Converting vacant office buildings into housing? Expert: Difficult

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Written By Rahul Chandak

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The COVID-19 epidemic has changed many things. Many office workers are working from home, and a large number of offices across the United States are idle.

On the other hand, the U.S. government has spent a large amount of money on relief funds during the epidemic, which has worsened inflation and raised mortgage interest rates, causing homeowners to be reluctant to sell.

There are not enough homes for sale to meet the demand for homes, dragging down the real estate market. Converting unused offices into residential buildings has become a popular solution.

However, there are many challenges in converting idle office buildings into residential buildings, and this dream will not come true easily.

New York, Boston , Cleveland and other major metropolitan areas particularly support the conversion of office buildings into residential buildings and provide incentives to promote it.

President Joe Biden’s team is actively assisting with federal programs and tax cuts, and local leaders are also accelerating changes. Zoning and building restrictions regulations, moving ahead at full speed against all odds.

However, experts in housing, architecture and urban planning say there are difficulties in converting office buildings into livable, lovable homes.

Moody’s Analytics reports that idle office space in the United States has reached a new high since 1979. It is a sequelae of the new coronavirus epidemic and office buildings have become “zombie towers.”

In addition, according to the National Association of Realtors, the U.S. has been short of approximately 5.5 million housing units over the past 20 years as builders failed to adequately meet housing demand.

So is it feasible to convert unused offices into residential apartments that are in high demand?

Harold Bordwin, head of Keen-Summit Capital Partners, a commercial real estate redevelopment specialist, said there are a series of obstacles to getting it off the ground.

Brett Theodos, a senior fellow at the Urban Institute’s Metropolitan Housing and Communities Policy Center, said there is currently no feasible standard model for converting offices into housing. Each case has to be reimagined, which is much more difficult than building a completely new building.

Reason One: Bureaucracy and Zoning Restrictions

Urban construction is governed by zoning laws. Each town’s zoning laws follow a simple concept: only one type of building can be built in each zone, such as factories, apartment buildings, and single-family homes.

Zoning laws originate from the post-World War II era, and lifting those restrictions won’t be easy today.

For building developers, fighting to overturn zoning laws in addition to complying with dozens of building codes is time-consuming and costly.

Facing the conversion of commercial office buildings into residential buildings, tax revenue in various metropolitan areas will be affected. For a long time, the city government has derived a large part of its revenue from commercial property taxes and can hardly afford the loss of tax revenue from large office buildings.

Even if the office building is successfully converted into housing and the residential apartment building is full, its use density will inevitably be lower than that of the office building. There will be fewer and fewer people on the streets and in lunch restaurants, and the city’s tax revenue will decrease accordingly.

Reason 2: The location of office buildings is often not an ideal place to live.

Most office areas across the United States lack shops, schools, and public transportation systems, and are generally not an environment where people want to live. Unless they are in densely populated areas like Manhattan in New York City, it is possible to work and live in both.

Theodos said that a large number of office buildings are located in suburban office parks. Even if all the office buildings are demolished and rebuilt as townhouses, the street network does not comply with residential planning and people may not want to move in. Areas immediately adjacent to the urban core are most suitable for converting office buildings into residential buildings.

CBRE, a commercial real estate services and investment firm, said that in cities with higher-than-average conversion rates, the vacancy rate of old office buildings is usually higher. Among them, the number of office buildings planned to be converted into residential buildings in Cleveland is in It has the highest proportion in the United States, accounting for 11% of the inventory of office buildings to be converted.

Boston has the largest planned or ongoing renovation area, accounting for 3% of the inventory of office buildings to be converted in the United States.

Reason three: architectural design and structural obstacles

Office buildings often have insufficient bathrooms and not enough windows, and some windows cannot be opened at all.

Only 3% of office space in New York City and only 2% of office space in downtown Denver are suitable for conversion to housing.

Builders and architects say offices and homes are two different types of buildings, with office spaces lacking the natural light, individual heating controls and ceiling heights that often make electrical and air conditioning (HVAC) retrofits impossible.

Since the popularization of air conditioning in the 20th century, the area of commercial buildings has continued to increase.

Bodwin said that before air conditioning was generally installed, buildings had many open windows, and each floor could be rented out from 5,000 to 15,000 square feet. Now it has increased to 15,000 square feet. to 40,000 square feet.

Bodwin said the office space has windows, but they are far away from the interior space; Maren Reepmeyer, an architect specializing in remodeling at SGA in Boston, said office buildings with larger floors are more difficult to retrofit and must be dug out inside. It costs a lot to create nooks and crannies, dig light wells, build patios, and add small balconies.

CBRE, which has long tracked the real estate industry and investments, said remodeling costs range from $100 per square foot to more than $500.

Reason 4: The office building is still in use

Many “zombie tower” offices are still
occupied by long-term tenants and cannot be renovated.

Take Chicago’s tall skyscrapers as an example. The 65-story building at 311 South Wacker Avenue will recently have three major tenants move out. Even so, the entire building is still 50% leased, and there will be no way to convert it into residential buildings within a few years.

Theodos believes that office renovations will not solve the problem of a glut of vacant offices or a shortage of housing supply.

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