NEW YORK (AP) On the 31st floor of what was once a towering office building in midtown Manhattan, construction workers laid steel bracing for what will soon anchor a series of residential amenities: a food station, a lounge, a fire pit and gas grills.
The building, which has been empty since 2021, is being converted into 588 market-price rental apartments that will house around 1,000 people. “We’re taking an empty building and bringing to life not just this building, but this entire neighborhood,” said Joey Chilelli, chief executive officer of real estate firm Vanbarton Group, which is carrying out the conversion.
Across the country, office-to-home conversions are being pursued as a potential lifeline for struggling downtown business districts that emptied during the pandemic and may never fully recover. The drive to convert is marked by an emphasis on affordability. Several cities are offering serious tax breaks to developers to incentivize office-to-home conversions, provided a certain percentage of apartments are offered at below-market affordable prices.
In January, Pittsburgh announced it was accepting proposals to produce more affordable housing through the conversion of uncultivated and underutilized office space. Boston released a plan in October aimed at revitalizing downtown that included a push for more housing, some of which would come from office conversions. And Seattle launched a competition in April for downtown building owners and design firms to come up with conversion ideas.
In the nation’s capital, Mayor Muriel Bowser has made office-to-home conversions a cornerstone of her plan to repopulate and revitalize downtown neighborhoods. Its comeback plan for the capital, announced earlier this year, seeks to add 15,000 new residents to the city centre, adding to the roughly 25,000 already living here.
Bowsers’ administration says approximately 1 million square feet of downtown real estate is already transitioning from commercial to residential. But the city needs another 6 million square feet converted to meet its goal of 15,000 new downtown residents.
We wouldn’t have had as many workers downtown as we did before the pandemic, Bowser said earlier this year. Our job is to make sure we get more people downtown.
But the conversion drive has some skeptics. Housing advocates fear that affordable housing requirements may be watered down. And even proponents of the conversion model argue that giving tax breaks to wealthy developers isn’t the best way to get there.
Developers who believe it will benefit their bottom line will do so without incentive, said Erica Williams, director of the DC Fiscal Policy Institute. This is a very expensive proposition for an unproven program.
And, as more employers turn to hybrid work models, there’s the question of whether people will want to move to downtown areas if they don’t have to be there every day.
You have to make downtown a lively, playful, active neighborhood, Pittsburgh Mayor Ed Gainey told a panel at the US Conference of Mayors meetings in Washington last January. How do you make it a neighborhood that has a vibe that young people want to be in?
Jordan Woods, a 33-year-old federal government contractor, moved into a downtown Washington apartment in 2019, drawn in part by the allure of being able to walk to work. He said he was able to find reliable shops and restaurants that stayed open at night, but then the pandemic hit and downtown became like a moonscape for more than a year.
And even before the pandemic, there were still basic things like playgrounds and dog parks and a regular non-Whole Foods grocery store that I could walk to, Woods said. I wouldn’t say I regret it, but if I were considering the same move right now, I’m not sure I would.
Chuck DAprix, principal at Downtown Economics, a development consulting firm, said attracting new residents to a former downtown business district comes with its own chicken-and-egg problems. The activities that residents need are different from those of day workers.
They include affordable mid-sized grocery stores and daycare, pet supply stores, hardware stores, and auto repair shops. And those places have to stay open after office hours.
Many of these services are simply not available right now in small city centers or mid-sized city centers, you know, they close at night, DAprix said.
But with vacancy rates in downtown office buildings continuing to climb, from 12.2% in the fourth quarter of 2019 to 17.8% in the first quarter of 2023, according to real estate firm CBRE, there is urgency. to do something. Some of the hardest hit places include San Francisco with a preliminary vacancy rate of 29.4%, Houston 23.6%, Philadelphia 21.7%, and Washington 20.3%.
In New York City, where the vacancy rate is 15.5%, Mayor Eric Adams announced a plan in January to bring 500,000 new homes to the city, including what he calls limited-rent units.
A key element of that plan is the redevelopment of parts of Midtown Manhattan that currently only allow office and manufacturing space. Along with the rezoning, the mayor’s office is pushing bills in the Legislature to pass tax breaks that would entice developers to invest in conversions that include affordable units, as well as changes to the state multiple-home law that would allow buildings built until 1990 access to more flexible regulations that facilitate conversions.
The ability to really take on our stock of outdated office space in the city is a real win-win because we not only support the office market, given the vacancy rates we are seeing, but we also help reactivate our business districts, which they have really suffered a lot during the pandemic, said Deputy Mayor Maria Torres-Springer.
“We can also make a dent in this dire housing crisis we’re in, he said, noting that more than 70,000 New Yorkers sleep in shelters every night and there is “essentially a zero vacancy rate for our city’s most affordable apartments.”
Over the past two decades, nearly 80 office buildings in New York City have been converted into residences, the most in the country according to CBRE. About 200 more could be at stake over the next decade, according to John Sanchez, executive director of 5 Borough Housing Movement, which supports conversion. This would produce around 20,000 housing units.
The conversions are credited with transforming Lower Manhattan from a neighborhood that shut down at sunset into a coveted destination for families and foodies alike.
What you saw was the fastest growing residential neighborhood in the city, said Ross Moskowitz, a partner at the law firm Stroock & Stroock & Lavan, which specializes in real estate, land use and public-private partnerships. All of a sudden, you’ve just seen strollers and dogs, so obviously that means people aren’t just coming to work. They actually come to stay.
But conversions alone in New York and elsewhere are unlikely to bring entire downtown neighborhoods back to life, nor will they automatically dent the affordable housing crisis. In a March report, CBRE found that home-office conversions account for only about 1 percent of new multi-family projects, and that despite the excitement, there’s no evidence they’ve increased significantly.
Converting buildings isn’t easy, said Luke Bronin, mayor of Hartford, Connecticut. There are many buildings that are simply not favorable.
Problems include access to natural light and air, the lack of balconies in most office buildings, and the need to install hundreds of bathrooms and kitchens, along with plumbing, in buildings often built with only two large bathrooms per floor.
There can also be environmental concerns, said Anoop Dav, CEO of Victrix, a property investment management development firm that specializes in converting mostly empty office buildings into residential buildings and hotels. Many of these buildings may contain asbestos or something like that. This isn’t necessarily a killer deal, but sometimes the cost or repair is so great that even if it’s given to you for zero, it doesn’t work.
Financing, current leaseholders, and zoning issues can also present challenges. Washington, for example, has a glut of untouchable federal buildings.
Christopher Nicholson, 38, a technical operations analyst, knows firsthand the pros and cons of living in a converted downtown office building that two have lived in in downtown Denver. In 2018 he moved into a former 31-story skyscraper built in 1967 which was converted into apartments in 2006.
It was in the downtown business district, so everything else next door was office buildings, and there was a big parking lot right next door, she said. There was definitely a lack of green space, the nearest park is over half a mile away. The grocery store was about a mile further.
He moved into his current building in 2020, a 130-year-old nine-story former office building, converted in 2000. His new building is right next to light rail and bus stops and near hotels that have nice restaurants and cocktail bars. That makes it easy to meet friends and co-workers near his home, he said.
I can’t imagine living anywhere else, Nicholson said. I think for what I get, I’m more than happy with the compromises I’ve made.”
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Khalil reported from Washington and Casey from Boston. Seattle-based Associated Press writer Manuel Valdes contributed to this report.
