What will it takes to convert NYC’s empty office towers into housing?
Office vacancies across the city are still sky-high, so it seems like the perfect time to convert an under-utilized office tower into much needed affordable housing. But office building owners say the numbers just don’t work — not without big, fat government subsidies and regulation changes.
Some major pols seem to agree.
Earlier this year, Mayor Eric Adams and Gov. Kathy Hochul released the “New NY Action Plan,” which outlines ways to make it easier to convert buildings.
“We need more housing,” Adams said. “We don’t have enough housing to fit the population that we have.”
But while that document faces scrutiny — and in some cases, all-out opposition in Albany — there are buildings that can be converted right now.
The best candidates for a residential conversion already comply with light and air requirements. They are typically narrow structures that have expiring leases, demolition clauses or are entirely vacant.
“Conversions are challenging,” said Bob Knakal, chairman of investment sales at JLL. “You can’t pay more than $300 or $400 a foot for an office [building] to convert to a residential rental without a tax abatement.”
In general, “all-in” costs must be less than $1,000 per foot to “pencil out” a rental, explained Ran Eliasef, founder and managing partner of the Northwind Group, which invests in and provides debt and equity to projects.
“You can’t ask for free materials, or get contractors to work for free,” added Robert Gilman, co-head of the real estate group at Anchin. “The only incentives can be on the real estate taxes.”
Including affordable units in their conversions also requires developers to ask for much higher rents in other parts of the building to offset costs like construction, mortgage, maintenance, personnel and taxes on the property, while allowing profits for investors.
“You can’t make sweeping pronouncements like, ‘It must be 100% affordable’ and expect results,” said Mary Ann Tighe, chief executive for the tri-state area for CBRE.
Without subsidies, real estate experts predict that, just like the ones already underway, future conversions will result in luxury rentals with zero affordable housing.
In March, Lalezarian Properties paid $33.5 million to Princeton International Properties for an eight-story, 93,000-square-foot medical office building at 650 First Ave. that had been leased to NYU Langone. A design by Ismael Leyva adds three more stories and will create 111 apartments.
The top of 330 W. 42nd St., a mid-block blue-brick Raymond Hood landmark office building, known as the McGraw-Hill Building, is also now being converted to luxury rental apartments.
It already has $120 million invested in a new lobby and an amenity center designed by Dan Shannon and Tricia Ebner of MdeAs geared to office tenants leasing floors two through 10.
But the narrow upper floors from 11 to 34 have multiple setbacks and terraces and are being converted to residences with the two top floors filled with amenities, according to asset manager Gerard Nocera of Resolution Real Estate. The residential space is being designed by Gloria Glass of SLCE Architects.
Downtown, Rudin Management is selling 55 Broad St. to Silverstein Properties and Metro Loft Management for $180 million with plans for 571 units.
“We’re focused on closing 55 Broad and raising a fund to take on more,” said Marty Burger, Silverstein’s CEO.
After mulling a sale to a different developer, the Vanbarton Group decided to convert the 533,000-square-foot 160 Water St. themselves. They secured a $272 million construction loan from Brookfield. Douglas Harmon, chairman of capital markets at Cushman & Wakefield, handled the financing at the building and said they are “underwriting several other similar situations.”
“I think the cost basis of our investment, which we purchased back in 2013, enabled us to be able to do it without incentives,” said Richard Coles, of Vanbarton Group, during a tour with Mayor Adams in March. “But incentives would of course help with other [projects that could include affordable housing].”
Since 160 Water’s floorplate is large, three “voids” are being carved out to create light and air for bedrooms with the square footage added to the top as five new floors. Nearly half of the 588 Gensler-designed, market rate-rental units will have a home office.
Metro Loft, GFP Real Estate and Rockwood purchased the 1.1 million-square-foot JPMorgan building at 25 Water St. — aka, 4 New York Plaza — from Edge Properties last fall and are capitalizing on its waterfront location to create 1,300 apartments.
“They are going to remove the brick façade and put in a glass curtain wall [with operable windows needed for apartments],” said Steve Rudgayzer, partner with the law firm Fried Frank, who represented GFP in getting its loan.
Atriums carved into its floorplate will translate into 10 new floors on top. As the largest US conversion ever — and likely sky-high rents to support it — residents will also enjoy a basketball court, a steam room/sauna, indoor and outdoor pools and sports simulators along with an outdoor roof terrace.