The glut of empty and obsolete office buildings and the severe housing shortage in the U.S. have prompted calls from numerous quarters for widespread office-to-residential conversions—one of the most recent coming from the Los Angeles Times’ editorial board. Meanwhile, states and cities are pushing legislation and policies to incentivize such deals.

From a supply and demand standpoint, the idea makes sense as hybrid work becomes the norm. But true candidates for residential conversion are the exception rather than the rule: Costly design interventions, structural integrity, mechanical system age and performance, floorplate size, zoning regulations, the cost basis and the nature of the neighborhood—any of which can foil a conversion—are just some of the initial variables developers must assess when considering a deal.

READ ALSO: What Hinders Office Space Conversions?

What’s more, some states and cities are demanding that buildings live up to new sustainability measures to fight climate change, suggested Julie Whelan, global head of occupier thought leadership & research consulting with CBRE in Boston. That poses yet another challenge.

“There are some older office buildings that are not going to be able to achieve these new standards, and they are going to have to be dealt with,” she stated. “They’re not always going to have a highest and best use and will just have to be razed.”

At a minimum, developers should plan on spending $500 to $600 per square foot on an office-to-residential conversion, said Richard Jantz, an executive managing director with Cushman & Wakefield in New York. Plus, on a square-foot-basis, the average rental rate for an apartment is about half that for run-of-the-mill office space.

READ ALSO: As Hybrid Work Expands, Coworking Is No Longer the Exception

Hence, not only are developers incurring costs on the conversion, but they also cannot increase their cost basis to generate more revenue from potential residents, he added. That means buying conversion candidates at a discount is paramount. Yet such financial wildcards don’t take into account the tight-fisted credit environment at the moment.

“It seems so simple—you’ve got space that people aren’t using and people who need space to live in, so why not connect the dots?” Jantz said. “But I honestly think office-to-residential conversions are probably the least realistic version of adaptive reuse.”

Needle in a haystack

Gensler worked with PMC Property Group on Franklin Tower Residences, a project that converted the former GlaxoSmithKline headquarters into 360 apartment units and opened in 2019. Image courtesy of Robert Deitchler/Gensler

Recent research and tools developed to assess the viability of such projects support that assertion. Looking at completed, in-progress and planned conversions of offices into any alternative use since 2016, CBRE found that 91.1 million square feet has been or would be removed from the market. That’s less than 2 percent of total U.S. office supply, reported Jessica Morin, research director who specializes in office for CBRE’s Americas Research team.

Meanwhile, when assisting the city of Calgary to develop a plan to reuse largely vacant downtown offices in 2018, architecture firm Gensler created a tool to gauge reuse potential by analyzing building and market characteristics, including the state of mechanical, electrical and plumbing systems, the window-to-wall ratio, the size and shape of the floorplates, and surrounding residential rental rates.

READ ALSO: How Vacant Office Spaces Get New Life

The firm found that about three out of 10 buildings in the 43 million-square-foot market had the potential to become apartments, said Kelly Farrell, a principal with Gensler & global leader of its residential practice. “Depending on an owner’s basis in the building, that number may be even lower,” added Farrell.

To help fuel conversions where it makes sense, Calgary is providing grants of $75 per square foot of office space that will become housing. Gensler is now helping U.S. cities formulate similar strategies as empty and underutilized or obsolete buildings contribute to falling downtown property values and diminishing tax revenues, Farrell also mentioned.

“The fundamental question centers on how incentive programs will work, because converting these buildings is not a simple task,” explained Farrell, whose firm worked with PMC Property Group to convert the former GlaxoSmithKline headquarters tower in Philadelphia into 360 apartment units in 2019. “It’s much simpler to develop a new building from the ground up than it is to rip out the guts of a building and do a conversion.”

The Franklin Tower Residence project. Developer PMC Property Group changed out the full mechanical, electrical and plumbing systems, which freed up room to create a rooftop lounge and outdoor deck. Image courtesy of Robert Deitchler/Gensler

Helping hand

Some cities and states are already crafting incentive policies. In June, San Francisco began seeking developer input on how the city could help speed up or enhance conversions through regulatory changes, financial incentives and other means. That followed approval of legislation that provides zoning and fee exemptions, among other benefits, to help streamline the reuse process.

