- The DC region has become a national hotspot for office-to-residential conversions, with 80 projects totaling 9.2M SF already completed or underway.
- Lenders like Kennedy Wilson are aggressively pursuing financing opportunities for conversions, driven by strong rent growth, eroded office values, and favorable tax incentives.
- With traditional multifamily starts plummeting 79% year-over-year, conversions are one of the few viable development paths in the region, creating intense lender competition.
Why It Matters
Traditional ground-up multifamily development in DC has come to a near standstill. As a result, office-to-residential conversions have emerged as a rare opportunity for both developers and lenders, reports Bisnow. A combination of depreciated office assets, strict building height limits, and the city’s generous 20-year tax abatement program is fueling this strategy.
In High Demand
Multifamily lenders like Kennedy Wilson are jockeying for a piece of the conversion market. The Beverly Hills-based firm has funded two major projects in Alexandria. It provided an $84M loan for Carr Properties’ 237-unit development at 425 Montgomery. It also issued a $96M loan for the 234-unit TideLock project.
It also competed — and lost — to rivals like EagleBank and Bank of America for two high-profile DC conversions at 1201 Connecticut Ave. NW and 1625 Massachusetts Ave. NW.
Get Smarter about what matters in CRE
Stay ahead of trends in commercial real estate with CRE Daily – the free newsletter delivering everything you need to start your day in just 5-minutes
What’s Driving The Demand
Despite a steep decline in new construction, DC’s apartment fundamentals remain strong. Rents rose 3.1% year-over-year in the District and 3.9% in Northern Virginia last quarter, per Newmark. Meanwhile, the city’s 20-year tax abatement for conversion projects significantly improves project economics and underwriting.
The Challenges
While demand is strong, not every office building is a good candidate for residential use. Kennedy Wilson Managing Director Craig Lockard says the firm is highly selective. It focuses on ceiling heights, light exposure, floorplates, and overall feasibility. These are factors that can make or break a deal.
“Conversions are difficult, more difficult than I think most people give credit to,” Lockard said.
A Growing Pipeline
According to CBRE, the DC region ranks second only to Manhattan for the volume of office-to-residential conversions. Eighty projects totaling 9.2M SF are in progress, far ahead of peers like Boston and LA.
The city has already granted tax abatements to eight conversion projects totaling 1,745 units. The latest: a 435-unit redevelopment of 1990 K St. NW by The Bernstein Cos. and Stonebridge, which broke ground this month.
What’s Next
Expect even fiercer competition among lenders as the pool of viable conversion projects remains limited. With traditional development still constrained, especially in DC, lenders are turning their focus to adaptive reuse. It’s one of the few scalable strategies available. As a result, every viable project has become a high-stakes race to fund.
