The Potential of Converting Office Buildings to Green Multifamily Units
There has been much discussion and analysis surrounding the conversion of office buildings into multifamily units. In their paper titled “Converting Brown Office to Green Apartments,” authors Arpit Gupta, Candy Martinez, and Stijn Van Nieuwerburgh explore this topic while also addressing potential benefits and challenges. The authors coined the term “doom loop” to describe how a decline in office space could negatively impact urban economies.
The Benefits of Conversion
Similar arguments have been made for converting offices into apartments, including increased housing affordability and scarcity, slow demand for commercial office space, climate change concerns, and ongoing urban doom loops resulting from underutilized offices. Additionally, as cash flows decrease for existing office owners due to lower demand or fines related to greenhouse gas emissions regulations increase they may struggle with investing in energy-efficient retrofits.
Not All Buildings Are Suitable Candidates
However,the authors recognize that not all buildings are suitable candidates for conversion. To identify potential properties in New York City alone they used an algorithm focusing on midtown/downtown Manhattan locations developed before 1990 with lower quality structures (for office use), larger than 25k square feet offering shallow floor plates without major long-term leases or few tenants remaining.
Extrapolating this data nationwide results in a sample size of approximately 2k properties representing about 11%of high-density urban areas’ total square footage at over214 million sq ft.The study also includes additional information models such as projected IRRs (before-tax) which average around16%.
Collaboration is Key
While developers can benefit from these conversions through tax creditsand affordable housing initiatives local municipalities should be flexible when it comes zoning requirements offering direct subsidies where possible.Federal government support through renewable energy incentives would further promote investment opportunities.”Remote work has presented policymakers with unique challenges but also provides them an opportunityto investin futureurban environments,”the authors note.
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