Hot Topic: Converting Office Spaces Into Residential Places


With a lack of housing plaguing the country, it may be easy to jump to the conclusion that vacant offices could be the perfect fit for new apartments and condominiums, but industry leaders say there are a number of considerations to take into account with these projects.

Adam Ducker is the CEO of RCLCO Real Estate Consulting, which offers strategic and tactical advice about property investment, planning, and development. They have offices in Austin, Denver, Los Angeles, New York, Orlando, and Washington, DC.

Ducker said in a recent interview with The Mortgage Note that the concept of renovating office spaces into residential housing precedes the pandemic, even though it is a hot topic now.

He authored a blog on the subject of office-to-residential conversions that was published this spring. One of the successful projects highlighted was Arrive Inner Harbor Luxury Communities in Baltimore, MD, a former bank and trust building, which is pictured above. Ducker wrote that Madison Properties left nine floors of office space, and converted the upper two-thirds of the 28-story tower into apartments.

“The apartment component is almost all view units significantly enhancing the weighted average revenue per square foot,” Ducker wrote.

So, what are some of the challenges associated with converting office spaces into residential places?

Ducker said in his interview that the costs of renovations pose a significant hurdle in some cases.

“One of the problems historically has been that the buildings are still too expensive. Office buildings, and the mechanics, the technical effort to change the use, is not inexpensive. It’s expensive. So a lot of times it’s not a no-brainer. It’s really just cheaper tearing down the building and starting from scratch,” Ducker said.

Ducker said these conversions work well in high-cost markets with old office buildings such as lower Manhattan, which has seen a large number of office-to-residential conversions. He said the converted buildings there were built before air conditioning so they weren’t as big and deep as some of the more modern office buildings.

A second challenge is finding professionals who can do the work.

“Even if you have money to hire professionals, it’s hard to find architects who know how to do this,” Ducker said. “The knowledge hasn’t existed to make this a real business of scale.”

Ducker said that is improving as more people gain the technical expertise needed to make these conversions feasible.

Ducker said the third challenge is gaining support from community leaders.

“Conventional wisdom was correct that office buildings were great for the city or the county as finances. They paid high taxes, you didn’t have to educate schoolchildren. If you had an office building in your town you were really happy,” Ducker said. “There was public sentiment against conversions in most cases until recently. Now, at least many forward-looking cities realize this has to happen.”

Ducker said facilitating conversions is a strategy for a healthy downtown or suburban office park in addition to helping residents who are struggling to find housing.

Those sentiments were echoed during the National Association of Real Estate Editors conference in Las Vegas earlier this month.

There, a panel discussion on commercial conversions was held.

Thomas Cox, founder of California-based TCA Architects, said the country is short millions of units of housing. They converted 1100 Wilshire in Los Angeles, a 22-story triangular spire that was office suites, into 230 high-end condominiums. That project was completed in 2006.

City leaders can help today by supporting similar conversions, Cox said.

“You’re going to need incentives, and incentives can come from the city from tax credits, rebates, anything you can get out of the city in terms of forgiveness, for fees even, will help make that work,” Cox said.

Principal Kelly Farrell at Gensler, a global architecture, design, and planning firm with 53 locations, said city leaders want revenues back. With fewer workers in offices, they are looking at their coffers and may be willing to explore their options.

“Our message to cities is, ‘Find a way to make the process simple so that when development teams call, and design firms, we can get down the road and convert some of these buildings.’ We do have a massive housing issue nationwide,” Farrell said.

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