Retrofitting Alexandria: Another Office-to-Residential Conversion

This Stovall Street property within Alexandria’s Hoffman Town Center is due for a makeover, says the Washington Business Journal.

Washington, D.C.-based Perseus Realty has contracted to acquire a six-acre site in Alexandria’s Hoffman Town Center with plans to convert an obsolete, 610,000-square-foot building into a residential-dominated mixed-use project. Reports the Washington Business Journal:

The effort, if approved, will entail the addition of 25,000 square feet of ground-floor retail, conversion of two lower floors into parking and the construction of upper floor additions that raise the building’s height from 150 to 200 feet. Perseus representatives were not immediately available for comment. It is unclear how many units the building might include when complete. …

The Perseus project comes as Alexandria considers whether, and how, to encourage additional office-to-residential conversions. In Eisenhower East, for example, a 2003 small area plan sought a 50-50 split between commercial and residential. But now, city staff and the Alexandria Economic Development Partnership are of the belief that for the community to thrive, it will need 2 to 3 times more residential than office.

Conversions have had a net positive fiscal impact for the city, generated significant private investment, and changed obsolete office buildings to a “higher and better use,” according to a report produced by AEDP, city staff and consultant TischlerBise. These projects take excess office space off the market and shield aging office buildings “from potential years of high vacancy, special servicing, or foreclosure.” …

There is a downside to conversions, in that residential requires far more city services than office. According to the study, for every dollar of tax revenue generated by an Alexandria multifamily project, 38 cents are needed to support that project with government services while 62 cents are available for general budget use. With office, only 12 cents on the dollar are needed for services and 88 cents are available to the general fund.

Bacon’s bottom line: It looks like office-to-residential conversions are the next big thing in real estate development. I’ve blogged about the trend in downtown Richmond and Norfolk, and it should be no surprise that it’s happening in Alexandria, too.

As the WBJ article pointed out, the conversions address two problems. First, they find a new use for aging and obsolete commercial structures with prime locations. Second, they create new housing stock for growing populations. While apartment buildings are not as “profitable” for localities as office buildings — they generate a smaller surplus of revenue over costs — they are hugely beneficial from a Northern Virginia regional perspective. The alternative would be to build more green-field housing on the metropolitan fringe, requiring investment in new roads, water, sewer, sidewalks, etc, as well as the transportation infrastructure to move workers from exurban bedroom communities to urban job centers.

Judging by the article, the City of Alexandria has made the calculation that office-to-apartment conversions pencil out profitably. The infrastructure is already in place. And tax revenues even cover the cost of education.

Every urban locality in Virginia has large tracts of land zoned decades ago for commercial and retail uses. The rise of Internet commerce is demolishing the retail sector, especially big boxes and department stores, and the demand for office space is shrinking as corporations rationalize the excessive use of office space. (Although I must note a possible counter-current in IBM’s recent announcement that it was calling thousands of work-at-home employees back into the office.)

Localities that figure out how to retrofit aging and obsolete retail strips and office parks into vibrant, mixed-use communities will prosper in the years ahead. Those who dither will be left behind.

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15 responses to “Retrofitting Alexandria: Another Office-to-Residential Conversion

  1. Given what’s happening in retail there may need to be a lot of mall to apartment conversions too.

  2. Don raises interesting point. The ground floor retail needs to be selected with care, strong ancillary uses that increase the value of the apartments above, and also increase the value of the nearly properties, causing them to thrive, creating a vibrant walk-ability that injects new street level life into the community, while reducing traffic overall for residents, and those passing through.

    I think Jim fails to give this latter point its full due. Yes, this long term conversation process will be awkward and will meet numerous obstacles project by project along the way, but it is critically necessarily that it be done and be done right.

    Otherwise northern Virginia will not overcome its huge and systemic traffic deficit that is strangling the region’s growth and prosperity.

    • Don’s point on malls is also well taken.

      Here one kills flocks of deadly birds with single stones that kill monster traffic generators while putting in their place monster traffic eaters. Great benefits radiate region wide.

      This amounts to the classic 2+2=8!

  3. “I think Jim fails to give this latter point its full due. “

    I totally agree with you about the need for retail-to-residential conversion. I just didn’t emphasize it in this post because the example cited was commercial-to-residential.

    You can take for granted any time I blog about anything related to land use that I think walkability is a vital component.

  4. As of April 10, 2017 there were more retail bankruptcies in 2017 than in all of 2016 (which was a big year for retail bankruptcies). I personally think this article soft pedals the impact of Amazon but it’s an interesting read …

    https://www.theatlantic.com/business/archive/2017/04/retail-meltdown-of-2017/522384/

    What do you do with malls (super malls, strip malls, etc) if the bricks and mortar retailers are going bankrupt? It seems to me that the mall operators must be feeling the pain too.

  5. Malls are an interesting case. One would think, with the food court already in the structure, that a mixed use, co-working and residential space might be viable….

  6. I haven’t been keeping up but my understanding is that the Springfield Mall in NoVa has been almost completely closed in an attempt to update it into something more to Jim Bacon’s liking (those of us here in NoVa spend a lot of time trying to do things “the Jim Bacon way”).

