🙌 Pretty cool news out of Philadelphia this summer: The fire-ruined stretch of I-95 has opened back up.

It’s an incredible accomplishment that didn’t take very long after the collapse. The rapid rebuild required planning, coordination, financing, permit approval, and a lot of hard work.

Amid the flurry of negative news, this stands out as a worthy example to follow.

Today, we'll discuss how converting empty offices could help solve the U.S. housing crisis.

All this, and more, in just 4 minutes to read.

— Matthew

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CONVERTING OFFICES INTO APARTMENTS

Office space

Stroll through American downtowns, and you’ll likely come across familiar signage: “Office space for lease.” Some cities are vibrant, but many office areas have become quiet concrete jungles since the pandemic.

About 1 billion square feet of office space sits vacant across the U.S. The reasons: A pandemic that shifted in-person work to remote. High rents and interest rates. A substantial commercial real estate slowdown.

The 1 billion in empty office space nationwide is the equivalent of 370 Empire State buildings sitting empty, taking up space (and energy) with no occupants.

What to do with all that space?

Convert it into housing.

“We have millions of square feet of unused office spaces that are right now ready to be converted into housing,” New York City Mayor Eric Adams said. “This just makes sense.”

Affordable housing

Transforming office buildings isn’t simple or cheap. But if done well, it could be one of the solutions to the U.S. housing crisis as many lower-income Americans struggle to find affordable housing.

The shortage of affordable rental housing primarily impacts renters with very low incomes. Low-income renters in the U.S. face a shortage of 7.3 million affordable and available rental homes, resulting in only 33 affordable and available homes for every 100 low-income renter households.

While converting office space makes sense, it’s incredibly time-consuming and costly: Converting an office could cost $300 to $500 per square foot. In some cities, like New York, zoning laws can make it difficult for developers to get the OK to move forward with building permits.

Critics of the office-conversion trend point out that only about 2% or 3% of all empty office space can be realistically converted, only a sliver of the pie.

But it’s a start, a relatively efficient way to revitalize downtown areas and mitigate the crisis.

Puzzle pieces

The old office at 160 Water Street in Manhattan will soon open as an apartment building with 588 units. But rents will range from $3,500 to $7,500, hardly affordable for most of the population.

Developers are transforming the lobby, adding six floors, and building amenities like a gym. They’re also adding steel plates and new beams, plus larger windows that open. It’s an older building, which developers say is easier to renovate because they generally have bigger windows, narrower floors, and taller ceilings. The units can be laid out better with proper light and air.

Many office buildings are laid out differently, creating challenges. They might have structural columns every 30 feet, which can make it difficult to install plumbing. Plus, offices have bathrooms in only select areas.

In old offices, there might be windows that don’t open even a crack. Office buildings built in the 1970s and 1980s tend to have wider floors, meaning there’s space for apartments in the middle of the floor, without windows. That’s undesirable, so some developers cut out the middle of the floor to add courtyards and additional light to get light from the inside for inward-facing studios.

“It’s like putting a puzzle together,” one architect said.

Affordability

Developers say it’s hard to cover the conversion cost while producing affordable housing for lower-income residents. That’s why public aid is often needed.

Cities such as Chicago, Washington D.C., and San Francisco have utilized a series of tax incentives and public funding to finance several office conversations. Developers have been calling for more economic incentives, including tax abatements. That has worked to an extent in Philadelphia, where downtown developers have received a 10-year tax abatement.

Abatements are essentially tax exemption programs given to developers that lower their property taxes. They’re implemented to encourage developers to develop unused or underutilized land.

94 million

Today, about 94 million square feet of empty office space sits in Manhattan alone, an all-time record.

I (Matthew) lived in an old office building in Syracuse, New York, a few years ago. The ceilings were high, the windows big, and the feeling spacious. In many ways, the structure felt better built than new construction. I rarely heard noise from the hallway, my neighbors, or the busy street below.

But it was one of the only converted apartment buildings in the city, and many other office buildings sit vacant, mainly because the conversion process is so complicated and expensive. Zoning also presents an issue.

In the nation’s capital, most empty office buildings are eligible for conversion. In New York, state-level zoning rules make it more difficult. There are rules upon rules, adding roadblocks for developers.

“If we have zoning rules and other impediments, which are keeping housing from being constructed, shame on us,” said Dan Garodnick, director of city planning in the Big Apple. “Especially when you are so seriously seeing people suffering in New York City and beyond.”

Dive deeper

Check out CNBC’s video on the office-conversion subject.

What do you think of office conversions as a solution to the housing crisis?

See you next time!

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