Converting vacant office buildings into apartments | 60 Minutes
Not long ago, the building at 160 Water Street in New York City’s Financial District was a quintessential Manhattan office. Built in the 1970s, it housed the New York City Health and Hospitals Corporation and some back-office functions for Beth Israel Medical Center. Each of its 24 stories was lined with perimeter offices, while the interior of the floors was filled in with cubicles and the employees who toiled inside them.
Today, it is Pearl House, a new apartment building flush with upscale amenities and boasting nearly 600 new homes for New Yorkers willing to sleep where workers once filed paper, made coffee and unjammed the copy machine.
The building at 160 Water Street is also an example of a growing trend in real estate — urban housing converted from unused office space. And post-pandemic, there is certainly no shortage of according to real-estate firm Colliers. That is the equivalent of the equivalent of 30 Empire State Buildings.: In Manhattan, nearly 18% of offices are sitting empty as of November,
Alongside the crisis of vacant offices is that of urban housing shortages in a market where costs are often prohibitively expensive. But addressing these two real-estate disasters with one solution — simply turning office space into housing — is not as easy as changing the plumbing and adding a few walls.
The obstacles of converting offices to housing
Real estate firms are reusing existing structures rather than tearing them down and rebuilding on the site, in part, because repurposing buildings is significantly better for than environment.
Global sustainable-development firm Arup released a report last month showing that, if about 220 New York City office buildings were converted to housing, they could produce 54% less carbon emissions by 2050. The savings come from the lesser carbon footprint of renovation instead of new construction, along with maximizing the efficiency of the office buildings’ current energy use.
But only around 10%-15% of office buildings nationwide can realistically be transformed to housing, according to economist Stijn Van Nieuwerburgh, a professor of real estate at New York’s Columbia Business School. That is, in part, because so many office buildings constructed in the last 50 years have such enormous footprints.
While junior and midlevel employees may not have minded relying on the harsh glow of fluorescent lights to illuminate their cubicles, homes require light and air in their interior. Other engineering obstacles include the need for sufficient plumbing and functional windows.
“None of this is cheap, but a lot of it is doable,” Van Nieuwerburgh said.
At 160 Water Street, the Vanbarton Group has owned the building since 2014. To transform it into the 588 units of Pearl House, the developers took out a $273 million loan for construction, according to its managing director Joey Chilelli.
Rent at Pearl House ranges from about $3,500 for a studio apartment to $7,500 for a two-bedroom.
“We’re not talking about creating affordable housing,” Van Nieuwerburgh said. “If you want to create affordable housing then rents are naturally going to be lower. And so the math typically does not work out anymore.”
Enticing new residents
So what does a converted building have to do to attract tenants? How can they entice people to pay top dollar to live, for example, in a converted 1970s building in the financial district? At 160 Water Street, they are banking on amenities — and lots of them.
Some are what might be expected from an upscale apartment building. According to Chilelli, there will be lounges, bowling, and a spa with a hot tub, cold plunge, steam room, and hyperbaric oxygen chamber. A private outdoor area will include gas firepits, water fountains, and sun loungers, and inside, there will be two sportsbooks with a giant video wall (though no sanctioned betting on site).
The role of working from home also factored into the design, with home offices and Zoom rooms on the roof deck. Because some of the amenities are designed to make working from home accessible, the building, in a way, accelerates the trend of remote work that helped drive out the employees who once worked within its four walls.
“There’s definitely a dynamic shift that’s been out there,” Chilelli said. “And whether it’s one or two days a week when people are working from home, we want them to be able to find a space outside of their unit and to be able to enjoy that space or even invite co-workers over for that collaborative time in this building.”
The future of cities
This shift to hybrid work has created an inflection point for cities across the country as they struggle to figure out what to do with buildings left vacant by workers who seldom come into the office. Those vacant offices could currently be repurposed into 400,000 new apartments, according to a working paper by Van Nieuwerburgh and his colleagues Arpit Gupta and Candy Martinez.
In New York City, Mayor Eric Adams estimates that zoning changes he has proposed could create thousands of additional apartments. The zoning changes, called “City of Yes for Housing Opportunity,” would allow office buildings constructed before 1990 to be converted to housing. The current cut-off is 1961 or 1977, depending on the neighborhood. If the state government approves the revised regulations, the city estimates this change could create up to 20,000 new homes for as many as 40,000 residents.
In San Francisco, where the office vacancy rate hit 35.6% in the fourth quarter of 2023, officials are also taking measures to streamline building codes and reduce the fees of converting offices to residences. In the nation’s capital, D.C. Mayor Muriel Bowser wants to incentivize office-to-apartment conversions with a tax-relief program.
For Van Nieuwerburgh, converting offices to residences offers a chance to redefine what cities are and reconceive of how they use space.
“It is an opportunity,” Van Nieuwerburgh said. “Cities have always reinvented themselves as long as they have existed, and this is a moment of transformation.”
The video above was produced by Brit McCandless Farmer and edited by Sarah Shafer Prediger.