Office developers widen their sights as sector’s uncertainty persists

ESRT, Boston Properties and Silverstein see promise in multifamily

Boston Properties' Owen Thomas and SL Green's Marc Holliday (Boston Properties, SL Green, Getty)
Boston Properties' Owen Thomas and SL Green's Marc Holliday (Boston Properties, SL Green, Getty)

Some of the top office developers aren’t exiting the beleaguered sector, but they are beginning to cast their sights on other property types.

Empire State Realty Trust, Boston Properties and SL Green Realty are among the prominent proprietors of office space buying and building real estate in other sectors as occupancy remains low and the post-pandemic future of the property type is uncertain, the Wall Street Journal reported.

In the third quarter, there was 153 million square feet of office space under construction, according to CoStar. That’s significantly below the 184 million square feet being built in the first quarter of 2020, right before the pandemic reared its ugly head.

The apartment pipeline is moving in the opposite direction. Nearly 500,000 units were completed last year, the most since 1986. In 2019, fewer than 370,000 multifamily units were completed.

The economic reality for many developers is that residential properties are in greater demand than office properties and those projects or acquisitions pencil out in a more advantageous way. ESRT CEO Tony Malkin told the outlet multifamily acquisitions bring more immediate returns and involve “minimal capital expenditure.” ESRT dove into multifamily deals beginning in 2021.

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Boston Properties, the largest public owner of office space in the country, is developing 2,000 residential units along the East Coast. It has also pushed resources into life sciences development. SL Green is in New York’s casino sweepstakes, partnering with Caesars on a proposed casino.

Silverstein Properties is raising more than $1 billion in an effort to convert offices into residential properties, aligning with New York City’s mayor. New York City REIT recently announced it would start making alternative investments, not only outside of its core market, but outside of its core property type (offices) as well.

“If this is what you want to do, this is the time to do it,” AmTrust Realty president Jonathan Bennett said of conversions.

— Holden Walter-Warner