Many Cities Go All In on Conversions. Is it Working?

Last year, the number of new residential units resulting from office building conversions nearly doubled from the previous year, according to RentCafe. In 2025, a record 70,700 of these units are expected to come online.

Those numbers are anticipated to continue growing as more cities and states offer tools to incentivize developers to create new uses for outdated and vacant office space. These tools include tax abatements, direct subsidies, special financing districts, historic tax credits, streamlined approvals and zoning changes.
Conversion to much-needed housing is a top priority for municpalities, and nearly three-quarters of all office conversions underway in the U.S. involve multifamily, according to Jessica Morin, Americas head of research for CBRE.

John Weil, senior program manager for downtown conversions at the City of Boston Planning Department, said the incentives offered by his city have helped generate new housing quickly while addressing the 7.8 million square feet of vacant Class B and C office properties.

“Hopefully, by removing this (dark) office space, we’re stabilizing the remaining office space that’s out there and causing that to be a healthier market going forward,” Weil said.

Experts say economic conditions could slow down deliveries of converted units. But, even if macroeconomic uncertainties continue to rise, the inducements offered by municipalities may help mitigate some of the risk for developers.

“Pricing to acquire those assets is critical,” said Eric Stavriotis, a CBRE vice chairman who leads the firm’s location advisory transaction services. “People are also assessing the cost of doing the renovation or conversion itself in terms of materials, labor and taxes. Tariffs are going to play a role in that.”

These conversions are a pathway to enable additional housing to be built and delivered in a relatively short timeframe.

—Ran Eliasaf, Founder & Managing Partner, Northwind Group

Big Apple activity

In New York City, where there are more than 80 proposals in the administration’s Conversion Accelerator Program, developers considering conversions can use state and local incentives to make their projects pencil.

The city council approved Mayor Eric Adams’ plan to build 80,000 housing units over the next 15 years. The $5 billion City of Yes plan includes zoning reforms attractive to developers looking to convert. Key elements include easing or eliminating off-street parking requirements for areas with mass transit and allowing developers to build 20 percent more housing if they include affordable units.

The state helped by approving tax abatements. One provision is the 467-m program, which offers tax incentives of up to 90 percent for as long as 35 years if permanent affordable housing targets are met. There are also no construction wage requirements for 467-m projects.

“I think 467-m is proving to be the most effective incentive to motivate developers to develop and convert nonresidential buildings, chiefly vacant office, and to do it quickly,” observed Daniel Bernstein, an attorney at Rosenberg & Estis in New York City and leader of the firm’s tax incentives and affordable housing practice.

Downtown properties will continue to be prime targets for conversion but older office assets in Brooklyn and on Third Avenue in Midtown Manhattan are also candidates, noted John Cetra, co-founding principal of CetraRuddy.

The global architecture firm has been designing conversions for decades in New York City, and has left its mark on two of the city’s largest recent projects, including Metro Loft and Silverstein Properties’ behemoth adaptation of 55 Broad St. The 30-story office tower was converted to 571 luxury units.

The other recent project CetraRuddy designed is at 25 Water St., where a former 22-story building was reconfigured into about 1,300 units. Renamed SoMA, the project is the largest conversion in the U.S. to date, by number of units, and was the first to use the 467-m program.

We want to make sure … we’re creating a mixed-income downtown and not just more housing catering to a higher income bracket.

—Prataap Patrose, Senior Advisor to the Director, Boston Planning and Development Agency

Private equity firm Northwind Group has provided debt financing for some 10 conversions in New York City, according to Ran Eliasaf, the company’s founder & managing partner.

“These conversions are a pathway to enable additional housing to be built and delivered to the market in a relatively short time frame,” shared Eliasaf.

One of the projects Northwind is providing financing for is a joint venture of David Werner Real Estate Investments and Metro Loft that aims to become the next biggest U.S. conversion project. The venture is transforming the former Pfizer headquarters at 235 E. 42nd St. and an adjoining building at 219 E. 42nd St. into approximately 1,600 residential units.

More cities step forward

While New York has the most conversions in the pipeline at 8,310 units—up 59 percent year-over-year in the RentCafe report—other cities and states are also seeking to boost projects.

Chicago has launched the LaSalle Street Reimagined initiative, aimed at repurposing vacant office buildings in its CBD and increasing affordable housing. The city is offering tax-increment financing and other incentives. Five projects, including the first underway at 79 W. Monroe St., will share about $250 million in TIF financing and add 400 affordable units to the city. The Monroe Street development will bring 117 apartments, 41 of which will be affordable to households earning up to 60 percent of area median income.

Boston’s Office-to-Residential Program streamlines permitting and offers a tax abatement of up to 75 percent tied to affordability and green energy requirements. There are 15 applications in the pipeline set to create 762 units across 600,000 square feet, with 141 designated as affordable. The properties are all smaller buildings. The state recently added $15 million to encourage redevelopment of larger buildings.

Tom Schultz, principal at The Architectural Team in the Boston area, questioned whether some of the rules were making it difficult for projects to pencil. But city planning officials say they are not willing to sacrifice affordable housing requirements.

“We want to make sure that as a result of this program we’re creating a mixed-income downtown and not just more housing catering to a higher income bracket,” said Prataap Patrose, senior advisor to the director of the Boston Planning and Development Agency.

Other Conversion Policies Around the US

Here are some measures and incentives being offered in other cities:

Minneapolis
The city approved an ordinance in September, streamlining the conversion process by reducing several zoning barriers. Non-residential-to-residential conversions will need only administrative review instead of planning commission approval, eliminating public hearings and reducing review time by up to two months and eliminating extensive traffic studies.
Inclusionary zoning requiring affordable units in conversions of 50 or more units will be paused for five years. Only projects seeking public assistance will have affordability requirements.

San Francisco
Last year, residents voted to waive the real property transfer tax for the first 5 million square feet of non-residential space converted to residential use for projects approved by 2030. The Board of Supervisors passed planning code changes in recent months eliminating all planning fees for conversions, according to San Francisco architect Charles Bloszies. The city has also removed a rule requiring 25 percent of units be affordable and other planning and building code requirements.
Bloszies said developers he has spoken to said a new proposal to create financing districts and offer property tax abatements “might actually move the needle” and encourage more conversions. There is currently only one office-to-conversion project underway in San Francisco.

Seattle
Commercial property owners converting space to residential benefit from sales and use tax deferrals. Projects must maintain at least 10 percent of units as affordable to receive the tax incentive.
Earlier legislation removed zoning barriers for conversions.

Washington, D.C.
Washington, D.C., provides 20-year tax abatements through its Housing in Downtown Initiative for office-to-residential conversions. Developers must make at least 10 percent of the units affordable to those earning no more than 60 percent of AMI or 18 percent eligible for those earning 80 percent of AMI to qualify.
The program is expected to distribute up to $41 million through 2028 and help the city reach 90 percent of its goal for creating more downtown housing.

Read the June 2025 issue of MHN.