Office to Resi Conversions

[NYtoCLT]

I just got back from CREFC  (the largest commercial real estate finance conference of the year) and there was a panel on conversions of distressed office to multi-family that was pretty interesting.  There wasn't an existing thread so I thought I would create one, since there will likely be specific developments as well as policy changes in CLT dealing with this in the coming years.  

I went without much prior thought on conversions though had previously heard from some people that conversions can cost more than just tearing down and re-building from scratch.  That said, I walked away pretty bullish on conversions.  Some of the main take-aways.

1.  Right now supply of multi-family is ~2% conversions but is projected to be ~10% in the coming years.  Right now Office to Resi only accounts for ~1/3 of conversions (fair bit of industrial to resi -- i.e. mill apartments, and hotel to resi).

2.  The cost and time to assess whether an office building is a good candidate to convert has decreased dramatically.  It used to take 6 months and $200,000 just to figure out that conversion didn't pencil.  Now it takes a couple of days and is a de minimis cost.  The major architecture firms have software that evaluates the floor plans and spits out a calculation of the likelihood of success of the conversion project.

3.  For people in development, some of the biggest concerns are delays and cost overruns.  The trades most likely to cause delays and cost overruns line up pretty much exactly with the trades that are not needed for a conversion (foundation, etc).  This takes away a fair bit of the construction risk and makes timelines easier to hit.

3.  Most people know that as a positive, converting an empty office to apartments would revitalize the area (more people to shop at the retail nearby, etc).  And for people concerned about housing supply and the cost of housing, this would obviously help that as well.  What I didn't fully appreciate and I don't think is talked about much is the level of environmental impact.  Concrete is one of the most carbon intensive processes out there and by not having to pour new concrete and being able to re-use existing metal, a conversion is more green than building a new building even if no other environmental considerations are taken into account and the equivalent new construction is LEED Platinum (or whatever).  

4.  The Biden Admin is working with some of the agencies to make a pool of cheap money available for these conversions, but processes are still unclear and the money is not yet easily accessible.

5.  Most municipalities are having discussions about tax incentives, but the level to which incentives will be used will be hyper local.  Hopefully CLT takes some lead on this since we definitely have a fair bit of Class B office in uptown that could cause problems.

[carolinaboy]

Maybe future office to residential conversions should include some options for downtown/uptown/city center service workers affordable housing.

I've shown this example of conversion in other threads. The Icon in Norfolk , VA was a bank tower that was converted by a local Norfolk developer. 

https://www.iconnorfolk.com/

[RANYC]

3 hours ago, carolinaboy said:

Maybe future office to residential conversions should include some options for downtown/uptown/city center service workers affordable housing.

I've shown this example of conversion in other threads. The Icon in Norfolk , VA was a bank tower that was converted by a local Norfolk developer. 

https://www.iconnorfolk.com/

If Charlotte plans an incentives program for conversions, there could be a requirement for a partial affordable housing aspect of the conversion.  Could put service workers right in the heart of Uptown.  I also saw an interesting note on twitter that one of the inconveniences of commuting into Uptown is lack of childcare or parents being distant from their children's school.  I know this won't happen, but just imagine what have Uptown campuses of Charlotte Latin or Charlotte prep in addition to CMS Magnet Schools.  Entire family could commute into Uptown and hell, maybe it might make sense for more families to just live there, assuming we can resolve the security concerns.

[KJHburg]

44 story former office tower in downtown Atlanta set to be converted into housing including affordable.  Sure wish 2 Wells Fargo bldg uptown could be done this way since Wells acquire this real estate for nothing when they bought Wachovia Bank and could use a sale at a favorable price to achieve affordable housing goals.

Office tower remake to affordable housing reaches 'major milestone' | Urbanize Atlanta

[KJHburg]

what cities have the most office to residential conversions?  while some cities like Cleveland have a lot of much older office buildings we don't;  however Atlanta and Dallas both on this list are more like us in terms of ages of buildings and sizes and so forth.    Dallas particularly has converted or partially converted many towers downtown to residential and large buildings too.  

