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Why a White House Plan to Fund Office-to-Housing Conversions Isn't Working
- JoeAltmaier 3y agoAnother reason (than the ones listed): it's physically hard. Office buildings have to be essentially gutted, new utilities designed (heat/cooling/light/power/access) and rebuilt. Not as hard as building a new shell, but still a big chunk to bite off. And probably not quick, it'll take months.
- danans 3y ago> new utilities designed (heat/cooling/light/power/access) and rebuilt. The biggest ones (from a $ perspective) are window access in the interior of the building, and water (clean and waste). To add windows to one building in NYC (I forget which one), they had to knock out the center. IIRC that wasn't cheap.
- MichaelZuo 3y agoSeems like a waste, the most interior spaces could be storage for the units or just left empty, instead of knocking down something that might have some value later.
- nytesky 3y agoThey can build an inner ring of apartments and sell them immediately rather than storage
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- JoeAltmaier 3y agoNo apartment without a window.
- mattbrewsbytes 3y agoI think you're missing the power element. How many US office spaces have 240v outlets on all floors for driers and stoves? Those are kind of needed, at least stoves.
- IncreasePosts 3y agoI'm positive a lot of people don't care a lick about windows...maybe we should reconsider their requirement. Especially if there are natural light simulators in the apartment
- Workaccount2 3y agoIf the Biden administration wanted to expand housing (lower housing cost) they would offer low interest loans to home builders and attach zoning-change strings to federal dollars given to states/municipalities. But it's likely they don't really want to shake things up. High housing cost is primarily a problem in Blue districts, and Democrats hate losing asset value as much as anyone else.
- blitzar 3y ago> wanted to expand housing (lower housing cost) they would offer low interest loans to home builders Not sure if you noticed, but the home builder have been able to borrow near infinte quantities of cash at ~0% for the last decade. It did not expand housing or lower the housing cost.
- Workaccount2 3y agoThey need a place to build those houses.
- NoMoreNicksLeft 3y agoOk, so that's not the constraint. What's left on the list of possibilities to check off?
- csa 3y agoI can think of at least three: 1. Land where people want to live. 2. Appropriate/different zoning. 3. Efficient/timely acquisition of relevant permits.
- legitster 3y ago> Getting approval for funds would take 18 to 24 months. “In a typical real estate financing deal, you’re closing that loan within 60 to 90 days,” he says. Who designs these programs? Yeah, what bank in their right mind would sit around for up to 2 years (aka, until the next administration) to close on a loan? That's insanity! The only orgs getting funding out of these programs are people who already have tons of cash on hand. So only existing real estate barons need apply.
- screenobobeano 3y agoI think it’s a reasonable amount of time, I am a real estate investor. What is your reasoning for these statements?
- alephnerd 3y agoWhat is your average deal size? A commercial renovation probably land in the tens of millions.
- bombcar 3y agoI think what people are missing is that "real estate financing" is only part of a real estate deal, especially for commercial properties. And that part might come before, during, or even after securing the property. People need to think less "buying a house" and more "redeveloping an area".
- legitster 3y agoHave you really started a deal that took two years to close? Did the property just sit there for two years going unused until it closed? How did you know the seller wasn't going to bolt halfway through? I've never heard of deals taking longer than a year - how does a multi-year transaction with federal funding even work?
- gopher_space 3y ago> Have you really started a deal that took two years to close? Did the property just sit there for two years going unused until it closed? How did you know the seller wasn't going to bolt halfway through? You've just described handling e.g. a dry cleaners or dealing with a single elderly owner.
- c-linkage 3y agoI can't read the article (maybe someone can post an archive link?) but I wouldn't be surprised if there isn't some implicit sabotage built in. Checking the rates per square foot for residential versus commercial (office) space in my area, residential is going about $2/sqft but commercial is $20/sqft. So in addition to the cost of conversion, the rents would have to be cut by an order of magnitude. Since the banks are on both sides of this equation (they probably hold loans against the buildings people are looking to convert, and they'd be making new loans to finance the conversion) I'm sure there will be some foot-dragging because of increased risk and higher loan values and longer loan repayment terms.
