30% of U.S. office buildings, valued at $1.1T, are obsolete

[austlar1]

Originally Posted by kingkirbythe....

Speaking of....



Why Empty Offices Are Becoming Apartments in Texas’s Big Cities

With workers continuing to stay home post-pandemic and housing in short supply, developers in the state’s largest metros are giving a second life to old buildings.

https://www.texasmonthly.com/news-po...s-conversions/

The trend seems tailor-made for Texas. Office-vacancy rates in most of the state’s major downtowns are high (roughly 25 percent in Dallas and Houston, in the teens in Fort Worth and San Antonio). The cost of single-family homes has skyrocketed and interest rates have risen, making many would-be buyers renters. And relatively few apartments are available, with vacancy levels in the single digits and pricey monthly rents expected to get even pricier, according to projections from the Texas Real Estate Research Center at Texas A&M University.

What’s more, decades-old buildings may be more cost-effective and environmentally friendly to revamp into residences than ground-up construction, experts say, since the building’s shell is already in place and carbon emissions from the creation of new materials can be reduced.

“I think it checks all the boxes,” Chuck Dannis, an adjunct professor of practice in real estate at Southern Methodist University, says of the office-to-apartment trend. “You get empty space filled, and you get some people back into the inner city and you increase the tax rolls. I think all of that is good.”

Wonder whether there will ever be a market for residential in the very many aging 10 to 20 floor office buildings that line corridors like Stemmons Fwy and North Central Expressway in Dallas or Katy Freeway West in Houston? Vacancy rates in those buildings must be climbing rapidly. Some of those buildings are 30 or even 40 years old now.

[chris08876]

There's a lot of demand in the sense of upgrading from your class C to B or class B to A office space. This can fuel demand. As for dilapidated or obsolete office space, residential conversions are ideal. Or in a way, cheaper alternatives for start ups.

This country does have a housing crisis so the more units they can cram, especially via conversions, the better. And also to house the migrants headed to our cities.

[wwmiv]

Originally Posted by austlar1

Wonder whether there will ever be a market for residential in the very many aging 10 to 20 floor office buildings that line corridors like Stemmons Fwy and North Central Expressway in Dallas or Katy Freeway West in Houston? Vacancy rates in those buildings must be climbing rapidly. Some of those buildings are 30 or even 40 years old now.

Many of these are along DART rail stops, so I imagine there might be some market for these conversions.

Katy, otoh, might be a harder sell.

[JManc]

Originally Posted by wwmiv

Many of these are along DART rail stops, so I imagine there might be some market for these conversions.

Katy, otoh, might be a harder sell.

People who live in these areas overwhelmingly still drive so it could work but 70's and 80's typically have large floor plates making residential conversations difficult. I can't see many if the large buildings in Houston's energy corridor being converted.

[llamaorama]

Well, in Richardson they are tearing down some of the smaller 3-4 story office buildings for denser residential development, which is in the red line corridor. Also the tornado a few years ago trashed a few of the buildings along Central a few miles south and they tore them down instead of rebuilding.

There's nicer stuff replacing the ratchet 70s commercial buildings around Carrolton too. I'm sure the Stemmons corridor will get that eventually as it's close to the Med District and the Southwest Airlines corporate HQ. Actually they've cleaned up some of the high rise offices there so they might not be as doomed as you think.

For I-10 in Houston, who knows. But on Beltway 8 they tore down the Brown and Root campus for mixed use and there used to be some multistory office buildings on that land just north of the toll plaza that was vacant forever and is turning into apartments.

[bnk]

Originally Posted by Steely Dan

the towers being discussed here are giant old early 20th century behemoths:



135 S Lasalle | 1934 | 1.3M SF


source: https://www.skyscrapercenter.com/bui...onal-bank/3149



175 W Jackson | 1912 | 1.4M SF











https://www.chicagobusiness.com/arti...ffice-building

This does not name a buildings but mentions LaSalle st.



https://newsried.com/chicago-convert...to-apartments/

Chicago to Convert Famous Business District Office Buildings to Apartments.

4. October 2022

Chicago is providing financial support to developers willing to convert aging office towers into residential buildings. This is a new program that could become a test case for other cities looking to promote the remodeling of these offices.

City officials last week offered tens of millions of dollars in grants to replace the LaSalle Street corridor, a landmark office complex that has thrived as Chicago’s business hub for decades. announced to be activated. But since the pandemic, the strip’s mostly empty streets and towers have come to symbolize the slow pace of employees returning to office buildings.



...