Report: Atlanta lags smaller cities in office-to-apartment conversions | Urbanize Atlanta

Office-To-Apartment Conversions In Major Cities Quadruple In 4 Years (bisnow.com)

 

[KJHburg]

This is how you do office to residential conversions in the suburbs you just knock the smaller buildings down.  Went by the 2 office buildings built in the 1980s that were knocked down at Carmel and Hwy 51 in south Charlotte.  One site is becoming a Publix and the other one that shows a pile of rubble and recycable steel is the apartment site.  So in this immediate area 2 office buildings remain and 2 are gone. Photos today. 

Look at the pile of steel to be recycled and this will be probably be transported locally to the Gerdau steel recycling plant off Hwy. 115 north of Harris Blvd.  

 

[KJHburg]

this is what is happening above with the piles of rubble from the Biz Journal  Jan. 9 2024

""Terwilliger Pappas is planning an apartment project on the site of a former south Charlotte office building.

The Charlotte-based multifamily developer acquired 5 acres at 11301 Carmel Commons Blvd. from Vision Properties on Dec. 12, according to Mecklenburg County real estate records. The purchase price was $10.9 million.

Jeff Smith, Terwilliger Pappas executive vice president, said plans for the property include the demolition of a 27-year-old, 72,000-square-foot office building on site and the development of a 360-unit apartment community. That complex will have one-, two- and three-bedroom units and a pre-cast parking deck.""

[KJHburg]

The empty Kohls building in the University area was once planned (pre-pandemic) to be converted into office space now it will be demolished for new apartments.   Before the pandemic it was starting to be marketing for office space but now meets the wrecking ball itself.   Another example of office space in the suburbs being converted to other uses. 

""The Charlotte-based commercial real estate firm filed two building permits with Mecklenburg County on Jan. 26 related to the first of a multi-phased redevelopment planned for Mallard Pointe Shopping Center. The filings include permits for phase one, a 300-unit apartment complex that includes about 5,000 square feet of ground-floor retail space and a parking garage.

The permits, with a total value of about $13.3 million, are for footings, foundation work and a parking structure. Crestline Construction is listed as the general contractor. Charlotte City Council approved a rezoning of the 4.5-acre parcel in April 2022 to allow for mixed-use development on the site.  The Kohl's store closed in 2017. In 2018, Cambridge outlined plans to convert the vacated building into 87,000 square feet of office space.""

Developer plans apartments at old Kohl's site in University City - Charlotte Business Journal (bizjournals.com)

This is directly across from the main entrance of UNC Charlotte from N Tryon St and a block away from the LYNX station.  

 

[DMann]

When you think of office to residential conversions, note that Tryon St has 4 residential addresses, Ratcliffe built as residential, 230 S Tryon former Mass Mutual, Trust formerly Charter Bank(?) and Ivey's former department store.  It is not unusual and can be a great reuse of buildings.

[KJHburg]

4 hours ago, DMann said:

When you think of office to residential conversions, note that Tryon St has 4 residential addresses, Ratcliffe built as residential, 230 S Tryon former Mass Mutual, Trust formerly Charter Bank(?) and Ivey's former department store.  It is not unusual and can be a great reuse of buildings.

absolutely it can and will happen.  the purchase price is a big factor.  We now have a 32 story office building built in the early 1970s the old 2 Wells Fargo tower for sale by the bank.  I urge Wells Fargo to sell this at such a price to make it feasible to convert.  the building size and floorplate size is great for residential apartments the taller tower.  They do this in Dallas all the time and even buildings taller than this one.  The value of an empty office building of that size is a fraction of what it once was.  The Trust was my old bank Home Federal which was purchased by First Charter.  230 South Tryon was NC Federal Savings and Loan building even before Mass Mutual.  

[QCxpat]

Today's CBJ "Former Duke Energy office building could see conversion to apartments supported by city incentives" by Erik Spanberg

Excerpts;  "Charlotte City Council’s economic development committee has informally endorsed using taxpayer money and other incentives to help relieve some of the cascading effects of soaring vacancies in Charlotte’s office buildings, starting with a planned conversion at Duke Energy Corp.’s (NYSE: DUK) former headquarters on South Church Street."

"Tracy Dodson, Assistant City Manager, said that the South Church Street project was an obvious candidate for possible taxpayer help, likely through tax-increment financing, which allocates a portion of increased property tax revenue to help pay for improvements benefiting the public sector."  "Dodson added that center city and suburban properties alike will be considered for a range of possible incentives, depending on circumstances and possible return. Committee members and Dodson have been adamant that they will only be able to help with a handful of projects and must be selective."

