Empty offices are becoming full apartments
Post pandemic, property owners pivot by converting empty office buildings into energy-efficient multifamily properties. C-PACE financing can help provide the capital for optimizing the operational and commercial performance of these assets.
Train station parking lots are filling up, rush hour traffic is building, and subways seem to be full again as many companies mandated a return to work this fall. However, the view of bustling commuter activity can be deceptive. Although many people have returned to work, thousands more continue to work from home, or on a part-time / hybrid basis, which has contributed to many office buildings being partially or fully vacant.
A recent Bloomberg article reports of the New York market: “Blocks of decades old office towers sit partially empty in an awkward position: too outdated to attract tenants seeking the latest amenities, too new to be demolished or converted for another purpose. It’s a situation playing out around the world as employers adapt to flexible work after the Covid-19 pandemic and rethink how much space they need.”
Many commercial property owners faced with empty space have turned to adaptive reuse for their buildings, which has proven to be an invaluable solution to the problem. A recent Wall Street Journal article reported, “Nationwide, there are nearly 1,000 relatively new office buildings that developers might view as candidates for residential conversion: properties built since 1980, measuring more than 100,000 square feet and at least 50% vacant, according to data from CoStar Group.”
Another Wall Street Journal article reports that one of the largest conversions is being conducted by two New York developers, paying $180M for a 30-story office building in the financial district, which will house 571 market-rate apartments.
CoStar Group also reports, “Office-to-residential conversions are occurring nationally as demand for office space fades.”
Adaptive reuse projects are being undertaken in cities such as Los Angeles, New York, Atlanta, Minneapolis, and Chicago. These projects, in many instances, are being initiated due to state mandates to address housing shortages, as well as the need for more affordable housing. This is particularly true in California, which has the highest homeless rate in our nation.
When property owners are retrofitting and converting office buildings to residential properties, they are typically also investing in sustainability measures to improve the buildings’ energy efficiency and return on investment. Regardless of whether an adaptive reuse/conversion project is initiated to address a housing shortage, or to repurpose a building due to declining office rental profits, these initiatives benefit the economy of the communities – and, in most cases, these projects are eligible to be funded through C-PACE financing.
C-PACE financing is a state policy-enabled financing mechanism that allows building owners and developers access to long term, low-cost, fixed-rate capital when they invest in sustainability measures. Nuveen Green Capital, a national leader in sustainable commercial real estate financing solutions, is seeing increased demand from borrowers for adaptive reuse projects. C-PACE can also be layered in with historic tax credits on adaptive reuse projects in many areas, further leveraging savings opportunities.
Given the current economic volatility in the commercial real estate market, C-PACE can also be tapped into to bridge stalled projects to completion, or recapitalize recently completed adaptive reuse projects, to replenish reserves.
One example of this is the DuPont Building in Wilmington, Delaware. Originally the ~1M square foot DuPont Company headquarters, the new owners used $7M in C-PACE financing through Nuveen Green Capital to help fund the conversion to a mixed-use facility, which includes luxury apartments, as well as hotel, theatre, retail and office space.
The pivot to adaptive reuse is an invaluable solution as it promotes sustainability and a circular economy, while tackling housing shortages, and providing more affordable housing options.