Global real estate firm Hines is handing the keys back after the departure of its anchor tenant at a Downtown Washington, D.C. office building. Law firm Williams & Connolly, a longtime tenant of 700 11th Street, left the building earlier this year for a new space in the mixed-use development The Wharf, leading owner Hines to relinquish the building to its lender, Allianz Real Estate, according to Green Street’s Real Estate Alert. Hines has owned the 12-story building since 1994. Houston-based Hines, along with partner Sarofim Realty Advisors, a Dallas-based firm, signed a deed-in-lieu-of-foreclosure agreement with the lender. Completed in 1992, the 320,000-square-foot building is expected to draw bids of around $90 million.
Despite giving up the D.C. office property, Hines is still actively making office plays in other markets around the country. The firm added to its San Diego footprint earlier this year with the purchase of a four-building office portfolio and it picked up a trophy office tower in Houston over the summer for $145 million. Washington, D.C.’s office market has posted some of the highest vacancy rates in the country over the last year. In the second quarter of 2022, vacancy was nearly 20 percent, according to CBRE. The high figure was attributed to many tenants leaving older buildings for the 1.1 million square feet of newly completed office space in the first half of the year, as well as government agencies and nonprofits cutting back on space.
The persistent struggles for D.C.’s office sector has led to an uptick in owners converting empty office properties into residential buildings. After struggling to find tenants, real estate firm Willco is in the midst of converting the former Downtown D.C. headquarters of the Peace Corps into a 163-unit apartment building, a decision the firm’s chairman Gary Cohen characterized as “the path of least resistance.” The development tactic is one that D.C. city officials are encouraging office owners to do. Mayor Muriel Bowser’s 2023 budget, announced earlier this year, included $233,000 to plan a residential conversion incentive program. Other cities have looked at incentivizing office-to-residential conversions as well, aiming to bring in more much-needed housing. While conversions don’t always pencil out for every building, when done right, they can be a win-win for landlords and the city.