"Roger Johnson, Mecklenburg County’s economic development director, told CBJ today that the county is considering similar assistance to help offset historically high office vacancy rates."

"Today, Dodson showed the committee fourth-quarter leasing data from real estate firm Cushman & Wakefield illustrating current challenges.  According to the firm’s figures, the city’s vacancy rate is 22.8%, including 35.4% in University, 28.5% in Ballantyne and 25% near the airport."  "Uptown vacancy rates have been running around 20%, double usual rates. In uptown, problems are going to get worse over the next 18 months, with another 1.7 million square feet of leases set to expire during that time. Uptown’s office market encompasses 26 million square feet."

• Image of MRP Realty's adaptive reuse conversion of 526 South Church Street by CBJ

Link:  https://www.bizjournals.com/charlotte/news/2024/02/05/mrp-realty-asana-partners-duke-energy-real-estate.html

Edited February 6 by QCxpat

[KJHburg]

since we talk about 2 Wells Fargo tower alot in terms of possible conversion I took some photos today while walking by.  You could keep the smaller office building  to the left as office space and convert the taller 32 story tower to residential keep the atrium and develop another tower of some sort where the kiosk stands.  Plus the small parking garage could be torn down and tower with parking built there as well.  This plaza could be reimagined too with more green space and trees.  

[KJHburg]

More suburban office demolitions this time in Fort Mill and these appear to be the former home of Wells Fargo Mortgage on Stateline Blvd.  This is how the "conversions" are done in the suburbs just demo the building like the 2 office buildings razed at Carmel and Hwy 51 in south Charlotte. 

""Foundry Commercial is planning to replace Fort Mill office buildings with a new industrial park, York County documents show.

The Orlando, Florida-based developer is seeking to rezone a 32-acre site on Stateview Boulevard to make way for three industrial buildings, each between 95,000 and 196,000 square feet. The two existing office buildings on site total around 120,000 square feet and would be demolished under the rezoning plan.

The rezoning request is on the agenda for York County Planning Commission's meeting tonight.""

Florida developer looks to demo Fort Mill offices for new project - Charlotte Business Journal (bizjournals.com)

[KJHburg]

From the Big D and I do mean Dallas.  Dallas like uptown Charlotte has plenty of older mostly vacant office space and they are really getting it converted.  And many of their buildings are much taller and larger in sq footage than our problematic ones.   Their buildings values have fallen so much that conversion is financially feasible and this too will happen in Charlotte if nothing happens.  

From the Dallas Biz Journal

""A downtown Dallas high-rise sold for just $8 million in a foreclosure auction to its lender, which still hopes to convert the building from offices to apartments or a hotel as its previous owner intended.

The 18-story blue-paneled office building at 211 N. Ervay St. sold for $8 million in a Feb. 6 auction to an affiliate of Lehi, Utah-based real estate investment fund Thistle Creek Capital LLC, the lender for the property, according to Dallas County deed records.

Ben Peterson, a partner at Thistle Creek Capital, told Dallas Business Journal that the firm plans to continue redevelopment of the building for a new use.

"I think the best use for this building is office to some kind of apartment or hospitality conversion, which is happening a lot over the country," Peterson said, adding that Dallas is one of the top markets for such conversions in the nation, as recently shown in Yardi Matrix data reported by RentCafe.

"There's a lot of excess office commercial space, as you know, in downtown Dallas and elsewhere. So, we are interested in finding the right home for the building, for somebody who can come in and develop the project or finding the right partner and/or just looking for an outright sale."

The foreclosure involved a $13.5 million loan an entity tied to previous owner Plano-based Wolfe Investments LLC took out with Thistle Creek last April, when the former purchased the building, according to a foreclosure notice. The notice stated the maturity date of the loan had been extended to Dec. 21, 2023.

A Wolfe Investments representative declined to comment.

This was not the first time the property had been posted for potential foreclosure sale. Wolfe Investments sued Thistle Creek in Dallas County district court Sept. 1, claiming the lender did not give proper notice ahead of posting the property for the county's foreclosure sale Sept. 5. Thistle Creek took down the foreclosure notice the same day Wolfe's complaint was filed.