“The number one thing that is needed for conversion projects is city support,” said Thomas Cox, founder & managing principal of TCA Architects. “We’re seeing a lot of the tech industry meltdown, especially in the Bay Area, and San Francisco needs to get people back downtown.”

To the south, Los Angeles continues to expand and modify a 1999 adaptive reuse policy that has fueled the conversion of some 12,000 new housing units by expediting approvals and relaxing code and zoning requirements, according to the city’s planning department. That program was in place when Forest City Enterprises converted three office buildings that added 745 downtown units to the market early this century, said Cox, who worked on the projects. The properties were largely acquired at discounts, which helped financial feasibility. Cox sees a similar dynamic at play today.

Currently one of his developer clients pursuing conversions is negotiating with a bank that took three heavily vacant downtown Los Angeles office buildings back to either acquire the properties or partner with the lender in a deal. The goal is to turn one of them into housing after moving tenants into another building. If it succeeds, the developer will repeat the process, Cox said.

“What we’re seeing now is a very large change in ownership of these office buildings—lenders are taking them back and are discounting the pricing,” he said. “That’s opening the door for developers to step in and consider a residential conversion.”

The Franklin Tower Residence project spread out amenities such as a media room, basketball court and spin studio throughout the building. Developer PMC Property Group changed out the full mechanical, electrical and plumbing systems, which freed up room to create a rooftop lounge and outdoor deck. Image courtesy of Robert Deitchler/Gensler

In limbo

The office-to-residential conversion theme is hardly new and tends to emerge in the commercial real estate cycle’s recession phase. Following the savings and loan crisis, New York City launched the 421g Tax Abatement program in 1996 to facilitate office-to-residential conversions in downtown Manhattan. The initiative helped convert roughly 13 million square feet, or about 13 percent of the downtown office market, into 12,865 units in 11 years, according to New York’s Citizen Budget Commission.

Such incentives don’t exist today, however. Despite support from the governor and New York City Mayor Eric Adams, a proposal geared toward facilitating residential conversions south of 60th Street in Manhattan failed to clear New York’s General Assembly this year. That could change if more office owners can’t refinance their debt and a mass of assets wind up with lenders, Jantz noted. But for now, he suspects lenders are addressing troubled loans on a one-off basis.

“My gut tells me that lenders don’t see a reason to change that approach. I think everybody believes that people are going to eventually return to the office in a more robust and regular manner,” he reported. “Going to the office five days a week may not come back, but if you have people working the same three to four days during the week, you’re going to need office space.”

Read the August 2023 issue of CPE.

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English

Building small homes in San Francisco comes with a huge price tag. And it’s not easy to get a straight answer from city officials as to why they cost so much.

Last week, a proposal to build 70 to 80 tiny homes in a gated Walgreens lot in the Mission was scrutinized by the San Francisco Chronicle as the project met strong opposition from neighbors.

In many ways, that’s to be expected: NIMBYs are a determined bunch, and Capp Street residents are already grappling with prostitution-related issues.

But it was the bill — the project is estimated to cost $7.4 million, or nearly $100,000 per unit — that made many question whether the city can be taken seriously in addressing two of its most pressing crises: homelessness and housing.

The parking lot behind 1979 Mission St., seen February 21, 2023, could serve as the site for 70 tiny homes. | Morgan Ellis/The Standard

The Standard submitted public record requests for detailed cost breakdowns of the Tiny House project — and the level of detail in the city’s responses ranged from napkin math to nonexistent.

The Department of Homelessness and Supportive Housing (HSH) provided a three-page PowerPoint presentation interspersed with a mandatory cover page and a back page reading “Questions? Thanks” was something like context.

