SAN FRANCISCO – Strachan Forgan, an architect who works downtown at 255 California St., is still impressed with how much street life has changed around his office building. Gone are the crowds of bankers and lawyers who crowded the famous Tadich Grill across from his office before the pandemic. In recent months, he has been verbally assaulted and physically threatened by the increasing number of homeless people at his train station two blocks away from the nearby train station.

Because while San Francisco office buildings are as empty as they have been in decades and the city has an estimated 8,000 homeless, it is unlikely that any of the empty offices will become a home for anyone on any economic level, even though more housing is generally urgently needed. Forgan, who is both working on converting offices to residential buildings and struggling to find employees who can find affordable housing for his company, said it was too difficult.

"It almost takes the stars to align," he said. "It's unique circumstances that make sense. That's why it's relatively rare."

Such changes are not taking place in the rest of the country either. Planning departments of large cities, including San Francisco; San Jose, California; Seattle; Phoenix; New York; Fort Worth, Texas; Dallas; and Houston said there have been very few, if any, new attempts to convert existing offices into apartments. There have been only a handful of such conversion requests in these cities in the past two years, even during the height of the pandemic, construction officials said.

The New York Department of Buildings has only received 100 project applications for the conversion of commercial space into residential buildings since January 1, 2020, said Andrew Rudansky, spokesman for the agency. This year only 12 were submitted.

"This includes applications for large expansion and renovation projects for the entire building as well as applications for smaller projects that only change the use of a single floor or part of the building," said Rudansky via email.

Even in cities like San Francisco, where homelessness remains a major challenge and where office vacancies are relatively high, property developers, property owners and city administrations do not think that permanent renovations make sense.

"There is definitely an incentive for cities to continue to nurture vibrant central business districts that are focused on employment," said Manan Shah, an architect in Oakland, California, of Gensler, a company that has worked on and studied such remodeling for years. "We'd have to see a long-term trend and the vacancy was high for several years so someone could take the time to remodel."

Empty buildings

Cities across the country are plagued by high office vacancies, according to Avison Young, a commercial real estate company. In the second quarter of this year, the vacancy rate for commercial real estate in San Francisco reached 15.4 percent, more than 12 percent last year and more than twice as much as two years ago.

The vacancy rate on the office market in Phoenix has "increased" at 16.2 percent, while Miami is at an "eight-year high" at 16.9 percent and Los Angeles has reached "all-time highs" at 17.8 percent. Meanwhile, New York City has a "post 2000 high" of 19.2 percent vacancy and Houston has a "record high" of 22.9 percent of such unused jobs.

At the same time, the number of homeless people in the US is higher than ever before – over 560,000. More than a quarter of them are Californians. About 161,000 people are homeless in California, more than any other state. While Governor Gavin Newsom signed a historic $ 12 billion bill to tackle homelessness, much of the money will likely go towards converting older hotel and motel rooms.

Reasons not to change

In parts of the country where land is relatively cheap, it is far cheaper to build new homes than to convert old offices. And some cities don't mind having empty offices.

"The overall economy is going well for us and we have low office vacancy rates," said Alan Stephenson, director of planning and development for Phoenix, via email. "It is difficult for the economy to forego the more lucrative office rents in exchange for residential units for a property developer."

Stephenson's agency approved two ongoing office-to-apartment conversions. But they will only add 225 new housing units in a city of 1.63 million people.

"You combine that market reality with the large amount of unused land on which it is cheaper to build a new four- to five-story apartment complex than to convert an existing office building into a residential building," he said.

Often, so real estate and architecture experts say, the bureaucratic processes are too difficult and the conversions too expensive, and many property developers and property owners would rather wait for the pandemic than begin a process lasting years.

Developers also point out the importance of timing. Marc Babsin, a developer at Emerald Fund, a San Francisco real estate development firm who has worked with Forgan and his company SCB on multiple projects, said the groups worked together on the largest commercial and residential conversion in the city to date: a project from 2015 at 100 Van Ness in San Francisco.

That was a concrete-laden monstrosity from the 1970s next to City Hall that was once the office of the California State Automobile Association. Today, a 600-square-foot one-bedroom apartment in the shiny glass building costs about $ 4,000 a month.

"You need a number of factors to work together for this to work, and that's what they happened to be doing at 100 Van Ness," said Babsin, noting that the project started in 2012 after the Great Recession and took three years to complete.

