Automated techniques for converting network devices from a Layer 2 (L2) network into a Layer 3 (L3) network in a hierarchical manner are described herein. The network devices may be configured to boot such that their ports are in an initialization mode in which the ports are unable to transmit locally generated DHCP packets. When a network device detects that a neighbor (or “peer”) device has acquired an IP address or has been configured by a network controller, then the port on which the neighbor device is detected can then be transitioned from the initialization mode into a forwarding mode. In the forwarding mode, the port can be used to transmit packets to obtain an IP address. Thus, the network devices are converted from an L2 device to an L3 device in a hierarchical order such that upstream devices are discovered and converted into L3 devices before downstream devices.