The estimate shows the difference between two proposed scenarios, the more expensive of which would require the demolition of a $1 million building to expand parking space for an additional 10 small homes. Meanwhile, the brief bullet points include a note stating that the calculations were based on a 70-unit small-house community at 33 Gough Street.

Compared to the Gough site, the projected cost per unit for the Mission project was 20% higher as the Department of Public Works increases labor, design, engineering and project maintenance costs, according to HSH.

Emily Cohen, a spokeswoman for HSH, said the whopping $7.4 million price tag was due to a “very robust program model that includes 24/7 staffing, case management, housing health, meals and security.”

She noted that the estimated cost “is a rough estimate and we anticipate the actual cost will be lower once Public Works has tendered the works.”

However, the PowerPoint presentation, with HSH Director Shireen McSpadden’s name on the cover, says the exact opposite: “We recently received an estimate from Public Works that puts the cost of capital even higher and includes several contingencies,” the document states .

A cost breakdown of a tiny home project in Mission provides few details. | Screenshot of a Department of Homelessness and Supported Housing budget

Pinning down the differing narratives between city offices proved impossible.

The Department of Public Works (DPW), which would oversee the actual work to build the Tiny House site, refused to provide its itemized cost breakdowns, citing an exemption from the state’s public records.

Rachel Gordon, a spokeswoman for DPW, said agency lawyers have ruled that releasing details could put companies at a competitive disadvantage if they don’t read the story before making bids. (Note: Thank you for reading the standard.)

DPW doesn’t typically get media inquiries for itemized cost breakdowns for projects, Gordon said, so even trying to find an estimated cost document was a unique exercise for the agency. She added that the Gough Street project had significant donations to cover costs, which is why these new homes cost only about $50,000 each — almost half the price of the Mission Street project.

Elizabeth Funk, executive director of DignityMoves, a nonprofit organization that helped oversee the Gough Street project and specializes in providing personal housing at a lower cost, confirmed that donations kept this project significantly lower than the city could afford internally.

Gensler donated approximately $640,000 towards the architectural design, while furniture, legal counsel and the general contractor’s fee were mostly volunteer, according to a detailed budget.

“Gensler won’t be working for the city for free, but they will be working for a nonprofit organization,” Funk said.

Bill Kelley of California Sheds prepares a home in a new community of portable sheds for homeless residents below the MacArthur Maze in Oakland July 3, 2019. | Paul Chinn/The San Francisco Chronicle via Getty Images

The overall project in Gough came in at just over $2.3 million, while a 35-unit tiny home site in Santa Barbara cost $1.85 million thanks to donated equipment, furnishings and project management fees, the authorities said DignityMoves budget documents.

“I think this model has a lot of potential to be widely replicated,” said Funk. “Nonprofit organizations can be much more flexible.”

If the calculations are correct on all sides, it would seem that San Francisco has essentially quashed with bureaucracy, and all of that bureaucracy is just a nod to San Francisco’s inability to make progress on housing and homelessness.

A 25-unit project was built in San Jose for $1.4 million, and Oakland created inexpensive pallet shelters for 71 people, but not all tiny home projects can be judged “apples for apples,” Funk said. Build quality, access to plumbing and electrical, and additional services may vary by tiny home project. DignityMoves houses are designed to last 20 years.

Supervisor Hillary Ronen, who represents the mission and did not respond to a request for comment on the story, lamented to the Chronicle that she supports the Tiny Houses project, but the backlash from apartment buildings and the high price have given her pause.

She expressed a sense of resignation that such a small project will not alleviate the city’s staggering homelessness crisis, when one obvious solution to a hyper-local crisis in Mission would be to prioritize homeless people currently living on the streets around the project.

Ronen added that she was tired of being the city’s “sacrificial lamb” in the fight for progress.

And so the tyranny of the San Francisco bureaucracy claims another victim.

English

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Seven people were arrested this week for allegedly running a criminal operation linked to a variety of felonies including vehicle theft, firearms trafficking, insurance fraud, money laundering and criminal profiteering at several locations in San Mateo and San Francisco, according to the San Mateo County Sheriff’s Office.