- asah 3y agoare you comparing monthly vs annual rent? commercial spaces are typically quoted annually.
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- e40 3y agoThere was an Odd Lots pod on this (from Bloomberg). Quite interesting. I didn't realize how many issues there are in the potential conversion from office to residential. A very small percentage of office builds can actually be converted.
- bombcar 3y agohttps://www.nytimes.com/interactive/2023/03/11/upshot/office-conversions.html https://www.nytimes.com/interactive/2023/03/11/upshot/office... is pretty definitive; basically the newer the building, the harder (or impossible) it will be to convert, and even if it can be converted knockdown and rebuild might be faster or cheaper or both.
- throw0101c 3y agoJuly 6, 2023, "What It Really Takes to Convert an Office Building Into Apartments" > Big cities like New York have two real estate problems. Housing is scarce and office buildings are empty (or at least under-utilized.) So there would seem to be an obvious solution: turn the offices into homes. And indeed there has been a lot of talk lately about "office-to-resi" conversions. But it's very hard, for a wide variety of reasons. Zoning, financing, and then, of course, the operational aspects of the construction all need to be in place. So what does it take? On this episode, we speak with Joey Chilelli, managing director at the Vanbarton Group, a firm that's been involved with these projects for a decade and long before the pandemic upended both real estate markets. We discuss the challenges involved in actually pulling off these complex projects. * https://omny.fm/shows/odd-lots/what-it-really-takes-to-convert-office-building https://omny.fm/shows/odd-lots/what-it-really-takes-to-conve... * https://www.youtube.com/watch?v=HNkLcD3PKyk https://www.youtube.com/watch?v=HNkLcD3PKyk
- adam_arthur 3y agoExisting programs appear too complex by focusing on "conversion". Government should just fund tear down of the existing office building and subsidize development of multi-family on these lots that had office prior. The theoretical arguments against office conversion are overblown and too fixated on what the "perfect" or currently regulated apartment setup is... both of which are flexible. An apartment or condo doesn't have to be "ideal" to be viable. But it is true that many don't know how or want to invest into figuring out how to do the conversions. Each project is unique and requires careful thought. Building multi-family on an empty lot is far simpler, and government can hand office lots to developers as if they were an empty lot.
- FooBarBizBazz 3y agoThat may generally be true, but that's a beautiful building shown in the article; I hope they don't tear that one down. When we're talking about some glass-box office building though, then by all means, just replace it.
- frankharv 3y agoWhy should government (ME) fund this?
- bobthepanda 3y agoIt is basically a one time investment in shoring up the tax base. Not doing so may mean that residents are asked up to pick up more of the tax slack to fill budget holes.
- from-nibly 3y agoRight so, me (not from New York) should invest in fixing New York through my federal tax dollars.
- bobthepanda 3y agoConsidering that New York puts more in the revenues than it receives in federal dollars, probably. Otherwise rates will have to hike to make the difference.
- office_drone 3y agohttps://archive.is/I3JZh https://archive.is/I3JZh
- 2devnull 3y agoSad that people will focus on the details of this problem but not step back and ask what incentives and macroeconomic conditions created the problem in the first place. We’ll get solutions that are worse than doing nothing, rinse repeat.
- gizmo686 3y agoIn this case, we understand the cause of the problem incredibly well. Advances in technology reduced the amount of work that needs to be done in an office building; and a once in a century pandemic caused the resulting shift away from office building to happen much faster then it otherwise would have.
- 2devnull 3y agoThe risk was not “priced in” which is to say there were perverse incentives to develop offices that weren’t truly needed and a corporate culture that was shielded from the consequences of misallocating funds.
- bonton89 3y agoIts sort of like the student loan forgiveness thing to me. I certainly feel a lot of these people, maybe even most of them, got taken advantage of and screwed and maybe we should cancel the loans. But with no accompanying effort to prevent it from continuing to happen its a bit like treating a guy who is bleeding out by giving him a blood transfusion and pushing him out the door. Its expensive and only delayed the result.