Still, as the pandemic and new workplace patterns have caused office building prices to plummet, conversion projects are starting to look more attractive to developers.

...

The office transformation is part of a broader revitalization plan for Chicago’s LaSalle Street.


Developers planning to repurpose along Chicago’s LaSalle Corridor will benefit from lower office prices. According to data firm CoStar Inc., three buildings are for sale, and the remaining six or so are either in default on their mortgages or have been foreclosed on.

“We have a very unique opportunity to acquire affordable properties for redevelopment,” said Chicago Deputy Mayor Samir Maekar.

Featured in movies like “Ferris Bueller’s Day Off” and “The Untouchables,” LaSalle Street is best known as the historic home of the Chicago Board of Trade and the city’s largest banks and law firms. Even before the pandemic, when some of the larger tenants moved into new buildings along the Chicago River, the Corridor began to decline.


...

The office transformation is part of a broader plan to revitalize Chicago’s LaSalle Street, repurposing the building’s lobby for culture and entertainment, and attracting groceries, restaurants and other residential-oriented retailers. included.

...

Write to Peter Grant at peter.grant@wsj.com.

[Steely Dan]

4 obsolete chicago office towers have now been officially selcted for the mayor's LaSalle Street Reimagined initiative.

All told, these 4 office-to-residential conversions would represent over 1,000 new housing units in the very heart of The Loop along the famed LaSalle Street corridor (AKA "the wall street of the midwest").

LaSalle Street Office Conversion Plans Advance For Four Developments

Prime Group aims to invest $203 million in constructing 345 apartments at 111 W. Monroe St, with 105 units designated as affordable. The development plan also includes a 228-room hotel. A $40 million subsidy has been requested for this project.


At 208 S. LaSalle St, Prime Group also proposes $123 million to build 226 apartments, including 84 affordable units. The project has requested a $26.2 million subsidy.


Golub & Company intends to proposes $130 million at 30 N. LaSalle St to create 349 units, with 105 designated as affordable housing. The original proposal featured ground-floor retail, alongside green space. A $57 million subsidy has been requested for this project.


Campari Group’s proposal for 79 W. Monroe St involves $64.2 million to construct 117 apartments, including 41 affordable units. Additionally, the project aims to restore the iconic “Weather Bell” sign that indicates temperature changes. A $28 million subsidy has been requested.

source: https://chicagoyimby.com/2024/04/las...elopments.html

[SIGSEGV]

30 N Lasalle is maybe a bit of a strange choice compared to the other 3, IMO. Is an office building built in 1974 already so obsolete?

edit: I guess "only" half the building is being converted to residential?

[LA21st]

Originally Posted by Steely Dan

4 obsolete chicago office towers have now been officially selcted for the mayor's LaSalle Street Reimagined initiative.

All told, these 4 office-to-residential conversions would represent over 1,000 new housing units in the very heart of The Loop along the famed LaSalle Street corridor (AKA "the wall street of the midwest").


source: https://chicagoyimby.com/2024/04/las...elopments.html

Interesting. I worked at 3On. for 10 years. Strange to think it could be residentlal.

[Steely Dan]

Originally Posted by SIGSEGV

30 N Lasalle is maybe a bit of a strange choice compared to the other 3, IMO. Is an office building built in 1974 already so obsolete?

"Obsolete" is probably an inaccurate descriptor for that one.

More like "severely under-used because of radical post-pandemic disruption in the commercial office market".

[SIGSEGV]

Originally Posted by Steely Dan

"Obsolete" is probably an inaccurate descriptor for that one.

More like "severely under-used because of radical post-pandemic disruption in the commercial office market".

Right but imo it makes more sense to convert obsolete buildings to residential, which should also help vacancy in non-obsolete buildings...

[DCReid]

Overall available office space in the U.S. reached a new high-water mark in the first quarter, topping 1.2B SF, according to new data from Avison Young.

Representing 23.7% of the office inventory in the country, that number consists of direct and sublease availabilities and is a record at least in this century, by Avison Young's count.

https://www.bisnow.com/national/news...-report-123694

[Wattleigh]

Originally Posted by austlar1

Wonder whether there will ever be a market for residential in the very many aging 10 to 20 floor office buildings that line corridors like Stemmons Fwy and North Central Expressway in Dallas or Katy Freeway West in Houston? Vacancy rates in those buildings must be climbing rapidly. Some of those buildings are 30 or even 40 years old now.

Originally Posted by wwmiv

Katy, otoh, might be a harder sell.

