Is Converting Office Into Multifamily a Good Fit?
Converting office space to multifamily housing is an increasingly popular idea, but, from financing to construction, challenges abound.
The idea of redesigning office buildings as multifamily communities is getting the attention of a wide spectrum of stakeholders. In such markets as Dallas, Los Angeles, Washington, D.C., and New York City, the confluence of high demand for residential and struggling office properties has generated conversion projects. Vintage office buildings from the first half of the 20th century and later can offer landmark-caliber architecture.
Yet the enthusiasm that began emerging late in the pandemic should be tempered by the complex realities of design, construction and finance.
“Things kind of settled down a little bit when people realized that conversion is very complex, and it takes extensive analysis to really assess if an office building is capable of being converted,” said Mack Selberg, managing principal at architecture firm Ankrom Moisan. “Conversions really have to be looked at as the opposite of a template—you have to know all about the building before you can predict how the conversion will go.”
Layouts and viability
From a financial perspective, office conversions can present a contradiction; properties targeted for conversion must typically be in locations where rents are high enough to justify the cost of makeovers. That often raises the question whether state or local governments are offering attractive enough incentives for projects to pencil out.
One point of distinction is conversion to rentals versus private ownership. “Many conversions do not work if the owner’s intent is to sell the units as condominiums for sale because of lending practices,” noted Paula DeLiso, vice president of business development at MBH Architects. “Office buildings repositioned for renters can be much easier for the building owner to finance.”
Technical issues often present a main reason for pressing the pause button. Converting office buildings to residential present infrastructure opportunities and challenges that come with a higher price tag. The layout must be suitable for residential use, and the building’s infrastructure may not be a good fit. Overhauling layout and structural changes will drive up costs, as will converting HVAC, plumbing and electrical systems.
Conversion targets are only as attractive as their layouts, which must be compatible enough to make the structure’s transformation feasible.
“A lot of times when I’m looking at office buildings, the shape of them just doesn’t allow for a conversion or adaptive reuse, just because of the way they’re constructed or built,” said Ryan Kimura, senior vice president of strategic partnerships at Dallas-based design services firm Premier, who noted that hotels are often attractive targets for conversions due to their linear build.
Seeking the light
When office buildings are evaluated for potential repurposing, a top priority is a configuration that provides access to light and air. “The biggest issue is that the building is too deep to provide enough natural light,” said Tim Haley, technical director & senior associate at Alameda, Calif.-based MBH Architects. “For an office conversion to work well, you’d want a narrower tower or one with an ‘L’ or ‘O’ shaped floorplate to maximize light to each unit.”
One solution is to add a light well down the center of the building. But that is not a good fit in regions that are susceptible to earthquakes, such as the San Francisco Bay Area. Installing a light well would eliminate a large portion of floor area that functions as a structural diaphragm to resist seismic and wind loads, Haley noted. Older Class B and Class C buildings on the Pacific Coast will likely require seismic upgrades as part of the conversion process, a factor that will add to the cost of redevelopment.
Behind the walls
Costs will be also be driven not only by structural changes but by converting heating, cooling, ventilation, plumbing and electrical systems for residential use. What goes on behind the walls and under floorboards is key to converting a property. Age and durability of wiring systems are a major consideration, as are natural gas distribution systems.
What goes on behind the walls and under floorboards is key to converting a property. Age and durability of wiring systems are a major consideration, as are natural gas distribution systems.
“You likely won’t be able to reuse gas systems in buildings due to the more stringent requirements,” said said Dan Colombini, principal at New York City-based engineering firm Goldman Copeland. Residential buildings need large, centralized water heating systems, and new residential properties should incorporate energy efficient heat pump technology.
Plumbing in an office building is often less distributed than in an apartment building housing numerous kitchens and bathrooms. “Plumbing goes down through these buildings like raindrops,” said Selberg. Some older plumbing systems will see wholesale replacements. Bringing a property in line with residential safety codes is a challenge, as is ensuring universal wireless internet access. “Sometimes older office buildings have a lot of concrete structure,” said Kimura. “And signals don’t necessarily go through concrete very well.”
Art Deco landmarks
Two high-profile Manhattan projects, both involving Art Deco landmarks, exemplify the opportunities and challenges of conversions. Macklowe Properties recently debuted One Wall Street, the 50-story limestone Art Deco tower that sits at Broadway and Wall Street by the New York Stock Exchange, earlier this year. Designed by Ralph Walker for the Irving Trust Co. in 1931, the building was expanded in 1963. With more than 1 million square feet of total floor space, the project is the city’s largest office-to-residential conversion to date.
Resolution Real Estate is in the process of converting part of the 650,000-square-foot McGraw Hill Building in Midtown Manhattan from office to residential on behalf of property owner Deco Tower Associates. The Art Deco skyscraper at 330 West 42nd Street was built for a single tenant, the McGraw-Hill Publishing Co., in 1931. Designed by Raymond Hood and J. André Fouilhoux, it is a New York City Landmark and a National Historic Landmark and is listed on the National Register of Historic Places.
“It’s got tremendous floorplates, a very high ceiling,” said Gerard Nocera, managing partner at Resolution in New York, who was originally brought on to renovate the building as an office property. When COVID hit and the office market changed, “We determined that the upper portion of the building is perfect for meeting today’s high-level demands for rental apartments,” he said.
The central location and transit options that tend to make the building an attractive office asset made it a prime candidate for repurposing. “We changed the core of the building, made it tighter,” said Nocera. The firm brought in brand new electric service, air conditioning and windows, as well as destination dispatch elevators for a new residential lobby.
Laws governing lobbies are one of many examples of New York City regulations impacting residential buildings. Fire safety features must be separate in mixed-use buildings and bedrooms, which must have windows, cannot be located on a property line.
“We were fortunate, we are an as-of-right project, technically not a conversion, so I don’t have to get (the Department of) City Planning’s approval,” said Nocera. That approvals process would take approximately a year, though there are measures pending to streamline the process.
The new lobby is a requirement in New York City, which mandates separate residential entrances and elevators for mixed-use buildings. Construction is expected to start on the apartments in June, with leasing commencing in 2024.