Pandemic-related precautions may be waning, but office building vacancy rates in major urban markets have increased to historical highs and do not show signs of  dramatic improvement for quite some time.  This is true despite employer requirements for employees to return to in-person work. By some reports, there is a looming apocalypse of failing office buildings with a number in key markets likely to be the subject of loan workout discussions with lenders .  This impending crisis is further fueled by a general trend (even pre-pandemic) toward office downsizings, increasing interest rates and other financial market uncertainties , office tenants' flight to quality and away from the large inventory of aging buildings, unrelenting high office rents and the seemingly permanent reality of virtual work.  Should any number of these factors (or all of them) profoundly affect a building owner, how can office owners address this challenge, outside of selling their buildings at a meaningful loss or undertaking a demolition/redevelopment project, assuming that would even be feasible?

One Solution: A Conversion

The conversion of an office building to an apartment/multi-family use is one solution that can be pursued for an office that is experiencing significant vacancies and a resulting decline in value. 

• Conversions can be advantageous for a number of reasons, including their potential for higher returns, lower materials' costs and reduced environmental impact when compared to ground up office redevelopment projects.

• Conversions also appeal to jurisdictions intent on preserving the urban fabric, increasing the rental housing supply, establishing more live/work environments and supporting more environmentally sustainable renovation projects. 
• However, conversions have traditionally been pursued much less frequently than ground-up development (or redevelopment) projects.  Since developers have less experience with these projects, they face more uncertainty around the financial, legal, physical/design and market risks that conversions present and how to best mitigate them.

Managing Conversion Risks: