Cities revitalize downtown by converting offices into housing

NEW YORK (AP) — On the 31st floor of what was once a high-rise office building in midtown Manhattan, construction workers are laying down steel beams for what will soon form a suite of residential amenities: a catering station, a lounge, a fire pit and gas grills.

The building, empty since 2021, has been converted into 588 market rate rental apartments which will house around 1,000 people. “We’re taking a vacant building and injecting life into not just this building, but this entire neighborhood,” said Joy Chiellili, managing director of the real estate firm Vanbarton Group, which is conducting the conversion.

Across the country, office-to-housing conversions are being pursued as a potential lifeline for struggling downtown business districts. which emptied during the coronavirus pandemic He may not fully recover. Conversion Boost is differentiated by focusing on affordability. Multiple cities are offering serious tax breaks to developers to incentivize office-to-residential conversions – provided a certain percentage of apartments are offered at below-market affordable prices.

In January, Pittsburgh announced that it was accepting proposals to produce more affordable housing By “transforming underutilized and underutilized office space.” Boston released a plan in October aimed at revitalizing the city center 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 transformation ideas.

In the nation’s capital, Mayor Muriel Bowser She made the office-to-housing conversions a cornerstone of her downtown reconstruction and revitalization plan. Ha “plan back” For D.C., which was announced earlier this year, is seeking to add 15,000 new residents to the downtown area, in addition to the nearly 25,000 people who already live here.

Bowser’s management says about 1 million square feet of downtown real estate is already converting from commercial to residential. But the city needs another 6 million square feet converted to meet its 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 make sure we get more people downtown.”

But there are some skeptics of prompting the shift. Housing advocates worry that affordable housing requirements could be relaxed. Even defenders of the conversion model say that giving tax breaks to wealthy developers is not the best tool for achieving the goal.

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“Developers who feel 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 unproven program.”

And with more and more employers turning to hybrid business modelsThere is the issue of whether people will want to move to downtown areas if they are not required to be there every day.

“You have to make downtown alive — a lively, fun, active place,” Pittsburgh Mayor Ed Genie told a panel at the United States Conference of Mayors in Washington this January. “How do you make it a neighborhood that has an atmosphere where young people want to be?”

Jordan Woods, a 33-year-old federal government contractor, moved into 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 stores and restaurants that stayed open at night, but then came the pandemic and downtown was “like the surface of the moon” for more than a year.

“And even before the pandemic, it was still missing basic things like playgrounds, dog parks and a regular, non-Whole Foods grocery store that I could walk to,” Woods said. “I won’t say I regret it, but if I were considering the same move now, I’m not sure I would.”

Attracting new residents to a former downtown business district involves specific chicken-and-egg issues, said Chuck Dabriks, a principal at Downtown Economics, a development consulting firm. The jobs needed by residents are different from those of day office workers.

They include affordable mid-sized grocery stores, day care centers, pet supply stores, hardware stores, and a garage. And those places need to remain open during past business hours.

“A lot of these services simply aren’t available right now in downtown small towns or downtown midtowns that, you know, shut down at night,” D’Aprix said.

But with vacancy rates for downtown office buildings still rising, from 12.2% in the fourth quarter of 2019 to 17.8% in the first quarter of 2023, according to real estate firm CBRE, there is an urgent need to do something. Some of the hardest hit places include San Francisco with a primary vacancy rate of 29.4%, Houston with 23.6%, Philadelphia with 21.7% and Washington with 20.3%.

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In New York City, where the vacancy rate is 15.5%, Mayor Eric Adams in January announced a plan to bring 500,000 new homes to the city including what he calls rent-restricted units.

A key part of this plan is the rezoning of parts of Midtown Manhattan that currently only allow for office and manufacturing space. Besides the rezoning, the mayor’s office is pushing bills in the legislature to approve tax breaks that would entice developers to invest in transfers that include affordable units as well as changes to the state’s multiplex housing law that would allow buildings to be built During the 1990’s access to more flexible regulations made transfers easier.

“Being able to take our old office stock in town is a real win-win because we are not only supporting the office market, given the vacancy rates we are seeing, but we are also helping to revitalize our business districts, which have really suffered right through,” said Deputy Mayor Maria Torres-Springer. epidemic.”

“We can also make a dent in the terrible housing crisis we’ve been through,” she said, noting that more than 70,000 New Yorkers sleep in shelters every night and there is “essentially zero employment rate for affordable apartments” in our city.

Over the past two decades, nearly 80 New York office buildings have been converted into housing—the largest percentage in the country according to CBRE. About 200 more people could participate over the next decade, according to John Sanchez, executive director of the 5 Borough Housing Movement, which supports the conversion. This would produce about 20,000 housing units.

The turnarounds are credited with transforming Lower Manhattan from a neighborhood locked in at dusk into a coveted destination for both families and foodies.

“What I saw was the fastest growing residential neighborhood in the city,” said Ross Moskovitz, a partner at the law firm Stroock & Stroock & Lavan that specializes in real estate, land use and public-private partnerships. “All of a sudden, you just see strollers and dogs, and that obviously 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 influence the affordable housing crisis. In its March report, CBRE found that office-to-home conversions accounted for only about 1% of new multi-family projects, and despite the hype, there was “no evidence” that they had increased significantly.

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“Transforming buildings is no easy feat,” said Luke Bronin, mayor of Hartford, Connecticut. “There are a lot of buildings that just don’t help.”

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 often constructed with two large bathrooms per floor.

There may also be environmental issues, said Anoop Devi, CEO of Victrix, a real estate investment management development company that specializes in converting mostly vacant office buildings into apartment buildings and hotels. “A lot of these buildings could have asbestos or something. That’s not necessarily a deal-killer but sometimes the cost or treatment is so great that even if it’s given for zero, it doesn’t work.”

Funding issues, existing tenancy owners, and zoning can also present challenges. Washington, for example, has an abundance of untouchable federal buildings.

Christopher Nicholson, 38, a technical operations analyst, knows firsthand the pros and cons of living in a converted office building downtown—he’s lived in two blocks of downtown Denver. In 2018, he moved to a 31-storey high-rise building built in 1967 and converted into apartments in 2006.

“It was in the downtown business district, so everything else nearby was office buildings, and there was a large parking lot right next door,” he said. “There was definitely a lack of green space, the nearest park over a half mile away. The grocery store was about a mile away.”

It moved to its current building in 2020, a 130-year-old nine-story former office building converted in 2000. Its new building is located next to bus and light rail stations and near hotels with restaurants and cocktail bars. He said that makes it easier to meet friends and co-workers near his home.

“I can’t imagine living anywhere else,” said Nicholson. “I believe in what I get, I’m more than happy with the trade-offs I’ve made.”

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Khalil reports from Washington and Casey from Boston. Associated Press writer Manuel Valdes in Seattle contributed to this report.

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