- currymj 3y agoi have a fairly ill-informed question. my sense is that office-to-residential just rarely makes sense. but could one change building codes so that, when new office buildings are constructed, they have to be designed to make a future residential conversion relatively cheaper and more feasible? how much extra cost would this impose in the construction process? is it something that's relatively cheap/not that much downside, if only you plan ahead? this solves no problems now but I am still curious about it.
- chucksta 3y agoNot an expert but know a little, good ole "it depends". Options for water and waste management, building size, occupation levels, etc. It would likely end up being fairly substantial to make every building dual use.
- yowzadave 3y agoThe two biggest hurdles in doing office-to-residential conversions are: 1. The lease span (i.e., the distance from the core of the building to the windows) is typically much larger in an office building vs. a residential building (40ft vs 30ft). 2. The plumbing/mechanical services need to be increased/modified for a residential building. Enforcing the first would essentially mean asking the developer to design a different building. It's possible that you could make an office building work without following conventional office layouts and leasing patterns (who knows, maybe there's more of an appetite for something different post-COVID), but it would involve a significant re-thinking on the part of the developer about how they will make money from a project. The HVAC/plumbing issue could probably be something you could ask the builder to make accommodations for without needing to totally re-conceptualize the project.
- mandevil 3y agoSo the basic problem is that basic building design is a major stumbling block here. (I learned this from listening to the Odd Lots podcast cited below when it came out, so this is all from memory.) Modern offices are designed to be big open warehouses, trying to maximize the number of desks you can fit into a space. Big square footprint with central core for restrooms, stairs and elevators has been the dominant paradigm here because it maximizes the number of desks you can fit into a given lot. But apartments want perimeter, everyone wants windows and massively more plumbing necessary to give every apartment its own bathroom. So big square footprint isn't how you want your apartment building to be- that floorspace in the middle isn't worth much. The developer they interviewed had actually ripped the center out of a building to create a big open glassed-in courtyard in one of their buildings, to give them an outer and inner ring of apartments which all had some light. But that requires a lot of work and a lot of staring at structural blueprints to make sure that it won't fall apart.
- subsubzero 3y agoJust another ill advised "solution" from this administration. What the drafters of this bill don't understand is you have a huge percentage of unlivable space in the middle of every floor(no windows!). There are building codes and one of the biggest is having windows in rooms. No city in America would allow that. In addition lets talk about plumbing, you need alot more plumbing going to each floor due to bathrooms(sinks, showers and bathtubs), and dishwashers and washing machines. Office space per floor has a fraction of this. Lets also talk about electricity and gas. Each "unit" would require gas and electricity needs which far exceed what is available in most commercial buildings. Having done extensive remodel work on houses I have owned there is a huge web of building codes that would prevent these comercial buildings from ever being converted to residential, I just can't imagine anyone in their right mind putting something like this forward.
- apercu 3y agoSo what's the solution since there is less demand for office space? Tear them down?
- thegrim22 3y agoLess demand with same supply = lower prices. The owners either work with the lower prices or if they're so low that it makes sense to replace the office with something else that'd have better returns then that will happen. Pretty simple really.
- apercu 3y agoSo tearing down is cheaper than renovating? I'm not sure that's what you're saying but that's how I interpret it. Feels like an over-generalization to me.
- jghn 3y ago> Each "unit" would require gas and electricity needs which far exceed what is available in most commercial building A growing trend is banning gas in new builds, so that's one way to lessen the impact. But agreed with the larger point that it's a much huger lift than people tend to think.
- kkfx 3y agoI think I do not get the article point much... For me conversions can't work for two reasons: - converting existing buildings is more expensive then create new residential areas from scratch, city density and original totally different design simply makes such conversions a crazy idea; - even if some buildings get converted who might want to live in them? Before the masses have tasted and so learned the WFH model downtown was a place to be to have interesting jobs, now they start to be a place to stuff poor people in social housing setups. Let's say those who have no choice accept, what they do to live? There are not much factories of tertiary sector jobs in the modern city, only city-services related jobs, and there are more "service consumers" than "service operators", so there is a growing slice of people unable to find a job.