Apartment Management Magazine Office Conversions: A Multifamily Housing Solution That Never Happened
“Dark windows. Quiet lobbies. Cozy rooms. These opening lines of a New York Times article of April 2021 describe once-thriving offices in downtown New York. At the start of the pandemic, offices across the country closed and we entered the era of remote working. The article suggests that residential accommodation could come from commercial office conversions. Ideally, such office conversions would help solve the affordable housing crisis and put these “dark, quiet and hushed” buildings to good use.
It sounds like a smart plan, but it didn’t happen, at least not on a significant scale. And it doesn’t appear that office-to-affordable housing conversions are on many developers’ plans. The conversion solution is creative, but it just doesn’t work. This article examines why commercial buildings won’t solve the housing crisis and what happens to unused office space instead.
We’ll also show you housing solutions that actually work (and are happening right now).
Office conversions: niche markets for luxury housing
According to a July 2022 CommercialEdge Report“Conversions from office buildings to apartments…have proven difficult as most of these projects are unprofitable.”
The report continues: “Some developers circumvent this problem by placing amenities in the center of a building, but this is probably only a solution for luxury apartments.”
This analysis reveals the two central issues of office conversions. The first is the difficulty for property management companies to make a profit. The second is the likelihood that converted office buildings will primarily cater to more affluent tenants. Because of these two issues, property developers tend to seek the easiest gain. They find it in densely populated cities with booming downtown neighborhoods. This is where their projects fetch the highest rates in the market and earn the best returns. Prime commercial property is highly profitable and ongoing residential conversions are making the most of this opportunity. Manhattan’s iconic One Wall Street building, with over 1 million square feet of office space, is being converted into 566 luxury condos. In Salt Lake City, Hines, a 24-story apartment building is set to be converted into a 255-unit luxury multi-family residence.
Conversions are difficult, sometimes impossible
High ceilings, deep floor plates, unachievable layouts, electrical/plumbing issues and more make it difficult to convert commercial buildings into residential housing. According to CommercialEdge’s report, “Office conversions that provide housing for the much-needed workforce are unlikely to occur at scale unless there are deep discounts on distressed properties or until state and local governments provide substantial incentives.” Currently, there is no indication that government grants and/or mandates are on the horizon.
It seems that the dream of converting millions of square feet of unused or underutilized commercial properties will remain just that – a fleeting dream inspired by the early days of the pandemic.
What about office-to-industry conversions?
commercial real estate director (CPE) states that it is neither easy nor financially viable to convert offices into industrial spaces. “Office-to-industrial conversions are expensive endeavors,” says CPE. “To begin with, buildings generally need to be demolished…a project needs to be located in a location that can achieve premium rental rates to make economic sense.”
Jason Tolliver, Cushman & Wakefield’s head of logistics and industrial investors for the Americas, said industrial conversions are happening where there are “high barriers to supply, including Southern California, the northern New Jersey – areas where you are close to the population, you have a voracious tenant appetite for demand, very high replacement cost and no real opportunity to go down to the next exit and expand.
As with residential housing conversions, it is difficult for most companies to profit from these conversions, so the barriers to entry are exceptionally high.
Affordable housing solutions that work
The need for affordable housing has reached a critical level. A recent NPR report reveals that 25% of tenants pay more than 50% of their income to housing.
Property managers, landlords, investors and certainly tenants all know how important it is for people to be able to afford to live where they live. And it is clear that office conversions are not the solution.
So what Is work? We’ll address the answer to this question by looking at the critical roles that property management software solutions and PACs play in the industry.
AFFORDABLE HOUSING IS COMPLEX, BUT SOFTWARE MAKES IT EASIER
Affordable housing operators face unique challenges that few others in the industry encounter. The amount and complexity of paperwork to follow can be overwhelming. Small mistakes result in big fines that can break the business. While there are surely many reasons for the housing shortage, the limited interest in the sector from potential owners and operators is certainly contributing to the housing shortage. According to the NPR report, only 25% of eligible Section 8 households actually receive a voucher. More affordable property managers are needed to help solve this problem.
If the complexity of the affordable housing industry scares anyone from entering the industry, know this: the latest affordable housing software has been regularly change everything for property managers. It helps operators automate tasks that once took hours. It eliminates or drastically reduces manual data entry at the lease and renewal stages. The right technology can even integrate online compliance workflows during the rental process. Affordable housing managers can even choose to outsource compliance documentation to their software provider for fast and guaranteed processing.
None of this streamlining and automation was possible until a few years ago. Now it helps make affordable housing a more rewarding and manageable career option. Whatever your perspective, cloud-based technologies and streamlined workflows are key to helping solve the affordable housing crisis.
You deeper: The future of affordable housing and compliance software
INDUSTRY PACS ARE ALWAYS ACTIVE
Yardie Breeze partners with many property management associations whose experienced leadership works with Congress. Together they seek answers to the housing crisis, among other issues. Their political action committees (PAC) seek informed, effective and bipartisan approaches on a range of topics, including affordable housing. Check out your favorite association’s PAC work for more information and ways to get involved.