Nonprofits Grab Office Condos in the District

Nonprofit groups are figuring out how to dodge escalating rents in Washington's hot commercial real estate market: They're buying office condos.

Just like buyers of residential condos, groups buying office condos pay a monthly fee and own the space, typically a floor or two or three in a mid-size building, some in lofty downtown areas flush with lawyers, lobbyists and pricey restaurants.

The trend, already established in suburbs like Alexandria, is surfacing in the District, where not-for-profit groups employ 44,000 people. In the past 18 months, about a dozen nonprofits have bought or signed contracts for office condos in the District, industry experts say. Many more have expressed interest, hoping to save money in the long run and stay or move into the city, close to the action.

"There's always been a slow boil for commercial condos [for] associations in the suburbs. We're now at a fast boil for that activity in the District," said Richard A. Newman, an attorney with the D.C. law firm Arent Fox who deals with nonprofits. "This is on everybody's lips. This is a happening product right now."

The heightened interest comes as rents are rising. In the District's central business district, for example, the average asking rent in the second quarter of this year was $45.63 per square foot, up 13.2 percent from the corresponding quarter last year, according to CB Richard Ellis, a real estate firm.

In Old Town Alexandria, the asking rent averaged $30.87 per square foot in the second quarter, up 4.2 percent over the second quarter last year.

"It's obviously cheaper to rent out in the suburbs" or buy outside the District, said Lisa Schreiber, senior vice president of SunTrust Bank. "But there's always an appeal in Washington to have that address for lobbying efforts and other things."

For many nonprofits, like the Jesuit Conference, buying an office condo not only means saving money long term but enjoying stability while investing in the city.

After leasing for about 30 years and bouncing around different locations in the District, the Jesuit Conference recently signed a contract to buy four floors of office space -- 17,500 square feet in all -- on 16th Street NW between K and L streets, just blocks from the White House.

"After 30 years of leasing we would be better off had we bought, dealing with the realities of the Washington, D.C., leases," said the Rev. Tom Gaunt, executive secretary of the organization. "The immediate cost will be more in the initial years. We're fully expecting savings seven to 10 years out. We'll be paying less than if we kept renewing our current lease."

Eugene Kenney, vice president of Akridge, a local developer that bought the building on 16th Street NW last year, said many developers are targeting nonprofits because they're a good fit for the available small office condos, and many have access to tax-exempt financing, making the deal even better.

According to the Washington D.C. Economic Partnership, which gets information from the CoStar Group, a research group in Bethesda, said about 12 office buildings in the District are selling office condos. Rates range from $356 to $900 per square foot.