In December, Niraj Shah of Priya Capital LLC sued Wolfe Investments, also in Dallas County district court, after Wolfe defaulted on a $6 million short-term loan made by Shah to help Wolfe close on the purchase of 211 N. Ervay, claiming that Wolfe used the loan proceeds not to close on the Ervay property but to open a line of credit at a bank to obtain financing for the Oil & Gas Building in downtown Fort Worth, which Wolfe purchased in partnership with Bluelofts Inc. in May 2023, according to several reports.

Thistle Creek is not the only firm that sees potential in converting downtown Dallas office buildings to apartments, hotels and other uses.

Dallas-based Woods Capital recently completed construction on the 228 apartment units it added to Santander Tower. Woods Capital has also been adding residential space to its 40-story Bryan Tower, and Todd Interests is converting the upper floors of the 49-story Energy Plaza skyscraper into 294 residential units, the Dallas Morning News reported.

As of December, Wolfe Investments had planned to soon begin converting former office space into 238 apartments, but was also considering plans to later turn those residences into hotel rooms.

The office building was designed by Thomas Stanley and built in 1958 by developer Leo Corrigan. Vacant since 1995, the building reopened in 2014 as offices after millions of dollars of renovations.""

I plan on visiting some of these towers when in Dallas this fall.  Santander Bldg is 50 stories and over 1.4 M sq ft and they are keeping some office space in the tower.  

Edited February 13 by KJHburg

[NYtoCLT]

https://www.multihousingnews.com/alliance-residential-carlyle-open-luxury-charlotte-community/

 

Some interesting info/data/anecdotes here.  Charlotte barely cracked the top 20 for 2024 Office to Apartment Pipeline.  

[Norm2]

When did Wells Fargo move their mortgage offices out of the Stateview location?

[Hidden Valley memory]

Edit

Edited February 14 by Hidden Valley memory

[KJHburg]

9 hours ago, Norm2 said:

When did Wells Fargo move their mortgage offices out of the Stateview location?

Not sure and I never heard about it but those are the only 2 office buildings on Stateline.   They were shrinking their mortgage operations I know that so maybe when the lease came up they left.  

[KJHburg]

Interesting from the Charlotte Ledger this morning about 400 South Tryon tower which is mostly vacant.

""We’re hearing that CBRE is taking bids on an “$86MM nonperforming loan sale” on a “secured office high-rise/redevelopment site in Charlotte, NC.” The site is described as “an approximately 589,000 square foot high-rise office property with adjacent 500+ space parking garage.” (A nonperforming loan is a polite way of describing a loan that is in default or not being repaid.)

Hmm, who fits that description? We compared that square footage to data in the Charlotte Business Journal’s Book of Lists, and if you guessed “400 South Tryon,” you win! (Luckily, the prize is not the loan.)

Oaktree Capital Management of New York bought the building in 2018 for $133.5M. The Ledger reported in June 2023 that 400 South Tryon was 64% vacant, one of the top 10 most vacant office buildings uptown.""

source Charlotte Ledger

----------------------------------------------------

In another Texas example of office to residential conversion time in suburban Houston a 19 story 423,000 sq ft office building in the Energy Corridor off Katy Freeway I-10 west.   The building was bought for well below replacement cost that is only $49 a square foot!   Converting to 311 apartments.   We need to be contacting these Texas developers as they are getting the conversions done.  Those office floors seem to be around 22.xxx sq ft.  

Three Westlake Switching to Apartments (connectcre.com)

[Prodev]

2 hours ago, KJHburg said:

 

In another Texas example of office to residential conversion time in suburban Houston a 19 story 423,000 sq ft office building in the Energy Corridor off Katy Freeway I-10 west.   The building was bought for well below replacement cost that is only $49 a square foot!   Converting to 311 apartments.   We need to be contacting these Texas developers as they are getting the conversions done.  Those office floors seem to be around 22.xxx sq ft.  

Three Westlake Switching to Apartments (connectcre.com)

Looks like that building has about 100' of depth versus the more typical 120' that 400 S Tryon is, which is still not great but somewhat better suited for conversion. Ideally, <70' of depth would make for the last amount of wasted core space for a multifamily conversion. 

