Local Tally of Financially Distressed Offices Primed for Residential Rebirth Runs to Millions of Square Feet
A new analysis from PropertyShark, a real estate web site and search engine that tracks sales and price data, finds that two Lower Manhattan neighborhoods contain at least 11 million square feet of office space that is “highly convertible” to residential use, with another 25 million square feet of space described as “convertible but challenging.” (A third category of “limited convertibility” contains approximately 45 million square feet of local office space.)
The report documents that the Financial District is home to 7.9 million square feet of “highly convertible” office space spread across 36 buildings, and another 23.2 million square feet of “convertible but challenging” buildings. In Tribeca, are 2.4 million and 2.3 million square feet, respectively, in the corresponding categories.
Using as metrics the average size of a Manhattan apartment (approximately 750 square feet) and the architectural guideline that about 85 percent of an apartment building’s floor plate can be used as residential space (with the rest going to common areas like hallways, elevators shafts, and utility cores, as well as laundry and trash rooms) this may indicate that Lower Manhattan could be in line for approximately 12,500 new households in the years ahead, using the conservative baseline of only the space deemed “highly convertible.” If the second category of “convertible but challenging” is added to this mix, the total could go as high as 40,000 new residential units south of Canal Street.
Based on 2020 census data, which indicates that the typical size of a Lower Manhattan household is now 2.02 persons, this implies population growth of between 25,000 and 80,000 new residents. The first figure would translate into a jump of 31 percent above the current headcount of 78,390, while the latter would more than double the number of people who currently live in Lower Manhattan.
The PropertyShark assessment also notes that more than a quarter of a billion dollars in mortgages on Financial District buildings deemed “highly convertible” will be coming due by 2027. Because office buildings most suited to residential conversion tend to be older and smaller, and the downturn in commercial real estate has been especially punishing for such “Class B” office space in Lower Manhattan, this may translate into an incentive for the owners of such buildings to embark on the process of repurposing their properties.
The most recent wave of conversions either planned or already in progress for Lower Manhattan includes Two Wall Street (121 apartments) 77 Water Street (625 apartments), 25 Water Street (1,300 apartments), 222 Broadway (798 apartments), and 55 Broad Street (571 apartments). These four buildings will, by themselves, create more than 3,000 new homes in the community.
While converting office buildings to residential use can be an alluring option for developers, the business model is not without peril. Two local cautionary cases in point are the rental buildings at 20 Broad Street and 180 Water Street, which are on the brink of foreclosure as the original mortgages used to fund their transformations from office to residential space have come due, and fallen into arrears.