The suspects allegedly played various roles within the organization to obtain illicit funds from stolen or embezzled property and establish and operate a nonprofit organization to launder the illicit funds.

They are Boen Liu, Helena Nong, Louis Lee, Immenson Liu, Natalie Huntington, Nicholas Lanchinebre and Mickey Rivera. Seized were more than 30 vehicles and motorcycles, more than $30,000, five illegal firearms, large quantities of narcotics and marijuana, documentation with fraud and grand theft crimes, numerous bank and business accounts and more than $40,000 in stolen property.

Agents linked the organization to a residential burglary and grand theft of a residence in the city of San Mateo. The owner of the residence had recently died and numerous suspects lived there without the new owner’s knowledge. They stashed narcotics, stolen property and firearms there, which were seized, according to the Sheriff’s Office.

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Pressure mounted Tuesday on the volunteer group redrawing San Francisco’s supervisory districts to finish its work as soon as possible after failing to meet its deadline last week.

Three people sued the San Francisco Redistricting Task Force in response to the group’s delay, which could lead to a judge deciding on new district boundaries. Separately, city lawyers told the task force it must adopt a final draft map when it meets on Thursday.

Task force members narrowly voted last week to blow past the April 15 deadline that the city charter set for having new districts in place, opting to continue working on shaping the new district boundaries amid intense public scrutiny and political controversy.

Now, the lawsuit raises the possibility that the final map may be picked by a San Francisco Superior Court judge instead of the task force, a step that could have far-reaching consequences for city supervisor elections.

The City Attorney’s Office also contributed to the legal pressure Tuesday, publishing an opinion that said the task force must adopt a new final draft map when it meets again Thursday and approve it as the final map, after two additional hearings, on April 28. Lawyers for the city said in the memo that “there can be no further delays” now that the task force has missed its charter-mandated deadline.

The legal developments mark the latest twists in an unusually tumultuous process over which neighborhoods fall into which of San Francisco’s 11 supervisor districts. The result could affect the political balance on the Board of Supervisors depending on how the lines are drawn.

Todd David, a San Francisco housing activist and one of the people who filed the lawsuit, said he was motivated by a desire to defend the democratic process against what he saw as unwarranted political intrusion.

“It was very disturbing to me to watch a group of hardworking volunteers be bullied by the extreme NIMBY left,” David said, referring to people who oppose development. “From a political point of view, nobody loved the maps. It seemed to me that (task force members) did their job.”

The map that the task force had prepared to adopt last week was met with outcry from political activists, neighborhood leaders and other residents who viewed it as an attack on progressive representation. They specifically objected to proposals that would have put the Tenderloin and South of Market into different districts while also splitting up the Bayview and Potrero Hill, among other changes.

The suit filed by David, along with plaintiffs Jon Schwark and Drew Min, asks a judge to hold a hearing early next week and adopt a final supervisor district map before May 2, the date by which the Department of Elections needs the map to prepare for candidates running in the November election. In addition to the task force, the suit also names the city elections director John Arntz as a defendant.

Jen Kwart, a spokeswoman for the City Attorney’s Office, responded to the lawsuit with a statement saying her office continued to advise the task force “so that it can complete its work by May 2.” She said city officials had not been served with the suit but would “review it and respond appropriately.”

David said he hoped the task force would sign off on a map of new districts Thursday, rendering intervention by a judge unnecessary. But his suit will remain in the meantime as a “safety valve” in case the task force continues to delay, he said.

“The point of the lawsuit is to get a legal map done as soon as possible,” David said. “We would certainly come together and have a conversation and would seriously consider dropping the lawsuit if the map is done in a very quick time frame.”

The task force’s decision to take more time to work on the 11 supervisor district boundaries was met with praise by progressive leaders who saw the group’s earlier proposals as politically tainted. By potentially moving neighborhoods like the tenderloin out of the districts where they are currently located, the task force would separate communities with longstanding ties and shared interests, diluting their political voices, critics say.

