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| Office to Housing Conversion, Mary Cummins, Real Estate Appraiser, Los Angeles, California, Adaptive Reuse, Housing Crisis, housing |
Because of the pandemic many people have been working from home instead of at an office building. For this reason office vacancy rates have increased. Some large companies are allowing their employees to continue to work from home even as pandemic restrictions are lifted and eased. People are using Zoom meetings, Zoom court appearances and other forms of virtual meetings instead of in person meetings. For this reason those same companies aren't renewing leases on large office spaces in San Francisco, New York and Los Angeles.
Many people have been saying we should convert that office space to residential use to help solve the housing crisis. People who are not in the real estate industry do not realize how difficult and expensive it would be to convert office to residential. It generally would not make financial sense from the investor, lender point of view. This article discusses the issues involved in adaptive reuse of office buildings for residential units.
1. Office Buildings Were Not Designed or Built to Be Housing
Office buildings are generally built to cover the entire parcel of land to the sidewalk. They are built around a central elevator system. Some offices near the center of the building will not have windows or natural light which is permitted for commercial offices. Residential units must have windows and light. You would only be able to have units around the outer edges of the building for that reason.
"While it may seem like all that empty space would be better used for unhoused people, architects must navigate challenges like finding the right amount of space between a building's elevator bank and its windows.
"There's a Goldilocks factor: The floor plate can't be too small, and it can't be too big," said Kristina Garcia, a researcher with the real estate brokerage Cushman Wakefield, using an industry term for the leasable space on a given floor of a high-rise office tower. "There's limiting factors to why adaptive reuse hasn't happened as much."
Most modern office buildings have floor plates of about 25,000 square feet — about half the size of a football field — a figure that has generally crept up over the decades. More recently built high-rise office buildings are often considerably larger than their decades-old counterparts."
"The donut around the building is the habitable zone. What do you do with the interior space?" Cetra said. (Ref. 1)
Another factor is the addition of many new bathrooms and kitchens to the building. Offices generally have one or two common bathrooms with toilets, sinks only per floor. They have no showers, laundry facilities or kitchens. The plumbing, sewer and electrical would have to be completely redone and upgraded which is very expensive.
1130 Flower in downtown Los Angeles was a US Post Office converted to luxury condos. There were sewer issues after it was converted. Sewage backed up out of the building and down the street because the 100+ year old sewer pipes were not made for that many new bathrooms, showers, sinks and laundry facilities.
The only reason 1130 Flower was attempted was because of the many developer and investor bonuses. The area was pretty run down at the time. There were density bumps for building next to public transportation, converting an old building, building next to the old Staples center and building in an enterprise development zone. They were able to not vent the kitchen stoves and washer/dryers. They were able to offer very few full size parking spaces. The live/work units on the converted bottom floor are deep, dark and have a funky functionally obsolete floor plan. The ones facing west on directly on the Metro train tracks and extremely loud and sooty. They basically had to cut the building in half and add an open hallway down the middle so the units would not be as deep and dark. Thankfully the post office naturally had a lot of windows for natural light on the outside because they sorted mail there. It was still a long, difficult and expensive process and the units have many issues today. Pic of 1130 Flower from top showing the area they had to cut out in order to increase window area. Even with the cut out the lofts on the inside are narrow, deep and dark with no side windows. They are two story open lofts for this reason.
2. Office buildings do not have to abide by the many Building and Safety requirements for residential units.
Residential construction standards are generally much higher than commercial construction standards. Windows must be certain sizes. There must be more fire escapes especially in high rises. There must be fire doors that close automatically. The cost to upgrade a commercial building to residential is exorbitant to the point of being cost prohibitive.
3. It's Cheaper, Easier to Build New on Vacant or Under Utilized Land
The cost to convert an office building to residential is generally more expensive than building residential from the ground up. You can't just add a bed to an office suite and call it an apartment. You're not just adding a bathroom and kitchen. You're adding many bathrooms, kitchens, laundry facilities which need upgraded plumbing, electrical and vents. The building must meet fire requirements for residential instead of just commercial. There needs to be 1.5 parking spots per one bedroom units and 2.5 for two bedroom units. One would have to acquire office buildings at a steep 50%+ discount to today's values in order for it to make sense. With this market we may get there.
4. Office Space is More Valuable than Residential Space
"Often, real estate and architectural experts say, the bureaucratic processes are too difficult and the conversions are too costly, and many developers and property owners would rather wait out the pandemic than begin a yearslong process."
It would probably make more sense for the commercial landlord to wait out a high vacancy period so they can later rent for office rates instead of lower residential rates. They can rent the office space for other uses at a lower rate in the meantime.
No matter the situation the rental rate of office to residential conversion would most likely be in the luxury rental zone due to location and cost of land. Luxury rentals don't really help affordable housing and it definitely doesn't help the homeless. The new luxury units would free up other units for others but generally not enough to make a huge dent in the housing crisis.
5. Easier to Convert Retail, Industrial, Warehouse, Motel/Hotel to Residential or Mixed Use
For all of these reasons it's easier and cheaper to convert retail, industrial, warehouse, motel/hotel to residential or mixed use buildings. They are better designed and laid out than office buildings. Old industrial, warehouse buildings have lots of natural light. There have been many industrial buildings converted to lofts especially in the Arts District near downtown Los Angeles. Motels/hotels are easier to convert to long term residential for obvious reasons. That's generally just a matter of adding a legal kitchen and upgrading the building to current long term residential code.
While the idea of converting empty office space to residential sounds great it doesn't work that easily in the real world for many reasons. We do have a housing crises especially in high density metro areas such as Los Angeles, San Francisco and New York. The answer is not converting office to residential. The answer is making residential construction easier by cutting some red tape and streamlining the process. The recent state bills allowing units to be built on residential land will help a little though it won't solve the housing crisis. Here is a previous article I wrote about solving the housing crisis in 2019 with more solutions. I'm happy to state that many of the ideas have been implemented since I wrote the article.
*All codes, standards cited are Los Angeles, California which has some of the strictest building standards in the nation. California as a whole has higher building standards than the rest of the US.
Mary Cummins of Cummins Real Estate is a certified residential licensed appraiser in Los Angeles, California. Mary Cummins is licensed by the California Bureau of Real Estate appraisers and has over 35 years of experience.
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