    I have no idea how this is going.

    https://en.wikipedia.org/wiki/Springfield_Town_Center

  7. The demise of the regional shopping center and its kin likely will jump-start and greatly aid and accelerate the fix of our regional traffic nightmare.

    To understand the worst and the best in shopper center revolution and evolution over the four decades of the 20th century, study the career of Herbert Miller, founder of Western Development, who gave the D C region Potomac Mills in Woodbridge, Va. and Georgetown Park in DC, both opened in early part of 1980s.

    Potomac Mills and Tysons Corner Center (phase 1, late 1960s Lerner project) were super regional shopping centers that helped tip northern Virginia into today’s traffic Armageddon.

    For example, if urban apartments turn over a parking space twice a day, a super regional shopping mall can turn over a single space 40 or more times a day. Such traffic on major interstates can and often do close down whole regions. White Flint did to much of Rockville Pike in Maryland, throttling mixed development there for generations.

    Replacing or remodeling such auto traffic dependent shopping malls into walkable mixed use residential communities will dramatically change how our region works, making it far more efficient and beneficial to all involved.

    Herbert Miller learned this quick. His urban shopping mall Georgetown Park was a work of visionary genius. It saved Georgetown DC in my view, and still thrives today despite an intervening series of debilitating legal disputes. And he followed Georgetown Park with several more masterworks of urban mixed use developments in DC – Washington Harbor, Market Square, and Gallery Place.

    I agree with the thrust on Don’s article’s referenced above. But just like the shopping strip, shopping mall, and super-regional shopping malls of the past turbo charged, for short term gain, some of the worst suburban development of the 20th Century, the ongoing demise of obsolete retail will open a critically needed pathway to a Renaissance of new styled urban and suburban development for the 21st century, if it in some significant part follows the footsteps of Millers vision decades ago.

  8. If it’s Amazon … et al… (and I think it is)… does that mean everything that used to be sold at the mall is now delivered via UPS/FEDEX trucks?

    Now add autonomous cars… that folks can call up with their smartphones.. that at one trip end – they head off to the next pickup and/or go “park” somewhere..until needed?? Hey .. remember all those malls and their enormous parking lots?

    I love it when a plan comes together!

  9. I find the part about the relative value of office versus residential interesting, but possibly misleading. It seems fairly obvious that on a tax revenue / public services basis, the residential would be more costly due to the services associated exclusively with residential property (like schools). However, if you couple residential and office uses in a walkable, mixed-use scenario and compare the relative tax revenue value/services costs to residential and office properties in a non-mixed use scenario, I suspect that the former will be a better yield than the latter.

    In other words, neither office nor residential properties exist in silos – people need to work AND live and the aggregate of those properties provides a truer picture of value and cost.

    • Good point, Andrew. In neighborhoods where people walk to a retail destination or restaurant, one can readily perceive that the condominium dweller who sends his kids to the local school also pays sales taxes as well as property taxes. In neighborhoods where people drive to a retail destination or restaurant, that inter-connection is less evident.

    • Excellent point.

      The relative value of office versus residential versus commercial development is not the issue – the central driver of value instead is how various sorts of office, residential and commercial are best arranged to work work in as many synergistic ways and combinations as possible: with one another and collectively in endless combinations and mixtures to create exponential growth and value through connectivity.

      Then 2+2 = 8 so 8 can then combine in yet ever more ways to equal 24 and then from there compound benefit and wealth in ever more ways on and on – a gift that keeps on giving and growing.

      One example of starting to think this way is asking what are the potential benefits that can be derived from a mother and father being able to easily walk to work and shop each day instead of each parent having to take an hour to an hour and a half commute twice a day going in different directions for work, and then having to spend most of Saturdays and some of Sundays taking long commutes again to do other chores necessary for daily living.

      Here if the places where people live are properly arranged the potential benefits are quite literally endless, and radiate throughout society.

      This of course was at the heart of Jim’s earlier post and the comments that followed that post found at:

      http://baconsrebellion.com/the-fiscal-fix

  10. business and commercial essentially subsidize residential.

    retail commercial is basically the tax collector for sales and meals taxes.

    commercial is more gravy. commercial and business pay far more in taxes than they consume in services…

    your major job centers in the Washington DC area .. are not walkable mixed-use.

    They all have massive parking lots and people commute from all points around the beltway – and beyond to the exurban ring counties.

    Without those jobs – all the rest is irrelevant… it would be like urging SW VA to do “walkable” when a big employer just wants to have a site with a big parking lot for it’s commuting workers.

    I’m not opposed to mixed-use walkable.. I LIKE IT A LOT – but it’s more serendipity than “planning”… you cannot “force” a company or agency that wants a big building with a parking lot – to build “mixed-use” nor can you restrict workers to only be in close proximity of the jobs.

    Take the FBI – they’re not stipulating that they MUST locate in a mixed-use walkable location.. they DO want to be next to METRO but they also fully expect their workers to come from all around the region – to commute and to need a parking lot..

    that’s just a reality and it would be a real coup (miracle) if the FBI or some other big agency or company wanted to move to NoVA and would hire only “local” workers..

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