For example, the draft map the task force voted down last week would have made the city’s Transgender District — which spans parts of the Tenderloin and SoMa — represented by different supervisors. It also would have done the same to thousands of Filipinos who live in San Francisco, said Raquel Redondiez, director of the community group SOMA Pilipinas.

“If you look at the wealth disparity between the communities they preserved and the communities they broke up, they went after the most vulnerable and marginalized communities,” Redondiez said of the draft map.

Redondiez was among more than 20 community leaders who signed on to an April 13 letter denouncing the now-failed draft map as “racist, anti-working class, and a blueprint for gentrification.”

The task force is in charge of updating the supervisor district lines to account for population shifts reflected in the last census. The group’s nine members are appointed in equal numbers by the mayor, the Board of Supervisors and the city Elections Commission.

As the task force’s deadline neared and controversy escalated around the proposed boundaries, the Elections Commission considered removing its three appointees but ultimately decided against doing so. The commission’s move was prompted in part by concerns raised by the League of Women Voters of San Francisco and Asian Americans Advancing Justice.

Alison Goh, the league president, called the next meeting of the task force a “positive sign” that members “really intend to listen to community input.”

“We really hope the community continues to show up and make their voices heard,” Goh said. “If any of the community members, especially the most vulnerable, underrepresented folks, feel unheard, this is really the meeting where they need to show up and give comment.”

Thursday’s task force meeting starts at noon in Room 406 of City Hall.

JD Morris is a San Francisco Chronicle staff writer. Email: jd.morris@sfchronicle.com Twitter: @thejdmorris

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Asbarez – The San Francisco Bay Area Artsakh Task Force Humanitarian Aid Committee donated $ 100,000 to the Insurance Foundation for Soldiers in Armenia at KZV Armenian School in San Francisco on Nov. 12.

Earlier this year, the SFBAATF-HAC hosted a virtual fundraiser that raised $ 100,000 for wounded Artsakh soldiers and families of fallen soldiers.

The very first virtual gala and auction “For our soldiers” attracted over a few hundred visitors. The participants enjoyed touching musical performances, heard encouraging messages from Bishops Hovnan Derderian and Torkom Donoyan and saw moving personal messages from soldiers from Artsakh.

The donations went through the charitable foundation Friends of the Armenian Soldier and Family (FASF) and then to the Insurance Foundation for Soldiers in Armenia (IFS). IFS is a non-governmental organization that provides financial compensation to the families of deceased and wounded soldiers in Armenia and Artsakh.

The San Francisco Bay Area Artsakh Task Force (SFBAATF) was established in October 2020 in response to the 2020 war in Artsakh with a particular focus on assisting Artsakh by coordinating regional efforts. Further information can be found on the Internet.

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SAN FRANCISCO – On Friday November 12th, the San Francisco Bay Area Artsakh Task Force Humanitarian Aid Committee (SFBAATF-HAC) donated $ 100,000 to the Insurance Foundation for Soldiers in Armenia (IFS) at the Krouzian-Zekarian-Vasbouragan Armenian School in San Francisco, CA.

Earlier this year, the SFBAATF-HAC hosted a virtual fundraiser that raised $ 100,000 for wounded Artsakh soldiers and families of fallen soldiers.

The very first virtual gala and auction “For our soldiers” attracted over a few hundred visitors. Participants enjoyed touching musical performances, heard encouraging messages from Archbishop Hovnan Derderian and Bishop Torkom Donoyan, and saw moving personal messages from soldiers of Artsakh.

The donations went through the charitable foundation Friends of the Armenian Soldier and Family (FASF) and then to the Insurance Foundation for Soldiers in Armenia (IFS). IFS is a non-governmental organization that provides financial compensation to the families of deceased and wounded soldiers in Armenia and Artsakh.

The San Francisco Bay Area Artsakh Task Force (SFBAATF) was established in October 2020 in response to the 2020 war in Artsakh with a particular focus on assisting Artsakh by coordinating regional efforts. More information is available at www.facebook.com/BayAreaArtsakhTaskForce.

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