Repositioning the D.C. Office Space

RDM's Director of Sales, Joe Leach, was in attendance at Bisnow's D.C. Reposition This! Conference. The event brought together D.C. real estate leaders to discuss the repositioning of outdated office buildings in order to attract young companies and retain competitiveness.

The event opened with a salute to Chip Akridge, Chairman of Akridge, who discussed the various assets he’s repositioned over the years. He began his company Akridge more than 40 years ago and they’ve developed 12M sf of space with 12M more in the pipeline.  He and Teresa Durkin, Senior Director of Trust for the National Mall, talked about Chip’s involvement in repositioning / renovating the National Mall, which began in 2007. As chairman of the Trust, Chip took it upon himself to do something about the lowly state of the Mall.

Here’s some of what was heard during the panel discussion:

• Pete Prominski (Transwestern) says competition is the main driver for a decision to reposition…owners must proactively fix up their buildings or they’ll be left in the dust.

• Pete mentioned Tower Companies as doing a good job with repositioning spec suites.

• Randy Thompson (KTA Group) said on average, the cost of renovating the mechanical and electrical systems of a 200,000sf building ranges from $20 - $30 per sf.

• Randy spoke about the four types of (electrical) systems that are popular today. He pointed out that VAV systems are not irrelevant yet – 2 of the 4 major systems still use VAV – contrary to popular belief VAV can be made to be energy efficient.

• Ronald Paul of (EagleBank) said that while it’s important for buildings in urban areas to have good amenity packages, it’s doubly important in the suburbs.

• Bob Murphy (MRP Realty) mentioned that 20 years ago people didn’t bring their work home like they do now.  There used to be a separation between work and home, but today the dividing line has become very blurry.  He believes that the social interaction you get in an office environment is important.

• Bob also talked about the importance of clearly communicating to tenants and selling them on the benefits, when repositioning a property.

• Bob is of the opinion that it’s riskier to under-improve than to over-improve, because when you over-improve you have a bigger pool of buyers available to you.

• Tom Regnell of WRIT points out that it’s very important to think about how long you anticipate holding onto a property when trying to decide how much money to invest in repositioning it; if you expect to hold on to it for a long time then it makes more sense to spend on major upgrades.

• J.P. Spickler (Fox Architects) said it’s important to reposition the whole building rather than just a piece of it…the idea is to create the perception that it’s an entirely new building.

• JP also discussed the dual ceiling height scenarios in Washington DC – a building is either permitted to go from 90 feet to 130 feet, or from 90 feet to 110 feet.  Of the two, 130 is better because it allows you to tack on 3 additional floors, each with 9 foot ceiling heights.  On the other hand, 110 feet is tricky because you really can’t fit 2 floors into 20 feet.

• JP says the minimum ceiling height in DC is 8.4 feet.  He also says the perception is changing that a Class A building must have 9 foot ceiling heights.

• JP pointed out that 46% of the office building inventory in the United States is over 30 years old leaving a lot of potential for repositioning.

• John Stewart (Minshall Stewart Properties) discussed the repositioning of 2175 K Street, which they worked on with Fox Architects.  They added on 3 new stories to the top of the existing building and put in a new HVAC system.

• He said it would have been a mistake for him to try to charge the same rent for the top 3 levels as the rest of the building – he sees others make this mistake at times.