With 100K SF Of K Street Offices To Fill, Longtime Landlord Launches $25M Renovation
An investor who has owned a corner office building on K Street for nearly 20 years is spending millions of dollars to upgrade his property and compete in the tightening high-end office market.
Rafael Etzion, the majority owner of 1275 K St. NW, and partner Altus Realty are moving forward with a $25M project to upgrade the building. The team is working with Gensler on the renovation and retained Newmark brokers Doug Mueller and Ed Clark to market the space to prospective tenants.
The 240K SF building has more than 100K SF available, Mueller said.
Last year, the International Research and Exchanges Board vacated two floors in the building when it signed a 32K SF lease at 1350 Eye St. NW. Mueller brokered that deal while he was at JLL. He joined Newmark as vice chairman in February.
To differentiate 1275 K in the market, the team is carving out a two-story loggia, an Italian-style covered outdoor space, that will connect to a new conference facility, Mueller said.
“We think it's something that's never been done in D.C., so we're excited to transform that building,” Mueller told Bisnow.
The team is also pursuing a more common renovation strategy: building out two floors of spec suites for smaller tenants seeking quick move-ins.
Etzion was born and raised in Israel and served in the Israeli Air Force for seven years before moving to New York City in 1980. He led a manufacturing company for years before selling it in 2007 and transitioning to owning and managing real estate, according to his bio on the Downtown DC Foundation website. He sits on the foundation's board of directors.
The investor doesn't own any other buildings in D.C., but he has holdings elsewhere in the mid-Atlantic and New York region, Mueller said.
Etzion acquired the K Street building for $123M in June 2006 from an affiliate of The Carlyle Group, deed records show. In 2015, he obtained a $68M loan from the Lincoln National Life Insurance Co. to refinance the building.
To fund the renovations, Etzion is putting additional equity into the building to match new funding from the lender, Mueller said.
“There’s no ambiguity — we believe in the long-term value of this asset and the D.C. office market,” Etzion said in a statement.
Built in 1983, the property sits directly across the street from Franklin Park, which itself received a $21M renovation from the District and reopened in 2021. It is two blocks from the McPherson Square Metro station.
The renovation is the latest in a series of significant investments that owners have made to upgrade downtown D.C. office assets over the last year, including Mitsui Fudosan's $25M renovation of The Homer Building and Taicoon Property Partners' roughly $10M revamp of 1899 L St. NW.
These upgrades come as office market data shows tenants are increasingly favoring higher-end space with modern suites of amenities.
The vacancy rate in the trophy segment of D.C.'s office market stood at 12.2% as of the first quarter, compared to 22.6% for the city overall, according to CBRE. Tenant demand and a relatively scarce stock of this high-end space have driven trophy asking rents up to new highs above $90 per SF.
Mueller said buildings like 1275 K — built in the 1980s but receiving new renovations — are part of the tier below the trophy market that is also capturing demand from tenants looking to upgrade. He said associations, government affairs offices, law firms, nonprofits and tech companies that have previously occupied Class-B spaces are looking for newly renovated office space with amenities.
“That’s been a real change in the market during Covid that many of those firms previously had price sensitivity as the driving factor, and now it’s really quality of space and building in an effort to recruit and retain people,” Mueller said.
