HOUSTON – (By Ralph Bivins, Realty News Report) – In many downtowns across the country, vacancy consumes office towers and the prospects for leasing them are few and far between. A lot of companies are reducing their office footprint. Meanwhile, the nation’s inventory of homes for sale is tight and mortgage rates have risen sharply. The apartment market is tight too.
The answer: convert office buildings to apartments – a solution that’s cheaper and greener than tearing down old office properties and building new residential buildings.
Developers are currently considering a number of office-to-apartment projects in Houston today, both in downtown and in suburban markets, such as the Galleria area, says Michael Vaughn, senior vice president with Arch-Con Corp., a Houston-based construction company where he oversees multifamily and hotel construction.
The low-hanging fruit, old buildings that throw off historic tax credits, are harder to find these days, Vaughn says. But for office-building owners who have owned the property for a number of years, the conversion opportunities can be quite rewarding.
Office towers typically have adequate electricity and plumbing infrastructure for handling a full load of residential units – all with comfortable apartment ceiling heights, Vaughn said.
Hines – the Houston-based developer with 200 projects now under development around the world – recently acquired the 24-story South Temple Tower in downtown Salt Lake City for its first residential redo. The 217,000-SF building will become 255 upscale rental homes.
The Utah building aligns with Hines’ environmental goals. “As part of Hines’ ESG strategy, this adaptive reuse project will reduce embodied carbon by limiting new construction materials including the production of concrete, which can be one of the largest emitters of embodied carbon across the industry,” Hines said.
Buildings that are conversion candidates are everywhere – if they are in the right location and can be acquired at the right cost. “They are going to be buildings from the previous era that have become obsolete,” says Texas-based John Mooz, senior managing director for Hines.
In New York, developers Silverstein Properties and Metro Loft recently paid $180 million to acquire the 30-story 55 Broad Street office building, which will be converted into 571 apartments. The building was constructed in 1967.
And if a tower’s basic bones are right, construction and design crews can come up with solutions.
“There are very few obstacles we can’t overcome,” Nathan Berman, Metro Loft founder, told the Wall Street Journal.
In downtown Dallas, the conversion of some 3.7 million SF of office space to residential could occur shortly, said Phil Puckett, vice chair of CBRE Group, in an interview with the Dallas Morning News.
The newspaper reported downtown Dallas buildings slated for partial conversion to apartments include: the 40-story Bryan Tower, the 50-story Santander Tower, the 50-story Renaissance Tower and the 49-story Energy Plaza.
And the calculus works in Dallas. Downtown office vacancy is over 30 percent, while city-wide apartment occupancy is at 97 percent, the Morning News reported.
Downtown Houston has its fair share of vacancy. In the second quarter of 2022, the office availability rate stood at 29.2 percent – a significant amount of vacancy, according to Madison Marquette.
An increase in downtown dwellers can assist downtown restaurants and service retailers. About a decade ago, Downtown Houston started gaining thousands of new residents via a tax incentive program called the “Downtown Living Initiative,” which provided developers with a $15,000 per unit credit for new multifamily development.
So why not create another incentive program designed to enhance the conversions of office-to-residential in Houston?
Concepts for a new office conversion incentive program are being considered in Houston, according to Kris Larson, president and CEO of the Central Houston association. I discussed the idea with Larson onThe Ralph Bivins Project podcast in May.
Getting rid of some of the empty office overhang while energizing downtown Houston with more population, sounds like a concept that should be advanced ASAP.
July 13, 2022 Realty News Report Copyright 2022
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Photo: Hines conversion tower in Salt Lake City. Courtesy: Hines
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