The Bowen Building, a once-grand 1920s office building at the corner of 15th and I streets NW in downtown Washington, has sat in disrepair for years. It might not be much longer; Kaempfer Co. has obtained a letter of intent from law firm Paul, Hastings, Janofsky & Walker LLP to lease more than 70,000 square feet of space in the structure, according to real estate industry sources.
If the deal goes through -- parties hope to complete a lease in the next six weeks, the sources said -- Kaempfer would gut its inside and seek to return the building to its former glory. It is only the latest example of the legal industry driving office development in downtown Washington. High-end law firms, large tenants who demand top-quality space, are one of the big reasons the D.C. office market has been relatively strong through this down market.
"Business for these big firms is still good," said Joseph Stettinius Jr., a principal of Trammell Crow. "And to attract and retain employees in what is still a competitive environment, they want to be in nice buildings."
Besides Paul Hastings, real estate industry sources said that law firm Wilmer Cutler & Pickering is in the late stages of negotiating a deal to lease roughly 650,000 square feet in what are now four adjacent buildings on Pennsylvania Avenue NW, dominated by DRI Partners' new building at 1899 Pennsylvania. And law firm Winston & Strawn last month signed a lease for 154,000 square feet of a space in a building to be renovated at 1700 K Street, setting the stage for that redevelopment project.
Though they account for only a small portion of the District's jobs, law firms have an outsized impact on the downtown office market. For one thing, they often occupy more space per worker than most employers. With all those spacious office suites for partners, law libraries, and the like, high-end law firms sometimes need 500 to 1,000 square feet per employee, compared with 250 square feet per employee at most other companies.
And they spend more than other large tenants on office space; the federal government employs far more people in the District than law firms do, but the government generally doesn't pay the $50 per square foot per year rents that are increasingly common for lawyers and lobbyists. Other big Washington tenants, like nonprofit associations, tend to be similarly frugal. There are other tenants, like corporate government relations offices, that may have more luxuriant tastes, but they tend to be too small to base a new development around. That leaves law firms as perhaps the only D.C. tenants who will take huge blocks of office space at huge prices, making the Bowen Building renovation possible.
"It used to be you had a lot of accounting firms and trade associations in the market for big blocks of space," said Brian McVay, who heads Cushman & Wakefield's Washington operations. "Now, they're not really in the market in the same way, but the law firms have made up for it."
In the sluggish real estate market, the big law firms have been strong enough to drive new construction -- and they may be one of the reasons the office market nationwide isn't as bad as it could be, said Gus Faucher, a senior economist at consulting firm Economy.com. He theorizes that it is a result of the crush of personal and corporate bankruptcies, along with a legal industry that, except in a few specialties, didn't over-expand in the late 1990s boom.
"Particularly in Washington, where you have the high-end firms dealing with big projects, they're going to be important contributors to the real estate market," Faucher said.
As a result, construction of the biggest, fanciest new buildings is driven by the tastes and proclivities of the managing partners in the District's largest law firms. Because so many new developments are built with a big law firm as a lead tenant, they have the power to expand the perimeter of big-dollar, top-quality office space in Washington.
The most recent round of deals are all in the city's traditional downtown, but past deals have helped expand that perimeter, as when Jones Day signed a lease in the Acacia Building on Capitol Hill in 1996 and, to a lesser degree, when Finnegan, Henderson Farabow, Garrett & Dunner took space early this year in a forthcoming building at 901 New York Avenue NW. If, down the road, a top-quality firm takes space in Southwest Washington, north of Massachusetts Avenue NW, or in Rosslyn, it would be a signal that the lines of downtown are expanding all the more, say those in the industry.
"With so much work associated with the government, and all the Enron-related things, everyone needs lawyers, and most of that comes back to Washington," said Tom Fulcher, a senior broker at Julien J. Studley who is representing Wilmer in its search for space. He declined to comment specifically on that deal.
It's not just law firms that can trigger new development. The Securities and Exchange Commission, already poised to move into a new headquarters next year in Station Place, just east of the Union Station tracks, will take more than 350,000 square feet more, leading developer Louis Dreyfus Properties to build the second of three parts of the development to accommodate the financial regulators. The lease is signed but is in escrow, according to those familiar with it. Insiders expect the deal to be completed with no more obstacles.
Neil Irwin writes about commercial real estate and economic development every week in Washington Business. His e-mail address is email@example.com.