Cities reviving downtowns by converting offices to housing

NEW YORK (AP) — On the 31st floor of what was once a towering office building in downtown Manhattan, construction workers lay down steel bracing for what will soon anchor a host of residential amenities: a catering station, lounge, fire pit and gas grills.

The building, empty since 2021, is being converted to 588 market-rate rental apartments that will house about 1,000 people. "We're taking a vacant building and pouring life not only into this building, but this entire neighborhood," said Joey Chilelli, managing director of real estate firm Vanbarton Group, which is doing the conversion.

Across the country, office-to-housing conversions are being pursued as a potential lifeline for struggling downtown business districts that emptied out during the coronavirus pandemic and may never fully recover. The conversion push is marked by an emphasis on affordability. Multiple cities are offering serious tax breaks for developers to incentivize office-to-housing conversions — provided that a certain percentage of apartments are offered at affordable below-market prices.

In January, Pittsburgh announced it was accepting proposals to produce more affordable housing through the "conversion of fallow and underutilized office space." Boston released a plan in October aimed at revitalizing downtown 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 conversion ideas.

In the nation's capital, Mayor Muriel Bowser has made office-to-housing conversions a cornerstone of her plan to repopulate and revitalize the district's downtown. Her "comeback plan" for the capital city, announced earlier this year, seeks to add 15,000 new residents to the downtown area, adding to the approximately 25,000 who already live here.

Bowser's administration says about 1 million square feet of downtown real estate is already transitioning from commercial to residential. But the city needs another 6 million square feet converted to meet her goal of 15,000 new downtown residents.

"We're not going to have as many workers downtown as we had before the pandemic," Bowser said earlier this year. "Our job is to make sure that we are getting more people downtown."

But the conversion push has some skeptics. Housing advocates worry that the affordable housing requirements could get watered down. And even advocates of the conversion model say giving tax breaks to wealthy developers isn't the best tool to achieve the goal.

"Developers who feel it's going to benefit their bottom line will do it without an incentive," said Erica Williams, director of the D.C. Fiscal Policy Institute. "This is a very costly proposal for an unproven program."

And, as increasing numbers of employers turn to hybrid work models, there's the question of whether people will want to move to downtown areas if they're not required to be there every day.

"You have to make downtown a neighborhood — somewhere that's living and playful and active," Pittsburgh Mayor Ed Gainey told an panel at the United States Conference of Mayors meetings in Washington last January. "How do you make it a neighborhood that has a vibe where young people want to be?"

Jordan Woods, a 33-year-old federal government contractor, moved to an apartment in downtown Washington in 2019, attracted in part by the appeal of being able to walk to work. He said he was able to find dependable stores and restaurants that stayed open at night, but then the pandemic came and downtown became "like a moonscape" for more than a year.

"And even before the pandemic it was still missing basic stuff like playgrounds and dog parks and a normal non-Whole Foods grocery store that I could walk to," Woods said. "I wouldn't say I regret it, but if I was considering the same move right now, I'm not sure I would do it."

Chuck D'Aprix, principal at Downtown Economics, a development consulting firm, said attracting new residents to a former downtown business district holds specific chicken-and-egg issues. The businesses that residents need are different from those of daytime office workers.

They include mid-size affordable grocery stores and day-care centers, pet supply shops, hardware stores and auto repair garages. And those places need to stay open past office hours.

"A lot of those services simply aren't available right now in small city downtowns or mid-sized city downtowns, you know, they close up at night," D'Aprix said.

But with vacancy rates at downtown office buildings continuing to rise, from 12.2% in the fourth quarter of 2019 to 17.8% in the first quarter of 2023, according to the real estate firm CBRE, there's an urgency to do something. Some of the hardest hit places include San Francisco with a preliminary vacancy rate of 29.4%, Houston 23.6%, Philadelphia at 21.7% and Washington at 20.3%.

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

A key piece of that plan is to rezone parts of midtown Manhattan which currently only allow office and manufacturing spaces. Along with the rezoning, the mayor's office is pushing bills in the legislature to approve tax breaks that would entice developers to invest in conversions that include affordable units as well as changes in the state's multiple dwellings law that would allow buildings built through 1990 access to more flexible regulations that make conversions easier.

"The ability to really take our outdated office stock in the city is a true win-win because we not only shore up the office market, given the vacancy rates that we are seeing, but we also help reactivate our business districts, which really suffered right during the pandemic," Deputy Mayor Maria Torres-Springer said.

"We can also make a dent in this dire housing crisis that we've been in," she said, noting that more than 70,000 New Yorkers sleep in shelters every night and there's "essentially a functional zero-vacancy rate for the most affordable apartments in our city."

Over the past two decades, nearly 80 office buildings in New York have been converted into residences — the most in the country according to CBRE. Around 200 more could be in play over the next decade, according to John Sanchez, the executive director of the 5 Borough Housing Movement, which supports conversion. That would produce around 20,000 units of housing.

The conversions are credited with turning lower Manhattan from a neighborhood that shut down at dusk into a sought-after destination for both families and foodies.

"What you saw was the fastest growing residential neighborhood in the city," said Ross Moskowitz, a partner at the Stroock & Stroock & Lavan law firm who specializes in real estate, land use and public-private partnerships. "All of a sudden, you just saw strollers and dogs, so obviously that means that people are not 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 put a dent in the affordable housing crisis. In a March report, CBRE found that office-to-home conversions only represented about 1% of new multi-family projects and that, despite the hype, that "there's no evidence" they've significantly increased.

"Converting buildings is not easy," said Luke Bronin, the mayor of Hartford, Connecticut. "There are a lot of buildings that just aren't conducive."

Issues 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 the accompanying plumbing, in buildings often constructed with just two large bathrooms per floor.

There also can be environmental issues, said Anoop Davé, the CEO of Victrix, a real estate investment management development company specializing in converting mostly vacant office buildings into residential buildings and hotels. "A lot of these buildings could have asbestos or something like that. That is not necessarily a deal killer but sometimes the cost or remediating is so large that even if you are given it for zero, it doesn't work."

Financing, current lease holders and zoning issues can present challenges, as well. Washington, for example, has a glut of federal buildings that are untouchable.

Christopher Nicholson, 38, a technical operations analyst, knows first-hand the pluses and minuses of living in a converted downtown office building — he has lived in two in downtown Denver. In 2018 he moved into a 31-story former office high-rise built in 1967 that was converted into apartments in 2006.

"It was in the downtown business district, so everything else next door was office buildings, and there was a big parking structure right next door," he said. "There was definitely a lack of green space, the nearest park is more than a half a mile away. The grocery store was about a mile plus."

He moved to his current building in 2020, a 130-year-old, nine-story former office building converted in 2000. His new building is right by the light rail and bus stops and near hotels that have nice restaurants and cocktail bars. That makes it easy to get friends and businesses colleagues to meet near his home, he said.

"I can't imagine living anywhere else," Nicholson said. "I think for what I get, I'm more than happy with the tradeoffs that I've made."