NEW YORK (AP) — On the 31st floor of what was once a towering midtown Manhattan office building, construction workers put down steel bracing for what will soon anchor a series of residential amenities: a catering station, lounge, fire pit and gas grills.
The building, which has been empty since 2021, is being redeveloped into 588 market-rate rental apartments that will house around 1,000 people. “We’re taking a vacant building and pouring life into not just this building, but this whole neighborhood,” said Joey Chilelli, CEO of real estate firm Vanbarton Group, which is doing the redevelopment.
Across the country, office-to-home conversions are being pursued as a potential lifeline for downtown business districts which deflated during the coronavirus pandemic and may never fully recover. Conversion speed is characterized by an emphasis on reasonableness. Several cities are offering serious tax breaks for developers to encourage office-to-residential conversions—provided a certain percentage of apartments are offered at affordable, below-market rates.
In January, Pittsburgh announced it was accepting proposals to produce more affordable housing through “conversion of barracks and underutilized office space.”[ads1]; 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-residential conversions a cornerstone of her plan to repopulate and revitalize the district’s downtown. Her “comeback plan” for the capital, announced earlier this year, seeks to add 15,000 new residents to the downtown area, adding to the roughly 25,000 already living here.
Bowser’s administration says about 1 million square feet of downtown property is already transitioning from commercial to residential. But the city needs another 6 million square feet converted to meet her goal of 15,000 new downtown residents.
“We’re not going to have as many workers downtown as we did before the pandemic,” Bowser said earlier this year. – Our job is to ensure that we get more people in the city centre.
But the conversion push has some skeptics. Housing advocates worry that the requirements for affordable housing could be watered down. And even proponents of the conversion model say giving tax breaks to wealthy developers is not the best tool to achieve that goal.
“Developers who feel it will benefit their bottom line will do it without an incentive,” said Erica Williams, director of the DC Fiscal Policy Institute. “This is a very expensive proposition for an unproven program.”
And as more and more employers turn to hybrid work modelsit is the question of whether people will move to downtown areas if they are not required to be there every day.
“You have to make downtown a neighborhood — a place that’s vibrant and playful and active,” Pittsburgh Mayor Ed Gainey told a panel at the United States Conference of Mayors meetings in Washington last January. “How do you make it a neighborhood that has a vibe where young people want to be?”
Jordan Woods, a 33-year-old federal contractor, moved to a downtown Washington apartment in 2019, drawn in part by the appeal 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 was still a lack of basic things like playgrounds and dog parks and a regular grocery store that wasn’t Whole Foods that I could go to,” Woods said. “I wouldn’t say I regret it, but if I was considering the same move right now, I’m not sure I would.”
Chuck D’Aprix, principal of Downtown Economics, a development consulting firm, said attracting new residents to a former downtown business district has specific chicken-and-egg problems. The businesses that residents need are different from daytime office workers.
They include medium-sized affordable grocery stores and nurseries, pet stores, hardware stores and auto repair shops. And these places must stay open after office hours.
“A lot of these services are just not available right now in small town centers or mid-sized town centers, you know, they close up at night,” D’Aprix said.
But with downtown office vacancy rates continuing to rise, from 12.2% in the fourth quarter of 2019 to 17.8% in the first quarter of 2023, according to real estate firm CBRE, action is urgent. Some of the hardest hit places include San Francisco with a preliminary vacancy rate of 29.4%, Houston at 23.6%, Philadelphia at 21.7% and Washington at 20.3%.
In New York City, where the vacancy rate is 15.5%, Mayor Eric Adams announced in January a plan to bring 500,000 new housing units to the city, including what he calls rent-restricted units.
A key part of that plan is to rezone 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 approve tax breaks that would entice developers to invest in redevelopments that include affordable units, as well as changes to the state’s Multiple Housing Act that would give buildings built through 1990 access to more flexible regulations that make conversions easier.
“The ability to really take our outdated office stock in the city is a true win-win because we’re not only strengthening the office market, given the vacancy rates we’re seeing, but we’re also helping to reactivate our business districts, which really suffered during the pandemic,” said Vice Mayor Maria Torres – Jumping.
“We can also make a dent in this severe housing crisis that we’ve been in,” she said, noting that more than 70,000 New Yorkers sleep in shelters every night, and there is “essentially a functional zero unemployment rate for those most affordable apartments in our city.”
Over the past two decades, nearly 80 office buildings in New York have been converted to homes — the most in the country, according to CBRE. About 200 more could be in play over the next decade, according to John Sanchez, executive director of the 5 Borough Housing Movement, which supports conversion. It would produce around 20,000 housing units.
The conversions are credited with turning lower Manhattan from a twilight-shut neighborhood into a sought-after destination for families and foodies alike.
“What you saw was the fastest-growing residential area in the city,” said Ross Moskowitz, a partner at the law firm Stroock & Stroock & Lavan who specializes in real estate, land use and public-private partnerships. “Suddenly all you saw were prams and dogs, so obviously that means people aren’t just coming to work. They’re actually coming to stay.”
But conversions alone in New York and elsewhere are unlikely to bring back entire downtown neighborhoods, nor will they automatically put a dent in the affordable housing crisis. In a March report, CBRE found that office-to-home conversions represented only about 1% of new multifamily projects and that, despite the hype that “there’s no evidence,” they’ve increased significantly.
“Converting buildings is not easy,” said Luke Bronin, mayor of Hartford, Connecticut. “There are a lot of buildings that are just not favorable.”
The problems include access to natural light and air, the absence of balconies in most office buildings, and the need to install hundreds of bathrooms and kitchens, along with associated plumbing, in buildings that are often built with only two large bathrooms per floor.
There could also be environmental issues, said Anoop Davé, CEO of Victrix, a real estate investment management company that specializes in converting mostly vacant office buildings into residential buildings and hotels. “A lot of these buildings might have asbestos or something like that. It’s not necessarily a deal killer, but sometimes the cost or remediation is so great that even if you get it for zero, it doesn’t work.”
Financing, current tenants and zoning issues can also present challenges. Washington, for example, has an abundance of federal buildings that are immovable.
Christopher Nicholson, 38, a technical operations analyst, knows firsthand the pros and cons of living in a converted downtown office building — he’s lived in two in downtown Denver. In 2018, he moved into a 31-story former office high-rise built in 1967 that was converted to apartments in 2006.
“It was in the downtown business district, so everything else next door was office buildings, and there was a big parking structure right next door,” he said. “There was definitely a lack of green space, the nearest park is more than half a mile away. The grocery store was about a mile plus.”
He moved to his current building in 2020, a 130-year-old, nine-story former office building converted in 2000. His new building is right by the light rail and bus stops and near hotels that have fine restaurants and cocktail bars. It makes it easy to get friends and business associates to meet near his home, he said.
“I can’t imagine living anywhere else,” Nicholson said. “I think for what I’m getting, I’m more than happy with the trade-offs I’ve made.”
Khalil reported from Washington and Casey from Boston. Associated Press writer Manuel Valdes in Seattle contributed to this report.