Empty Wall Street Offices to Be Revived as Apartments
55 Broad St. in New York’s financial district will be turned into 571 apartments, one of the largest office conversions to be launched during the pandemic
Updated June 21, 2022 1:01 pm ET
A venture of two New York developers has purchased a one-third empty office building in the city’s financial district with plans to convert it into apartments, one of the largest such conversion schemes to be launched during the pandemic.
The venture, which includes Silverstein Properties and Metro Loft, has agreed to pay $180 million for the 30-story building that opened in 1967 and has housed numerous technology and financial-services tenants over the decades. The new owners plan to convert it into 571 market-rate apartments, ranging from studios to three bedrooms, during the next three to four years.
This is “the right evolution of these struggling, underperforming, older office assets that are approaching their obsolescence,” said Nathan Berman, Metro Loft founder and managing principal.
The deal comes as the remote-working trend that became popular during the pandemic is sending vacancies soaring in office markets throughout the country. Businesses adopting hybrid workplace strategies are leasing less space and migrating to newer buildings with modern designs, good locations and abundant amenities.
In 2020 and 2021, office conversions created a total of more than 13,000 apartments nationwide, especially in cities like Arlington, Va., Washington and Chicago, according to a report by RentCafe, a national apartment search website.
In many cities, elected officials and landlords are considering the possibility of converting aging commercial buildings into residential space to help return vibrancy to office districts and ease housing shortages.
But these projects come with financial, political and structural challenges. For starters, many office buildings, especially those built in the past 50 years, tend to have large floors that don’t work well for living space. Zoning restrictions in many cities increase conversion costs by requiring windows, yards and other residential needs.
Office pricing would have to drop 25% to 50% lower than it is today for a conversion wave to have more than a marginal impact on housing production and commercial property use, according to Jeffrey Havsy, an analyst at Moody’s who tracks commercial real estate. Office-to-residential conversions “will not be something that will A.) solve our housing crisis or B.) be such a dramatic trend that it will significantly change our cities,” he said.
The developers purchasing 55 Broad feel that the building is designed in such a way that residential conversion is financially viable. If necessary, Mr. Berman said the developers can draw on “tricks of the trade” like carving out a courtyard or installing a light shaft in an interior space.
“There are very few obstacles we can’t overcome,” he said.
Mr. Berman estimated that converting 55 Broad will cost about one third less than what it would cost to build a new apartment building on the site. Conversion also is more environmentally friendly than building new because it reuses steel and other materials that are part of the existing structure, according to the developers.
But the 55 Broad project isn’t replicable everywhere. New York zoning law is more lenient when it comes to downtown buildings built before 1977 than in other parts of the city.
“The misconception is that any obsolete office building can automatically turn into multifamily apartments,” said Marty Burger, chief executive of Silverstein Properties, which is best known as one of the leading developers of the World Trade Center. “But not all buildings are created the same.”
Recently, both city and statewide policy makers have considered legal changes to make residential conversions easier throughout New York. Gov. Kathy Hochul proposed zoning changes this year that weren’t approved by the Legislature.
City and state officials are continuing to explore the issue. “New York City is in a housing crisis and is in dire need for affordable housing, so the city and state should be looking at every option to make it happen,” said Ashley Doukas, a real-estate attorney at Stroock & Stroock & Lavan LLP.
The venture of Silverstein and Metro Loft purchased 55 Broad from Rudin Management. Eastdil Secured LLC advised Rudin on the deal.
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