Originally Posted by JManc

People who live in these areas overwhelmingly still drive so it could work but 70's and 80's typically have large floor plates making residential conversations difficult. I can't see many if the large buildings in Houston's energy corridor being converted.

Interestingly enough, the western submarkets (Memorial/CityCentre, Westchase & Energy Corridor) have benefited from the flight to quality / relocation wave that's been occurring over the past few years and especially over the past year and a half. This has only increased as time has gone on. Perhaps the most notable have been relocations of Fluor & now Noble from Sugar Land to EC & Westchase respectively, despite that community offering incentives for both to stay.

Regarding conversions - while the projects discussed Downtown may have gotten much of the buzz (and have been the bulk of the office to resi or hotel conversions over the past three-plus decades) - the first one I can think of in the area during this more recent wave actually took place in the Energy Corridor, though it was a repurpose of a 20-story hotel into an apartment building at Hwy 6 & Park Row and is open now.

A similar project looks to be coming soon to Sharpstown, taking a former 13-story Hilton and converting it into apartments.

Back in the Energy Corridor, a 19-story office building that was one of BP's towers in the Westlake Park campus is now being redeveloped by the same principals involved in the conversion of 1801 Smith into Elev8.

[mrnyc]

its so funny to see cities finally fall into res conversions more forcefully.

for once cleveland has been a leader at something.

its been happening there en force for many years.


https://www.washingtonpost.com/opini...ces-transform/

https://www.globest.com/2024/03/26/w...ght%20projects.

https://www.cbre.com/press-releases/...for-conversion

[Steely Dan]

Originally Posted by mrnyc

its so funny to see cities finally fall into res conversions more forcefully.

for once cleveland has been a leader at something.

its been happening there en force for many years.

Haven't all US cities with copious amounts of pre-war office buildings been converting some of them to residential/hotel for several decades now?

[mrnyc]

Originally Posted by Steely Dan

Haven't all US cities with copious amounts of pre-war office buildings been converting some of them to residential/hotel for several decades now?

no doubt, but obviously not that yourself or anyone has been aware.

its mostly been a thing in the news post pandemic.

and also now via this new thread.

[mhays]

Cities will have to give if they want a lot of conversions.

The cost dynamics vary from place to place -- based on land use codes, building codes, fees, seismic zones, how cheap old office buildings are, residential rents and vacancy rates, and so on. Places like Cleveland might be a sweet spot.

On the West Coast the math tends to be terrible. Office buildings are still too expensive. Cities pile on fees and requirements. It's all a heavy seismic zone so any older building will need to be structurally upgraded. Developers talk about the per-unit cost being too high by six figures per unit.

Then add today's high construction costs AND high interest rates that make it hard to pencil much of anything.

Cities and states are responding to ease conversions, and making headway, but I keep hearing it's not enough. Seattle is probably cancelling fees, dropping much of the land use permit process, and voiding some land use code requirements. Washington State has offered tax abatements if affordable housing is included (those two might cancel each other out).

But that's not enough. We need (a) office investors to get really pessimistic so buildings are dramatically cheaper, perhaps as loans mature and there are most distressed sales, and (b) development costs to fall substantially including lower interest rates (with less equity required) and lower construction costs.

[mrnyc]

^ exactly. here in nyc they still wait and wring hands hoping for office comebacks.

i think by now we know top office space will always be desirable, but there may be much less than the before times usual hope for class b or c office spaces.

of course, people are coming back to offices more and more, so that muddies the possible conversions picture.

[SIGSEGV]

Originally Posted by mrnyc

no doubt, but obviously not that yourself or anyone has been aware.

its mostly been a thing in the news post pandemic.

and also now via this new thread.

I'm fairly aware of the (1910's vintage) building I live in having been converted from offices to condos in 2003 or so .

[Steely Dan]

Originally Posted by mrnyc

no doubt, but obviously not that yourself or anyone has been aware.

Huh?

Here's a post I made 11 years ago on this very topic.

Originally Posted by Steely Dan

it's already been done. many times.

there are a lot of older art deco/neo-classical/beaux arts office towers from the 1st half of the 20th century that have been converted into residential and/or hotel buildings here in chicago .

there have also been a couple of modernist boxes that have had residential/hotel components added - Mies van der Rohe's IBM plaza (hotel added to floors 2-13), Minuro Yamisaki's montgomery ward headquarters (full residential conversion), and mid-continetal plaza (top 15 floors converted to residential) come immediately to mind.

It's not new to any of us nerds who follow this shit.

But the disruption created by the pandemic is certainly accelerating the process at the moment.