The push to convert offices emptied out by remote work into much-in-demand housing has hit a new phase.
Once concentrated along the high-rise-lined Water Street corridor in Lower Manhattan, dominated by a smattering of developers and mostly limited to rental units, conversions are increasingly being undertaken by fresh developers on the scene like GFP Real Estate. And the transformations are showing up in new neighborhoods, such as Times Square, Turtle Bay and NoMad, with a mixture of unit types—namely condos as well as rentals.
Not all of the second phase of transformations may take root, however, as some announced years ago have yet to break ground. Steep development costs may also be an issue for some sites, even as tax incentives have grown and zoning barriers have fallen, contributing to a quadrupling of planned projects in a year.
But the recent evolution of the trend suggests that conversions are no longer just a pandemic-era pipe dream.
“There’s more and more recognition that a lot of buildings are well past their useful life,” said developer Nathan Berman of Metro Loft, a longtime converter who’s considered king of the sector. “Converting them to housing is the smartest financial move.”
Measurable bounce
Heavily promoted by New York officials, conversions seem to be proliferating across the board. The number of projects enrolled in the city’s 18-month-old “conversion accelerator” program, which helps streamline building permits and landmark approvals, has jumped in recent months, increasing from 24 in January 2024 to 83 this month, according to the Department of City Planning, which added that the totals don’t include every conversion.
How many in that group represent a new and different direction for the practice is unclear, in part because the City Planning Department does not make addresses public. But a Crain’s analysis suggests at least a dozen projects embody the 2.0-style pivot.
GFP, the Jeff Gural-led firm known mostly for its ownership of older properties, is at work on a redevelopment of 222 Broadway, an early 1960s office tower near City Hall that it snapped up a year ago for $148 million with the expressed purpose of a rental conversion.
Similarly, as Financial District sites get picked over, other Manhattan neighborhoods are being looked at. And that phenomenon is expected to intensify if Midtown South is rezoned as planned later this year.
Already, 5 Times Square, a 38-story tower from 2002 that was once home to accounting company Ernst & Young, is on the verge of transforming into a 940-unit rental tower from RXR and SL Green Realty Corp. as well as Apollo Global Management, which acquired a $360 million stake in the project last year. (The process will also give the building a new and perhaps more residential-sounding address, 592 Seventh Ave.)
Some firms are not just focused on rentals but condos too, such as at 95 Madison Ave. by East 29th Street in NoMad, a 16-story, bankrupt former office building purchased last year by Sunlight Development and NuVerse Advisors and poised to welcome 65 homes. Condo conversions of office towers have happened for decades, of course, but because there is now such an abundance of half-empty office properties, they could soon proliferate, experts say.
Eastdil Secured broker Gary Phillips, for instance, is currently marketing an office building at 79 Madison Ave. near East 28th Street that should work better as a condo conversion than a rental one, he said. He cited location and size as the two biggest factors that determine whether repurposing a property as rentals or condos makes more sense.
“When you’re converting a million-plus-square-foot building downtown, that’s too many condos,” he said. “If you’re a couple to a few hundred thousand square feet, that’s way better.”
And although the state’s new tax incentive for office-to-residential conversions has generally received positive reviews from the real estate community, some developers are still opting for condos over rentals to avoid dealing with its affordable housing requirements, said Daniel Bernstein, a real estate attorney at Rosenberg & Estis.
“There are developers who want to sell out a condo project and be done and move on,” he said, “and there are developers who are very comfortable producing rental housing, leasing it up, cash-flowing it and selling it or holding it.”
Setting the table
The new wave of conversions is occurring against a favorable economic backdrop, proponents say.
For one, the overall residential market is strong, with apartment rents rising across the board to kick off 2025 and little signs of any decreases going forward, according to data from Douglas Elliman. Last year’s City of Yes zoning reforms also helped make a crop of younger office buildings better and easier conversion targets, and the state’s new tax incentive for office-to-residential efforts is helping as well.
