A developer has begun creating value from obsolete office buildings by converting them into units that tenants can use as offices or apartments — or as live/work suites.
DEVELOPER Conrad Cafritz saw the local inventory of obsolete office space in the Washington, D.C., area growing and recognized an opportunity. His firm, Cafritz Interests LLC, created e-lofts, a new concept for managing commercial real estate and a way to create value from these obsolete, often vacant buildings. E-lofts is a division of Novus Residences, a subsidiary of Cafritz Interests.
Unlike most buildings that are designated for either residents or workers, the e-lofts concept offers finished units that can be used however the tenant likes: for living space, for offices or for both. Tenants can even change the use after they rent a unit. The idea is to maintain flexibility to address an ever-changing market.
E-lofts’ first project is the conversion of a 12-story building located in Alexandria, Virginia, that had been vacant for about eight years. Until 2007, it held offices for the U.S. Department of the Army. Once vacated, the building was sold for $156 million. In 2015, e-lofts paid $20 million for the property.
The e-lofts team chose the building for its high ceilings and large windows as well as its location in an established neighborhood with public transportation and within minutes of Reagan National Airport, major employment centers, shopping and dining. Another plus was its massive underground parking garage. The plan was to create 200 units, with an average size of 1,000 square feet. The lobby level would be outfitted with amenities that would appeal to both business and residential users.
The E-lofts Rehab
The building was already zoned by the city for office use, which also allows residential uses. Because it had sat vacant for so long, its taxable value had declined significantly, and bringing it back into use was an important goal for city officials. They embraced the e-lofts concept and recognized its potential and value to the city.
Financing went smoothly. Because the building already existed, lenders viewed the project as much less risky than new construction. And they liked the mixed-use concept, because it spreads risk over multiple markets.
When e-lofts purchased the building, some floors were clear, while others were still configured as offices. According to Novus CEO Robert Seldin, who heads the e-lofts division, construction had to meet building codes for both commercial and residential uses. That meant retaining the existing handicapped-accessible restrooms and water fountains on every floor to comply with office building codes while also meeting more stringent life safety codes for residential uses. Seldin explains that double code compliance made construction a bit more expensive, but the flexibility gained was worth the small additional cost.
At the lobby level, the original glass curtain walls and double-height ceilings provided the desired sense of openness, but some reconfiguring was needed for the new tenant mix. A large, professional-grade fitness center now occupies the rear of this level, with views of outdoor common areas. Three new glassed-in meeting/party rooms have video capabilities. An open-plan community kitchen and coffee area round out the lobby space. WiFi is available throughout. An electronic key entry system provides building security.
In addition to these physical amenities, the management team provides a concierge desk that is staffed on both weekdays and weekends. It also provides active programming for residents and office workers to encourage interaction between the two groups of tenants.
A below-grade garage has 600 parking spaces leased on a monthly basis; some are available on a short-term basis for visitors. A bicycle storage area is furnished with tools for light bike repairs. The garage level also has two soundproof music practice rooms and a pet grooming facility. Part of the garage roof supports a 30,000-square-foot landscaped deck for active and passive recreational uses. Outdoor activities include spin classes, barbecues and movie nights.
Individual units feature 10-foot ceilings and open floor plans that range from 635 to 1,249 square feet. No tenant finish package is offered because each unit comes fully finished with wood grain floors, moveable pocket walls, LED lighting and business-ready electrical and data service. Window walls have commercial grade metal blinds. European-style kitchens feature quartz countertops; bathrooms include large walk-in showers. Concrete construction limits sound transmission between units. Each unit has separate HVAC and utility metering. Fiber optic cables have been run to each unit; tenants pay the provider directly.
A typical 1,000-square-foot unit can be a comfortable home for an individual, a couple or several roommates — or it can accommodate up to 10 workers. The e-lofts team expects the tenant mix to include traditional office users such as knowledge workers, tech firms, architects, lawyers and designers.
The building is run as a residential property with an on-site management office. Because managing residential property is typically more hands-on, adding office uses doesn’t increase management responsibilities or costs. Zoning prohibits additional uses such as retail and medical office, and management has the right to refuse any incompatible uses.
All tenants sign a 12-month lease and pay additional fees for parking and the amenity package. Non-tenants may pay a similar amenity fee to become a member of the building’s “Co-working Club,” which enables them to use the lobby-level amenities and network with other members and tenants.
Seldin explains that interaction among tenants is a plus, but that amenity sharing generally is expected to work because residents and workers tend to not use the facilities at the same time. “Residents tend to be home from 7 p.m. to 7 a.m., while workers are there from 8:00 a.m to 6:30 p.m.”
The project began leasing in July 2016 and occupancy began in late September. So far, tenants are a fairly equal mix of residents, office users, and live/work users.
E-lofts plans to develop up to five additional locations in the Washington, D.C., area within the next few years and is looking for additional empty office buildings that can accommodate these shared uses. The company also plans to open between 50 and 100 additional locations throughout the U.S. over the next decade, and to fund that expansion with traditional debt and equity sources.