[DJ8hep]

10 hours ago, KJHburg said:

….

In another Texas example of office to residential conversion time in suburban Houston a 19 story 423,000 sq ft office building in the Energy Corridor off Katy Freeway I-10 west.   The building was bought for well below replacement cost that is only $49 a square foot!   Converting to 311 apartments.   We need to be contacting these Texas developers as they are getting the conversions done.  Those office floors seem to be around 22.xxx sq ft.  

Three Westlake Switching to Apartments (connectcre.com)

Seeing this building, I was reminded of an 11 story office conversion project in Eagan MN completed in 2016. I felt it was fairly iconic due to the fact it being the only highrise in the area: http://collagearchitects.com/city-vue-apartments

If you look at older Google street view captures, you can see what it looked like before:

https://maps.app.goo.gl/ppDLSvhredifESL97?g_st=i

Edited February 15 by DJ8hep

[KJHburg]

this is already happening here in Charlotte with office building valuations going down but this points out how far they may have to go to be viable for office to residential conversions if the buildings fit the other ways.

Goldman: Office Prices Need To Drop By Half To Make Conversions Viable (bisnow.com)

as I said Wells Fargo on their 2 Wells Fargo tower can make those numbers work by selling this building for the price that it will make it viable and require some affordable units and meet several goals.  They acquired this entire block for pennies when they bought out Wachovia.  They can make a positive impact on Charlotte and get some credit for creating affordable housing with banking regulators.  

[videtur quam contuor]

For those late to the party this is a reminder that the Great Recession impoverished many people in the Carolinas who had invested in Wachovia through various schemes including employee retirement accounts, personal retirement accounts and other savings meant to sustain one in the later years. It was a disaster for many families. Wachovia was not the only institution but for our area it was a dramatic reversal for such a respected business. Imagine seeing your trusted lifelong investment become ashes within weeks. 

https://www.joshuakennon.com/the-collapse-of-wachovia-how-a-bank-with-38-in-book-value-per-share-became-almost-worthless-overnight/#:~:text=In Less Than a Year,for all intents and purposes.

[Matthew.Brendan]

Well if you think the Market has learned anything about risk and exposure from the "great recession" of 2008 look no further than the current derivatives market and the resurgence of Credit Default Swaps in particular. Fun times ahead! or maybe Credit Suisse was just an aberration and not the canary. Guess only time will tell.

[KJHburg]

from the Biz Journal this morning concerning the old Duke building on S Church St.

""A planned conversion of the former Duke Energy Corp. (NYSE: DUK) headquarters building uptown into a mix of apartments and commercial uses could need as much as $20 million in public funding. A Mecklenburg County committee heard a pitch for South Church Street development — without the price tag — on Wednesday.

Charlotte Center City Partners executives Michael Smith and James LaBar said the $251 million conversion by Washington, D.C.-based MRP Realty and locally based real estate investment firm Asana Partners is an ideal candidate for incentives to help revitalize the slumping uptown office real estate market.

The four-person economic development committee, comprised of Mecklenburg County Board of County Commissioners members, was skeptical about providing taxpayer assistance to private real estate firms.

An industry source with knowledge of the deliberations said the project’s backers may be seeking combined incentives of $10 million to $20 million, likely from tax incentive grants, which are funded using a portion of additional tax revenue created through private investment.

Welch Liles, Asana’s managing director, could not be reached for immediate comment Wednesday evening.

Known as the Brooklyn and Church project, the development would convert the 49-year-old former Duke Energy headquarters into a 440-unit residential property with an adjacent 60,000-square-foot, standalone retail building. 

MRP Realty bought the building in 2022 for $35.5 million, CBJ previously reported.   

“Asana and MRP have come to the county and said, ‘We’d like to explore how to make this work,’” Smith told the committee. He added that Duke Energy sold to MRP-Asana because the development team is committed to adaptive reuse of the building rather than demolition.

To make the project financially viable, the project will require a public-private partnership, he said. LaBar and Smith reiterated their belief that only select projects will be candidates for taxpayer investment. At the same time, they said that targeted assistance can accelerate recovery for uptown and the real estate sector.""

Will county, city government invest in Brooklyn and Church? - Charlotte Business Journal (bizjournals.com)