It seems like every other week or so a new office conversion project gets lined up. And all those developments are adding to a Manhattan rental pipeline that, until recently, had been depleted by the lapse of the city’s main development tax break.
About a month ago, Vanbarton Group struck a deal to turn 77 Water Street in the Financial District to about 600 apartments. Two weeks later, the company lined up the former offices of the Catholic Church at 1011 First Avenue for conversion as well.
And around the same time, Bushburg Properties filed plans to convert the Financial District office tower at 80 Pine Street into 500 apartments.
These kinds of conversion projects — each one generating hundreds of apartments — are adding thousands of apartments in Manhattan, helping to build back a supply that was choked off by the expiration of 421a in 2022.
“We see a historically strong amount of rental units coming online in the next few years, and conversions are absolutely a huge part of that,” said Ryan Schleis, head of research and analytics at Corcoran Sunshine. “We’re not seeing many more new construction added to the pipeline lately. Most of what’s adding to the pipeline is conversions.”
Office conversions are expected to deliver about 7,500 new rental apartments in Manhattan starting next year through 2028, according to Corcoran. That makes up a little more than 40 percent of all the new rental apartments scheduled to come online during that period — the highest percentage conversions have ever accounted for in the pipeline.
Overall, there are about 18,500 market rate units set to be built during that four-year period. That figure surpasses the last four-year peak of 14,550 market rate units delivered between 2015 to 2018.
But Schleis said that the number of units actually delivered could be lower. “There are inevitably delays with projects in the pipeline,” he said.
All those new apartments are desperately needed in a city with an acute housing shortage that’s only gotten worse. Filings for new rental developments ground to a halt when 421a expired.
It took lawmakers two years to come up with a replacement program, 485x, which went on the books earlier this year. But many developers have voiced concerns over the wage requirements in the new regulatory scheme, raising questions about whether the new incentive will produce the number of desired units.
The city also passed an incentive program for office conversions. But while the scheme’s tax break expires after 35 years, it requires rent-restricted units to remain under regulation in perpetuity — another feature that could prevent developers from using the program.
Office conversions, meanwhile, are gaining steam after a slow start. Early on during the pandemic, turning empty office buildings into housing seemed like a no-brainer. But at first many office owners and their lenders were willing to extend loans. They weren’t ready to swallow their losses and sell buildings at the kinds of discounts converters needed to make their projects pencil out.
People started to use the word “panacea” to describe what the trend wasn’t: a cure all for either of the city’s problems with empty offices or dearth of new apartments. Slowly but surely, though, projects started to get lined up.
Nathan Berman of Metro Loft Management is working on at least four projects, three of which are 1,300 units or more.
His biggest is the conversion of the former Pfizer headquarters in Midtown. The building will be turned into 1,500 rental apartments — the largest office to residential conversion ever.
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