WASHINGTON, DC—If PRP LLC's plans to convert its newly-acquired office building at2501 M St., NW into a luxury residential condo sound vaguelyfamiliar that is because the transaction is part of a growing trendin the area. Increasingly, office buildings are being acquired withan eye to being redeveloped into another use, typically apartmentsor condos but occasionally schools or hotels. There have been 19such acquisitions in DC and surrounding environs in the last fewyears, with a few outliers having occurred in 2004 and 2005,according to JLL who tallied up thetransactions.

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"Developers are acquiring buildings that are functionalityobsolete or in functionally obsolete locations to reposition intonew uses," JLL Research Director Scott Homa tellsGlobeSt.com.

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"It makes more sense in many cases to take these assets and goin a completely different direction rather than add new rooftop ortake a C office building and upgrade it to B status, for example,"he says.

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This tactic is hardly new, especially among value add oropportunistic funds. But it is clearly gaining momentum, especiallyas office leasing remains tepid and tenants are still in control ofthe market. Since the start of 2010, 13 office properties totaling1,370,755 square feet have been removed from inventory due toconversion to other uses, according to JLL. It reports that:

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• 72% are conversions to apartments

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• 15% are conversions to condos

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• 13% are conversions to other uses, including a school andhotel

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Geographically, 76% of all office conversions are occurring inthe suburbs, with just 24% concentrated downtown.

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Crystal City has witnessed the most conversion activity thusfar, with Vornado's repositioning of 2221S. Clark St. and LCOR's repositioning of400 Army-Navy Dr., accounting for 29% of overallactivity.

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Moving further out into the suburbs, however, developers areless likely to reposition an existing building and more likely totear it down and start afresh, Jacob Anderson, senior researchanalyst with JLL tells GlobeSt.com.

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Erika Morphy

Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.