"A few years later, [100 Van Ness] as an office would have made more sense, "he said.

Often times, such conversions only work in densely populated cities where land is scarce, and even then only certain types of buildings can be converted. After all, even with such conversions, the majority of the apartments are usually rented at high market prices. While it seems that empty space could be better used for people without shelter, architects face challenges such as finding the right space between the elevator bank of a building and the windows.

"There's a Goldilocks factor: the floor slab can't be too small or too big," says Kristina Garcia, a researcher at real estate agent Cushman Wakefield, using an industry term for the lettable space on a given floor of a high-rise office building. "There are limiting factors as to why adaptive reuse has not happened as often."

Most modern office buildings have floor slabs around 25,000 square feet – about half the size of a soccer field – a number that has generally crept up over the decades. Newer high-rise office buildings are often significantly larger than their decades-old counterparts.

Architectural firm Gensler, following a recent inventory study in Calgary, Alberta, concluded that "the worse the office building, the more suitable for residential conversion", especially in a city with an office vacancy rate of an impressive 32 percent. Typically this means that older and often dilapidated buildings are ripe for renovation.

"For modern office buildings, the concept was to build the largest slab possible," said John Cetra, a New York City-based architect whose CetraRuddy practice has worked on several notable renovation projects in the past few years, including 20 Broad Street in the area Wall Street in Lower Manhattan.

The office tower, built in 1957 and connected to the New York Stock Exchange, was reopened in 2018 after the renovation was completed. The age of the building means that the distance from the elevators to the edge of the building, known as the "leasing margin," is no more than 45 feet, roughly the edge of the practical. In other words, newer office buildings are often too big to be used as apartments – large parts of their interiors would have little natural light.

"The donut around the building is the habitable zone. What do you do with the interior?" said Cetra.

While Forgan's company SCB has also completed a similar remodel of 1132 Bishop St. in downtown Honolulu and is evaluating a "confidential skyscraper remodel" in downtown Los Angeles, he said the projects account for a very small percentage of the firm's total portfolio.

"We do a lot of multi-family high-rise projects and probably 90 or 95 percent of that is new build," he said, saying that's where the money is. "They're typically urban. They're more aimed at the more luxurious end of the market. So they're more new build than adaptable reuse projects."

He said such buildings are in a "sweet spot" that makes them ripe for transformation. In the event of the Los Angeles remodeling, the property owner has plenty of vacant office space, he said.

"He has empty office space that becomes more valuable as living space," Forgan said.

Growing interest

In Dallas, James McKey, the city's interim assistant building officer, said that while requests for such remodeling had declined last year, there appears to be renewed interest this year in converting office buildings into mixed-use properties.

In 2019, the city received 19 renovation applications, last year there were only three. However, this year it has increased again and has risen to 12 to date. The surge in applications could be helped by a recently completed renovation of the former First National Bank Tower, a 52-story building built in 1965. It was closed for most of the last decade.

The redesigned tower, now called The National, is part hotel, part residential building, part offices, and part retail.

"Since I'm an older Generation X, I wouldn't rent an apartment at The National for $ 3,000 a month," McKey said. "But the generations behind me – as soon as one shows up, they want – it's a paradigm shift. There are people who take the chance to live downtown – it's too noisy for me – but I guess if you're on the 52nd floor it doesn't matter. "

California dreams

Back in California, when the state was trying to address the decade-long problem of too little housing for too many residents, the answer for some developers was to avoid office conversions and focus on changing other property types.

The tactics are as varied as the state's plan to adapt motels, recycle downstairs retail space as living space, allow religious establishments to build on their own land, to a great proposal to streamline the process of transforming old big boxes -Style retailers.

The draft law, known as SB 6, would explicitly allow the development of former commercial areas such as shopping centers or wholesalers. A recent analysis by Urban Footprint, an urban planning software company, concluded that if the bill comes into force, it "could add up to 2 million new homes to market-driven capacity while providing significant tax advantages for cities" .

The draftsman, Senator Anna Caballero, who represents a large portion of the agricultural communities between San Jose and Fresno, points to a long-empty Kmart in Salinas, a farming town where she was once mayor.

"You could just take the Kmart out and put single-story retail stores and condos on top or expand the whole store," she said. "Make it feel like something people want to go through!"

source https://seapointrealtors.com/2021/07/25/why-empty-offices-arent-being-turned-into-housing-despite-lengthy-vacancies/

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