The Future of Office to Residential Conversions
A new trend in real estate is emerging across the US. Office towers from New York to San Francisco are going residential. A March report by the NAIOP Commercial Real Estate Development Association found that since 2010, 885 office buildings across the US have been converted to multifamily residences.
With COVID-19 induced remote work and layoffs projected in tech and other industries, demand for office space has been projected to shrink 20-30% over the next few years. Developers are working to fill this void. In Chicago, the famous Chicago Tribune Tower has been completely gutted and transformed into luxury housing. The conversion is a joint venture between two real estate development companies: CIM Group and Golub & Company.
SCB is an architecture, interior design, and planning firm founded in 1931. They have offices in Chicago, San Francisco, Boston, and Seattle and worked to transform the Chicago Tribune Tower. President and Principal of SCB, Chris Pemberton, stated, “You must have a building with the right bones to convert it residential. To make the Tribune Tower work as residential, we had to completely gut it.” The Chicago Tribune Tower is now occupied and almost fully sold out. Condominium prices range from the upper $900,000s for a small one bedroom to $7 million for a penthouse.
In New Orleans, the International Trade Mart was converted to a hotel and residential property. The property was converted by the Four Seasons. Levels 1 through 18 are hotel rooms and 19 through 28 are luxury condominiums. Prices for a condominium unit range from $2-10 million. David Seerman, the managing director of sales and marketing for the Four Seasons Private Residences says he saw buyers fall into two main categories. First category being wealthy New Orleanians who wanted to sell their large homes and be downtown, convenient to the French Quarter and the city’s waterfront. Second, people with connections to New Orleans who wanted a residence near the downtown area. Seerman also added that the people of the city of New Orleans supported the redevelopment of the iconic International Trade Mart, which remained dark and unoccupied for years following Hurricane Katrina.
Another famous property was converted residential in San Francisco. One Hundred van Ness was renovated by SCB and completed in 2015. A one bedroom goes for $3,300 per month. Because of the large floor-to-floor configuration of the original building, the units have ten-foot ceilings with glass-to-glass views. Marc Babsin is the president/principal of Emerald Fund, who hired SCB to redevelop the property. Babsin says his company continues the lookout for other possible conversions in San Francisco. He notes that the office-to-residential conversion is the topic of discussion in San Francisco. But also stated, “The problem is that the numbers are just not working because construction costs in San Francisco are astronomically high. The rent/price numbers are just not there to make the project pencil out.” “Gateway” Cities such as New York, Boston, and San Francisco have always been popular places to park money by investing in real estate. But luxury conversions are relatively small part of the overall conversion pie. Many developers have the intention of creating affordable housing. Pre-World War II office buildings tend to have more character and are prime candidates for conversion.