As cities across the country try to encourage real estate developers to convert distressed office buildings into housing, New York City Mayor Eric Adams has a plan.
New data, however, raise substantial doubt about his office-to-residential accelerator and the number of buildings that can be converted in the first place. The data also suggests that other cities may run into similar hurdles.
Just 33 of the 325 office buildings in midtown Manhattan would be eligible for conversions under the mayor’s proposal, according to an analysis of properties in the areas by online real estate development platform PropertyScout, exclusively provided to The Messenger. Numerous factors, from limited access for fire departments to a lack of street-facing windows, shrink the pool of eligible buildings for conversions.
What’s more, the PropertyScout data does not include other factors like structural integrity and existing long-term leases, meaning its figure for New York will be even lower in practice.
New York City often leads the rest of the country in office building trends and these challenges will certainly resurface in other cities with the same, and separate, fire and building codes required for residential buildings. In San Francisco, for example, sprinkler systems must be installed in specific locations of new and renovated apartment buildings, including in units and garbage chutes. That means, more costly plumbing would have to be added to an existing office.
Since the pandemic decimated the office market, local governments have repeatedly pitched office-to-residential conversions as the solution for vacant office buildings and housing shortages. However, real estate developers often counter that complicated floor plans and high construction costs make conversions difficult, especially without funding.
Rubik’s Cube of a Mess
“It’s like a Rubik’s cube of a mess. The pieces don’t always fit,” said Adelaide Polsinelli, a New York City broker with Compass who specializes in investment sales.
Currently, most of the midtown Manhattan areas are zoned for manufacturing, meaning that apartments cannot be built in the area. The city’s proposal would change the zoning to residential use, as well as allow buildings built before 1990 to be converted to housing — an update from the existing 1961 and 1977 cutoffs.
Adams has boasted that office-to-residential conversions could produce 20,000 new homes over the next decade.
“Office-to-residential conversions face enough logistical challenges – so our own regulations shouldn’t be one of them,” Dan Garodnick, director of the New York Department of City Planning said in a statement. “We’re working to get overly-restrictive rules out of the way to enable conversions”
Garodnick added that the city is working with the state to pass a tax incentive program for developers.
The area impacted by the city’s rezoning plan.NYC Department of City Planning
A separate study by real estate brokerage Avison Young found that New York’s five boroughs would have 1,698 office properties eligible for conversion. In Los Angeles, 1,212 properties are candidates, followed by 1,030 in Chicago and 795 in San Francisco. But that’s all without considering factors like feasibility, layout, location and costs.
PropertyScout’s data reveals that achieving those housing goals requires more than just giving developers a greenlight.
“The proposed rezoning will do very little to help conversions,” said Wilson Parry, CEO of PropertyScout. “The proposal does not address this elephant in the room.”
That same elephant exists for office districts all over the country. Real estate developers face battles surrounding light, air and fire department access to apartments. In midtown, one of New York City’s prime office district, buildings are smaller and packed tightly together, limiting room for windows.
Legally, rooms in apartments must have windows that look out to a street, backyard or courtyard. Under New York City’s proposal, some requirements will become more lenient so that windows can be installed on walls just 15 feet away from another building — a change from New York City’s current 30 foot standard. That would theoretically allow for apartments to be created in the back of buildings, even if the views aren’t ideal.
In some current conversions, office buildings have been hollowed out for light shafts and courtyards that make room for windows. That requires large floors. Conversions at 25 Water Street or One Wall Street in New York both encompass more than one million square feet and are located in Manhattan’s financial district.
When considering window requirements, there are just 33 candidates for conversions, out of 325 total midtown offices.
Other cities have additional rules that make conversions difficult. In San Francisco, sprinkler systems must be installed in specific locations of new and renovated apartment buildings, including in units and garbage chutes. That means, more plumbing would have to be added to an existing office.
In addition to windows, developers have to add bathrooms and kitchens, divide the floors into apartment units and make the former offices appealing to residents who don’t want to feel like they live in an office building. Other factors like kicking out existing office tenants and a building’s age can also make developers hesitant. Not only is the process complex, but and those costs would be passed down to renters, according to Compass’ Polsinelli.
Hand Over the Keys
“If you’re an owner, you already have a building, and you have two choices: handing back the keys or doing the conversion. I would hand over the keys,” Polsinelli said. “[Financially] it doesn’t work. It’s not worth the brain damage.”
Still, some real estate professional aren’t not bowed by the data. Brooks McDaniel, a senior vice president of building repositioning at STO Building Group, still encourages developers to examine conversion potential. He said that he’s taken it upon himself to reach out to office owners with buildings that could have a second life.
“I still have this big learning curve with building owners where I’m sort of educating them on how this works,” McDaniel said. “[We’re] using all of these various methods to make the projects work.”
