From Office HQ to 222 Units: East Washington’s Next Chapter

By Katie Armstrong, Oakbrook Commercial Real Estate

Another older Madison office building is headed for demolition.

The former Wisconsin Manufacturers & Commerce headquarters at 501 E. Washington Ave. is slated to be replaced with a seven-story, 222-unit affordable housing development led by Bear Development. WMC occupied the building for roughly 40 years before relocating in 2025.

The larger signal is the valuation shift. Some older Madison office buildings are now being priced on land value, density, entitlement potential, public financing eligibility, and housing demand before office income. Owners using only a lease-up analysis may be missing the higher-value path.

Project overview

The City of Madison approved a $1.66 million Tax Increment Financing loan to help close a roughly $5 million financing gap in an approximately $81 million development. The project is also supported by low-income housing tax credits administered through WHEDA.

The planned program includes 222 apartments, with 196 one-bedroom units, 26 two-bedroom units, and 68 parking stalls. Most units are targeted to households at or below 60% of Area Median Income, with select units available up to 80% AMI. Based on current city planning estimates, affordability for a one-bedroom unit aligns with roughly a $57,000 annual household income threshold.

The office value question

The WMC building sits near downtown, state government, transit, employment, and East Washington’s redevelopment corridor. Today, those location strengths support a housing outcome more than a traditional office use.

The recent increase in Madison office building redevelopments helps explain why.

Madison’s office inventory dropped by almost 237,000 square feet over the past year, as buildings left the inventory through demolition, conversion, or redevelopment.  Despite that reduction, demand has not caught up. Net absorption was negative 71,000 square feet in 2025, followed by another 35,000 square feet in the first quarter of 2026. Vacancy rose to 16.2%, a current cycle high, while asking rents remained stagnant.

Older Class B office buildings are caught in the middle of that reset. They face a smaller tenant pool, higher improvement costs, and more competition from efficient space with stronger amenities, parking, flexibility, and workplace appeal.

For some owners, the analysis has moved beyond whether a building can still attract office tenants. The better question is whether office use still produces the best economic result.

At 501 E. Washington, the current assessed value is approximately $2.6 million. The proposed development cost is approximately $81 million. That gap highlights how quickly the value equation can change when a site aligns with residential redevelopment.

Why owners and investors should care

Over the past two years, roughly 25% of Madison office building transactions have involved conversion, redevelopment, or repositioning outcomes.

That statistic should get the attention of office owners, lenders, investors, and advisors. Some assets may still benefit from improved leasing, pricing, or capital investment. Others may warrant a different use entirely.

Several factors are driving this shift: elevated office vacancy, negative absorption, stagnant asking rents, strong demand for affordable and workforce housing, public financing tools such as TIF and WHEDA tax credits, Qualified Census Tract eligibility designated by HUD, and zoning frameworks that support more residential density in established corridors.

For owners, the risk is waiting for office demand to return while the stronger exit may already exist in the land, entitlement path, or redevelopment potential. For investors, the opportunity lies in identifying assets where current income does not reflect the full value of the site. For lenders and advisors, the underwriting conversation needs to go beyond traditional lease-up assumptions.

East Washington continues to reflect this transition in real time. Capital is increasingly flowing toward housing in select locations where land, density, transit access, public financing, and policy priorities align.

The former WMC headquarters is a clear example of Madison’s office market reset.

In certain corridors, the highest-value buyer may be a developer pricing what comes next.

Key Market Insights
  • A former office headquarters at 501 E. Washington Ave. is slated for demolition and redevelopment into a 222-unit affordable housing project.
  • The project reflects a broader shift in Madison’s office market, where some properties are now valued more for redevelopment potential than office income.
  • Key valuation drivers increasingly include land value, density, entitlement potential, and access to public financing.
  • The development is supported by $1.66M in TIF funding and low-income housing tax credits, helping bridge a ~$5M financing gap.
  • Madison’s office fundamentals continue to soften:
    • Negative absorption in 2025 and early 2026
    • Vacancy at 16.2%, a cycle high
    • Stagnant asking rents
  • Roughly 25% of recent Madison office sales have involved conversion or redevelopment, signaling a structural shift in demand.
  • Older Class B office buildings face higher costs, reduced tenant demand, and increased competition, making alternative uses more viable.
  • Strong demand for affordable and workforce housing, combined with public incentives and zoning support, is accelerating redevelopment activity.
  • East Washington Avenue continues to emerge as a prime corridor for higher-density residential development.
  • For many owners, the key question is no longer lease-up—but whether office use is the highest and best use of the site.

What This Means for Owners and Investors

Why are office buildings in Madison being redeveloped into housing?
Soft office demand, rising vacancy, and stagnant rents have reduced the viability of some office properties. At the same time, strong housing demand and public incentives are making residential redevelopment financially more attractive.
What is driving the value shift from office to land?
Buyers are increasingly underwriting based on land value, density potential, zoning, and eligibility for incentives like TIF and tax credits, rather than in-place rental income.
What role does public financing play in these projects?
Tools like Tax Increment Financing (TIF) and low-income housing tax credits (LIHTC)help close financing gaps, making large-scale affordable housing developments feasible.
How is the Madison office market performing right now?
The market is experiencing negative absorption, rising vacancy (16.2%), and flat rents, particularly impacting older Class B office buildings.
What types of office buildings are most at risk of redevelopment?
Typically older, less efficient Class B buildings in strong locations where land value and redevelopment potential exceed the value of continued office use.
Why is East Washington Avenue seeing so much redevelopment activity?
The corridor benefits from proximity to downtown, transit access, supportive zoning, and city planning priorities, making it ideal for higher-density residential projects.
What does this mean for office property owners?
Owners should evaluate whether leasing, repositioning, or redevelopment delivers the highest return. In some cases, the land may be worth more than the building.
Are conversions and redevelopments becoming more common?
Yes. Approximately 25% of recent office transactions in Madison involve conversion or redevelopment, indicating a significant market shift.
Who benefits from this trend?
  • Developers: Opportunity to unlock higher-density uses
  • Investors: Ability to identify undervalued assets
  • Communities: Increased supply of affordable housing
  • Owners: Potential for stronger exit strategies

 

 

Katie Armstrong commercial real estate broker in Madison WI at Oakbrook Corporation
Katie Armstrong | Commercial Real Estate Broker

karmstrong@oakbrookcorp.com  | (608) 443-1023

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