church. CrowdStreet Managing Director David Govshtein, in a statement provided to Bisnow, said the latest offering for the New York Avenue property was oversubscribed by $10M in less than an hour.
"It’s a testament to the sponsor’s track record and the fundamental appeal of this project, which is exceptionally well located in the heart of Washington, D.C.," Govshtein said.
Foulger-Pratt said it must secure separate financing for the conversion and recapitalize the project before it can begin construction. It doesn't need to change the zoning of the site, and it said it expects to have building permits within 12 months.
Monument acquired the vacant building in February 2020 for $47M. The building was identified as a potential candidate for residential conversion in January by Downtown D.C. BID Director of Economic Development Gerry Widdicombe, who told Bisnow it would make sense given the relatively low cost basis at which Monument had bought the property. Its $47M acquisition penciled out to $164/SF, while Foulger-Pratt's deal pencils to around $195/SF.
Monument principal Michael Darby shot down the idea of a conversion in January because he said there was a deal in the works to re-lease the building to the General Services Administration, but that deal appears to have fallen through, as Monument has now sold the building. Monument declined to comment Tuesday.
The Downtown D.C. BID, Ward 2 Council Member Brooke Pinto, mayoral candidate Robert White and other leaders have been pushing for residential conversions as a way to reduce the city's record-high office vacancy rate while also helping alleviate its housing shortage and make downtown a more mixed-use neighborhood.
Roughly 75% of Downtown D.C.'s built environment is composed of office space, according to a report released last month by the D.C. Policy Center. The report found that neighborhoods with a greater mix of uses have had better performing commercial real estate markets in recent years, and it recommended office-to-residential conversions in Downtown D.C. as an economic driver.
But conversion projects can be challenging for developers downtown not only because of the differing floor plates between office and residential buildings, but because of the financial math. An office-to-residential conversion is moving forward at 1331 L St. NW, and another office building has been marketed for an apartment conversion, but the vast majority of these projects have been in less expensive D.C. neighborhoods, like Buzzard Point, or in Northern Virginia.
Central business district office buildings have historically been more valuable than apartments, and the higher land cost combined with the construction costs make it hard for converted properties to be profitable as housing. To make the math work downtown, the BID has called on D.C. to provide financial incentives for developers to convert office buildings to residential. The D.C. government took a step toward making that happen this week.
Tuesday morning, Mayor Muriel Bowser and the Office of the Deputy Mayor for Planning and Economic Development released a request for information to obtain input from property owners on a potential new program to incentivize conversions of commercial properties to residential, with a focus on creating affordable and workforce housing in the CBD.
Deputy Mayor for Planning and Economic Development John Falcicchio told Bisnow Tuesday his office has had informal conversations with developers about potential conversion projects, and this RFI process is a way to formalize those talks and begin to craft an incentive program.
"We think we can engage in formal conversations and figure out if there’s something we can offer to get that affordable or workforce housing, and we also think we can put together a tool everybody would know was available when they’re looking to change use from some other use to residential," Falcicchio said.
Submissions for the RFI are due Jan. 28, and Falcicchio said the administration hopes to include the incentive program in next year's budget proposal, which will be released in March. The D.C. Council would then have to approve the proposal before it would go into effect Oct. 1. He said DMPED analysis has found that conversions projects would spark new tax revenues that could at least partially offset the cost of the incentive program.
"For us, any housing downtown is a win because it creates more vibrancy, and we know it will positively impact the district’s bottom line," Falcicchio said. "To make it a win-win-win is for us to capture some of that housing as affordable and workforce, and we think we can do that."
UPDATE, DEC. 14, 5:35 P.M. ET: This story has been updated to include the brokers who worked on the deal and the architecture firm working on the project.