Name: What It Takes to Convert a Multimillion-Dollar Office Into Housing
Uploaded: 2023-07-03T04:01:00Z
Duration: 7 min 44 s
Description: With housing in short supply, developers are converting more empty offices into apartments. But not all buildings are candidates for reuse, even as more than one billion square feet of office space sits vacant across the U.S. Photo Illustration: Amber Bragdon

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With housing in short supply, developers are converting more empty offices into apartments. But not all buildings are candidates for reuse, even as more than one billion square feet of office space sits vacant across the U.S. Photo Illustration: Amber Bragdon

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What It Takes to Convert a Multimillion-Dollar Office Into Housing

Narrator: For nearly 50 years, this lower Manhattan skyscraper was an office building. But in a few months, it will reopen as a luxury apartment complex with 588 units. But unlike this building, 1 billion square feet of office space still sits vacant across the country. That's about 370 Empire State buildings. Converting all this empty space to housing might seem like a straightforward solution to the country's Housing Shortage, but transforming office buildings isn't simple or cheap.

It's like putting a puzzle together.

Narrator: We'll explore what it actually takes to convert an office into housing, and if that could be a solution for the vast amounts of empty real estate becoming a crisis for cities around the country. Let's head back to 160 Water Street located in the heart of Manhattan's Financial District. Once completed, the building's lobby will transform from this to this. Developers say these types of conversions can cost as much as $500 per square foot. Six new floors are also being added to the 24 story structure, including 500,000 square feet of apartments and amenity space. In many cities, zoning laws can prevent conversions like this one from happening all together.

The city might say, "Well we don't want residential buildings in that district. That's our office district, we're trying to preserve jobs and therefore we're not going to give you the zoning permits that you need to do the conversion."

Narrator: And even with the right zoning, other design challenges can get in the way. That's because many office buildings are laid out differently than residential spaces. They might have structural columns every 30 feet which can make it difficult to install plumbing or there might be windows that don't open. Developers say converting older buildings tends to be much easier.

When you think about how the design of office building evolved during the 20th century, in the early part of the century, you had much smaller buildings. They weren't as wide.

Narrator: In the days before air conditioning, offices needed functioning windows for ventilation on hot days and to light up workspaces. These types of buildings tend to have a similar design, a slim shape, narrow floor plan, and punched in windows. Looking up from the sidewalk, here's one in New York and another in Chicago. Developers say these floor plans translate well to apartments because interior spaces tend to be no more than 30 feet from a window that opens.

And with that, it actually helps out so that the units can be laid out with the proper light and air.

Narrator: Joey Chilelli is managing director of Van Barton Group, the developer of one 160 Water Street, the building conversion we saw earlier. The office first opened in the 1970s. Postwar buildings like this one can be harder to convert to housing.

After World War II and the modernization of office building construction, you had air conditioning, you had fluorescent lighting so you could get much bigger floors. And so you wouldn't have the same access to light and air that you had in an apartment building or in the older office buildings, but they were much more efficient for landlords and much more efficient for tenants.

Narrator: But developers and architects say that setup isn't ideal for apartment living.

If you think about a floor that big, how could you carve that up into apartments? You'd have to have some very, very narrow apartments or you'd have to have apartments in the middle which who'd wanna live there, who'd wanna live in the middle of a big floor plate with no windows.

Narrator: You can see the differences when comparing the floor plans of 160 Water Street to this Prewar skyscraper example. For perspective, here's what a 600 square foot apartment looks like in both buildings. As you can see, larger floor plans can make it difficult to construct apartments with enough access to light and air. To solve for this, the developers at 160 Water Street are scoping out three shafts from the center of the building.

The floor plate depth was actually a little too deep so we cut out a series of three shafts. We took that square footage, and then we reallocated it into other areas of the building where it would be usable square footage and rentable square footage

Narrator: To account for the additional floors, the structure is being reinforced with steel plates on each column, beams, and diagonal bracing. It's also getting larger windows that open. Other buildings with large floor plates may take a slightly different approach. Like this building right next door, 180 water street.

You cut out the floor and create a light well to get lightened air on the inside.

Narrator: That means more apartments can be constructed in the center of the building, including studios with windows facing into the courtyard. For 160 Water Street, the changes resulted in almost 600 apartments with rents ranging from $3,500 up to $7,500. Despite the lack of Affordable Housing in Manhattan, many conversions create market rate luxury rentals. According to developers, that's because it's hard to cover the costs of conversion while producing Affordable Housing for lower income residents.

These projects are very expensive and they just don't pencil out without some kind of tax benefits. What happens in a lot of cities, as a requirement for developers to get those subsidies and incentives, they have to provide a certain amount of affordable units.

Narrator: In Chicago, the city is using a mix of Tax Incentives and public funding to help finance several Office Conversions in a vacant business district. All told, the plan would lead to about 1600 new apartments, 600 of them affordable. Lawmakers in cities like San Francisco and Washington DC are exploring similar plans to add housing and revitalize their office districts. Still, initiatives like these only address a fraction of the country's Affordable Housing needs. In 2021, the US faced a deficit of more than 7.3 million affordable homes for low income renters according to the National Low Income Housing Coalition. Despite the challenges, there are more than 2,600 office buildings across the US that developers might view as candidates for residential conversion according to real estate analytics firm CoStar. To help make converting Offices more cost effective, Developers say cities could create more economic Incentives like tax abatements and subsidy programs.

Some cities are getting so upset about the economic impact of empty office spaces that they are providing incentives more and more.

We must make it easier to convert office buildings.

Narrator: In New York, mayor Eric Adams proposed extending the relaxed zoning rules that made 160 Water Street possible. Changes like these could help increase the rate of Office Conversions which have seen an uptick in recent years. In 2020 and 2021 alone, more than 11,000 Apartments were created in buildings that once housed offices, a 43% increase from pre-pandemic levels. That's according to a recent study by real estate research firm RentCafe. Conversions may also become easier as market factors push developers to sell their least profitable office buildings at steep discounts.

Sellers have this idea in their heads about what their buildings are worth and they don't want to sell it for 20, 30, 40, 50% lower than that, but that's starting to happen. They have to pay the mortgage, their creditors are getting involved, and once that begins to happen, then more and more of these projects can take place.

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