The Washington, D.C., government is taking steps to lure people to live in the city’s core by expanding its tax breaks for office-to-residential conversions and granting a 20-year tax abatement to a pair of projects that would turn workspaces into homes.
The D.C. Council has voted to allow office properties set to be converted into multifamily buildings to be classified as residential as soon as work gets underway. This reversed a move in the fall that kept that categorization from happening until a project was completed.
The change means such conversions would be taxed as lower rates from their commencement.
“If the city issues you a building permit to be a residential building and you start work on that, it’s a residential building,” Duball President Marc Dubick said in a phone interview. The decision to restore the classification system to what it was before the city government changed it in the fall is “common sense," he said.
Duball has plans to convert a 1940s office tower in D.C.’s Dupont Circle neighborhood to an apartment complex.
The city also granted conditional tax abatements for to assist with the conversions of 1133 19th St. NW and 1201 Connecticut Ave. NW from office to residential properties.
Reimaging empty office spaces
Both actions come as the city looks to revitalize its downtown and attract more residents in the city as it confronts a record amount of empty office space. Green shoots have emerged with professional services firm signing sizable leases, but the D.C.-area office market continues to struggle, according to a CoStar Market Analytics report.
"In the last four quarters as of first quarter 2025, the region absorbed negative 2.2 million square feet of space," the report said. "The metro's vacancy rate at 16.9% has reached an all-time high, and the overall availability rate stands at 19.7%."
Earlier this year, the city launched its “Office to Anything” program to get underutilized office space to convert to other commercial uses that could increase foot traffic, economic activity and tax revenue for the city.
The two projects that just got the office-to-residential tax abatement joined developments that received conditional awards in September through the city’s Housing in Downtown initiative. The District said that combined, the projects approved for tax breaks are expected to produce approximately 1,134 units, including roughly 114 affordable units.
“Housing in Downtown is an innovative program designed to catalyze new residential development and add new residents to Downtown DC,” the District said in a statement.
CoStar News reported late last year that Transwestern Development Co., or TDC, contracted to buy the building at 1133 19th St. from owner Tower Cos. Transwestern plans to transform the building that at one time housed the headquarters of MCI Communications to a multifamily property.
“The abatement component allows the project economics to work,” said Toby Millman, a regional partner with TDC, in an email to CoStar News. Millman also said the project will help build on the “emerging vibrancy” of 19th Street and add critical housing to the downtown.
He previously told CoStar News that Transwestern would like to start the conversion in the second half of this year. Tower Cos. referred a request for comment to TDC.
The property was built in 1981 and contains more than 190,000 square feet, CoStar data shows. The city said the project is expected to create 220 residential units, with at least 22 being affordable at 60% median family income.
As for the Connecticut Avenue building that also got an abatement, an affiliate of Duball bought the DuPont Circle property known as the Longfellow Building for $21.5 million. It plans to transform the 169,549-square-foot building into rental apartments.
The District said the Duball project is expected to contain 160 units and include 16 affordable units at 60% median family income.
“We expect early in April to start the physical conversion,” Duball's Dubick said.
The tax abatement, he said, was a “critical component” in Duball's effort to make the project work financially.
Meanwhile, the new legislation that classifies conversions as residential once work starts includes a claw-back provision that the city can use if a property is not converted in a timely manner.
If a conversion project is not put to predominately residential use within three years after the issuance of a residential building permit, or if the permit expires and is not renewed within a year, the building can be reclassified and taxed for each tax year or half tax year in which the real property was considered “improperly classified” and other penalties and interest can be added, according to the legislation.