The neighborhood that seems primed for the biggest influx going forward is Midtown, particularly Third Avenue. The thoroughfare has become infamous for its supply of office buildings that are a bit too old and too far from Grand Central to remain competitive in the current landscape. SL Green has a major transformation underway at 750 Third Ave., while Quantum Pacific and Berman’s Metro Loft recently bought 767 Third Ave. from the Kaufman family for $88 million with plans for a hybrid rental-office project.
“I wouldn’t be surprised if a decade from now over half of Third Avenue’s office stock is converted to residential,” said Phillips, who brokered the 767 Third Ave. sale.
But perhaps the biggest factor fueling conversions is just how much potential supply there is.
Although the city’s office market has made significant strides toward recovery since its existential pandemic-era woes, many of those successes have been concentrated among its highest-quality Class A buildings, while older Class B and C properties offering tenants fewer amenities have been struggling more. Manhattan still had almost 87 million square feet of available office space overall as of February, according to data from Colliers.
Bernstein said there is a “land rush” for good conversion properties right now given their limited supply and the state tax incentive rewarding projects that start sooner rather than later. (The benefit lasts for 35 years at sites where work starts before July 2026 and gradually decreases to 25 years on projects where work starts before July 2031.)
And the land rush is not just limited to Manhattan, or even just to office buildings. CBRE broker Daniel Kaplan, for instance, is currently marketing an industrial building in Mott Haven as ideal for a residential conversion. The South Bronx neighborhood has seen a major burst of high-profile residential projects in recent years, and Kaplan believes the prewar storage facility at 120 Bruckner Blvd. is well positioned to add to the trend.
Kaplan is in part betting that the renewed demand for Manhattan’s Class A office buildings will eventually spill over into Class B’s, meaning some properties that may have seemed ideal for conversions will end up remaining commercial, he said. This would in turn open up more opportunities for projects in the outer boroughs.
Outer-borough conversions were a popular idea before Covid as well, but the big idea back then—particularly in Brooklyn enclaves like Bushwick—was to change older industrial buildings into offices, Kaplan said. That is emphatically no longer the case.
“People would certainly look at converting them to residential rather than office today,” he said. “That’s the biggest difference.”
High prices
Despite actions from the city and the state meant to make such efforts more feasible, they remain expensive—sometimes to the point that including affordable units is not practical, said Mark Plechaty of DeSimone Consulting Engineering, which worked on the prepandemic conversion of FiDi’s 1 Wall St.
“It’s just not possible,” Plechaty said. “You’ve got to sell at top dollar just to make them viable.”
Even well-capitalized developers may be feeling pinched. SL Green, the city’s biggest office owner, revealed late last year that 750 Third Ave., a postwar site it’s been planning to convert for three years, will cost more than $800 million to repurpose into more than 600 apartments, many of them below-market-rate, or affordable, units.
But from developers’ perspective, conversions may still seem compelling. Turning an office building into rental housing can cost a third of what it would take to construct an apartment tower from scratch, said Berman, who in three decades has completed about two dozen office-to-residential conversions, almost all in Lower Manhattan.
Conversions can also happen more quickly, in about two years compared with seven for ground-up projects, Berman explained, a time savings that is especially important in a high-interest-rate environment.
Two of Berman’s pre-Covid transformations have recently run into financial trouble: 20 Broad St., a 1950s tower-turned-530-unit rental , and 180 Water St., a 1970s site with 570 apartments. The veteran redeveloper says the current field is filled with too many Johnny-come-latelies unlikely to solve the puzzle of how to carve up office floors with residential layouts.
“It’s like, I can probably read about how to perform Lasik surgery, but do I really want to take the chance of performing it on my own eyes?” he joked.
But Berman is sticking with the sector. “These aged office buildings can’t compete,” he said. “The only viable thing to do is repurpose them.”
