Building an Awareness of Office Condos
By Dana Hedgpeth
Washington Post Staff Writer
Monday, June 28, 2004; Page E03
When Buchanan Partners of Gaithersburg found itself with a large warehouse sitting empty in Loudoun County two years ago, it decided to try something different.
Instead of seeking industrial tenants to lease the building, it converted the space to offices and sold the 105,000 square feet in chunks to carpet installers, heating and air-conditioning repair companies and others in service businesses, much like a real estate agent would sell a condo. The building was quickly sold out, said Brian S. Benninghoff, a principal at Buchanan.
Since then the developer has built 200,000 more square feet -- the equivalent of almost two city blocks -- of office condos and commercial condos, as they are called, in the Northern Virginia suburbs. It has sold most of the space.
"The demand for space to lease dried up, so we turned to selling it," Benninghoff said. This summer Buchanan plans to build three more office condo buildings along the Dulles corridor. It has already pre-sold 20 percent of the space.
The idea of buying your own office has been around for decades, usually with professionals like orthodontists and accountants buying a residence and converting it to a business. But in the past few years all sorts of small firms have bought space in bigger buildings, from the suburbs to downtown. The office condos range in size from 1,500 square feet to 50,000 square feet.
It is happening in New York, Atlanta, Dallas, Southern California and Northern Virginia, places where developers built too many buildings for technology companies that went bust after 2000. The collapse coincided with historically low interest rates that made buying more affordable. Office condos make up a small percentage of developments in the Washington area, making them difficult to track precisely.
"In places where there was overbuilding, developers are finding that they can convert their buildings into office condos and sell the space instead of dealing with a market where it can be hard to lease the space," said David Porter, a regional director at Co-Star Group, a real estate research company in Bethesda.
The customers include law firms, insurance agents, title firms, nonprofit groups and financial planners, as well as plumbers and repair companies. Buying confers several advantages, say the developers: Owning gives buyers more control over the space. A mortgage can be cheaper than rent. Also, of course, buying gives owners a long-term investment they can sell later and tax advantages.
Other developers are starting to take notice, even in downtown Washington, where the office market has been stronger than in the suburbs. One of the District's biggest developers, Akridge, tore down two buildings and plans to build an office condo building of 74,000 square feet at 1430 K Street NW, said Gene Kenney, a vice president at the company. Another big developer, JBG Cos. of Chevy Chase, said it plans to tear down a small building, once a shoe repair shop with a parking garage above it, near 16th and L streets NW to build a nine-story office condo project.
It's a far cry from the old days, when only a few doctors and other professionals owned their offices. "If you wanted to own a small office, you really had to be in a townhouse in Dupont Circle or out in Alexandria," said Jayne Shister, a senior vice president at the brokerage firm Cassidy and Pinkard who represents JBG. "There just wasn't many around."
© 2004 The Washington Post Company
Akridge demolished this building, left, and is to replace it with office condos. JBG is planning a similar project, shown in an artist's rendering, below.
(Courtesy Of Wdg Architecture)