On the 31st floor of what was once a tall office building in midtown Manhattan, builders are laying down steel bracing for what will soon anchor a host of residential amenities: a dining room, living room, fire pit and gas grills.
The building, which has been vacant since 2021, will be converted into 588 apartments for rent at a market price, which will accommodate about 1,000 people. “We’re taking a vacant building and injecting life into not just this building, but the entire neighborhood,” said Joey Cilelli, managing director of real estate company Vanbarton Group, which is doing the transformation.
Across the country, office-to-living conversions are seen as a potential lifeline for struggling downtown business districts that have been emptied during the coronavirus pandemic and may never fully recover. The desire for conversion is characterized by an emphasis on accessibility. Many cities offer serious tax breaks to developers to encourage office-to-housing conversions, as long as a certain percentage of apartments are offered at affordable, below-market prices.
In January, Pittsburgh announced that it was accepting proposals to create more affordable housing through “converting unoccupied and underused office space.” In October, Boston unveiled a plan to revitalize downtown that included more housing, some of which would come from office refurbishments. And in April, Seattle launched a competition for downtown building owners and design firms to submit ideas for refurbishments.
In the nation’s capital, Mayor Muriel Bowser has made office-to-housing conversion the cornerstone of her plan to repopulate and revitalize downtown. Its “return plan” to the capital, which was announced earlier this year, aims to add 15,000 new residents to the city center, adding to the roughly 25,000 who already live here.
Ms Bowser’s administration says about 1 million square feet of downtown real estate is already transitioning from commercial to residential. But the city needs to refurbish another 6 million square feet to reach its goal of 15,000 new downtown residents.
“We won’t have as many downtown workers as we did before the pandemic,” Ms Bowser said earlier this year. “Our task is to make sure that there are more people in the city center.”
But the conversion push has some skeptics. Housing advocates fear that affordable housing requirements could be eased. And even proponents of the conversion model say that giving tax breaks to wealthy developers is not the best tool to achieve the goal.
“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 untested program.”
And as more employers turn to hybrid work models, the question is whether people are willing to move to central areas if they don’t have to be there every day.
“You have to create a neighborhood downtown—somewhere alive, playful, and active,” Pittsburgh Mayor Ed Gainey said at a meeting of the US Conference of Mayors in Washington last January. “How do you make sure that the area has the atmosphere that young people want to be in?”
Jordan Woods, a 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 the city center was “like a moonscape” for more than a year.
“And even before the pandemic, it was still missing basic things like playgrounds and dog parks, as well as 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 thinking about the same move right now, I’m not sure I would.”
Chuck D’Aprix, director of Downtown Economics, a development consulting firm, said attracting new residents to the former downtown business district comes with certain chicken-and-egg issues. The business that residents need is different from the business of day office workers.
These include low-cost mid-sized grocery stores and daycares, pet supply stores, hardware stores, and auto services. And these places should remain open outside business hours.
“Many of these services are just not available right now in the centers of small towns or in the centers of medium-sized cities, you know, they close at night,” Mr. D’Aprix said.
But as the vacancy rate in downtown office buildings continues to rise from 12.2% in the fourth quarter of 2019 to 17.8% in the first quarter of 2023, according to real estate agency CBRE, something needs to be done urgently. Some of the hardest hit places include San Francisco with a preliminary vacancy rate of 29.4%, Houston with 23.6%, Philadelphia with 21.7% and Washington DC with 20.3%.
In New York City, which has a 15.5% vacancy rate, Mayor Eric Adams announced in January a plan to bring 500,000 new homes into the city, including what he calls rent-restricted apartments.
A key part of this plan is rezoning parts of Midtown Manhattan that currently only allow office and manufacturing space. Along with the zoning change, the mayor’s office is pushing tax credit approval bills in the legislature that would encourage developers to invest in refurbishments that include affordable apartments, as well as changes to the state’s multifamily housing law that would allow buildings built in 1990 to access more the number of housing. Flexible rules that make conversion easier.
“Being able to use our aging office park in the city is a win-win because we are not only strengthening the office real estate market given the vacancy levels we are seeing, but also helping to reactivate our business districts, which have been hit right during the pandemic.” Deputy Mayor Maria Torres-Springer said.
“We can also do our part in this terrible housing crisis that we find ourselves in,” she said, noting that more than 70,000 New Yorkers sleep in shelters every night and there is “virtually zero vacancy rates for the most affordable apartments.” in our city.”
Over the past two decades, nearly 80 office buildings in New York City have been converted into residential homes, the most in the country, according to CBRE. According to John Sanchez, executive director of the 5 District Housing Movement, which supports the transformation, about 200 more homes could be added over the next decade. This will allow the construction of about 20,000 housing units.
The transformation is credited with transforming lower Manhattan from a neighborhood that closes at dusk to a hotspot for families and foodies alike.
“What you saw was the fastest growing residential area in the city,” said Ross Moskowitz, partner at Stroock & Stroock & Lavan, a law firm that specializes in real estate, land use and public-private partnerships. “Suddenly you saw only strollers and dogs, so it’s obvious that people come to work for a reason. They come to stay.”
But the refurbishment alone in New York and elsewhere is unlikely to bring back entire downtown neighborhoods and not automatically end the affordable housing crisis. A March CBRE report found that office-to-home conversions account for only about 1% of new multi-family projects and that, despite the hype, “there is no evidence” that they have increased significantly.
“Remodeling buildings is not easy,” said Luke Bronin, mayor of Hartford, Connecticut. “There are a lot of buildings that just don’t fit.”
Challenges 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 related fixtures, in buildings often built with only two large bathrooms per floor.
There could also be environmental concerns, said Anoop Dave, CEO of Victrix, a real estate investment development firm specializing in converting largely empty office buildings into residential buildings and hotels. “A lot of these buildings could have asbestos or something like that. It’s not necessarily a deal killer, but sometimes the cost or fix is so great that even if you’re given it for zero, it doesn’t work.”
Funding, current tenants, and zoning issues can also pose challenges. Washington DC, for example, is full of untouchable federal buildings.
Christopher Nicholson, a technical operations analyst, knows firsthand the pros and cons of living in a converted office building in downtown Denver – he lived in two buildings in downtown Denver. In 2018, he moved into a 31-story former office high-rise building built in 1967, which was converted into apartments in 2006.
“It was in a downtown business district, so everything else next door was office buildings, and there was a big parking lot right next door,” he said. “There was not enough greenery, the nearest park was more than half a mile away. The grocery store was about a mile away.”
It moved into its current building in 2020, a 130-year-old nine-story former office building that was refurbished in 2000. Its new building is right next to tram and bus stops, and close to hotels with good restaurants and cocktail bars. According to him, this makes it easy to gather friends and business colleagues near his home.
“I can’t imagine life anywhere else,” Mr. Nicholson said. “I think for what I’m getting, I’m more than happy with the compromises I’ve made.”
The story was reported by the Associated Press. AP contributors Ashraf Khalil reported from Washington, Michael Casey from Boston, and Manuel Valdez from Seattle contributed to this report.
