Despite a lack of funding availability, moves to convert empty office space into housing has continued to pick up steam across the country especially in the wake of a new federal initiative push to calling for more such transformations.
Last month four federal agencies, the Departments of Housing and Urban Development and Transportation, along with the General Services Administration and Office of Management and Budget, came together to push for an increase in office conversions.
Transportation Secretary Pete Buttigieg said that over $35 billion in existing loan funding is available for such projects, noting: “Our intention is to make the most of this opportunity to add more housing near transit in ways that not only reduce the cost of housing, but also reduce the cost of transportation.”
In a new study published by the firm Yardi Matrix called National Office Report it is noted that office conversion projects either active or planned have been underway in a host of cities including Boston, Washington, D.C., Milwaukee, Charlotte, Dallas, and Los Angeles.
But despite the prevalence of the trend, the report notes, problems remain: “The large floor plates found in office towers present logistical challenges.”
At the same time, “even a building perfectly suited for a conversion requires significant capital, meaning that interest rate increases, and tight capital markets further limit the pool of opportunities.”
Equally problematic, many empty offices exist in central business districts where there are no grocery stores, making those spaces a bit of a hard sell for would-be tenants.
Even so, the Yardi Matrix study notes that the well-known Flatiron Building in New York, which was built in 1902 and is famous for its unique triangular shape, is soon to be converted into luxury condo space.
The Duke Energy Company not long ago sold an 800,000 square-foot structure it owns in Charlotte to the MRP Realty company, which has plans to repurpose the office space in the structure into some 450 apartment units.
Meanwhile, the sale of the 100 East complex in downtown Milwaukee, measuring 435,000 square feet, was announced in September, with plans to convert the space into 350 apartments.
“Conversions are now appearing in nearly every market,” reports the Yardi Matrix study.
But noting the dearth of any new significant federal funding to facilitate such projects, which can run into the hundreds of millions, the study adds: “There is still a long way to go before they make a significant impact in the broader office and housing markets.”
By Garry Boulard
