Unleashing the Speed and Efficiency of Prefabricated Solutions on the Office-to-Residential Market

In the wake of the pandemic, the value of office space has plummeted. By 2028, there will be over 1.5 billion square feet of vacant office space in North America. But where others see a crisis, Arthroto sees an opportunity.

The startup has a vision for repurposing the growing swaths of underutilized office spaces into new housing and mixed-use stock, leveraging cutting-edge technology and holistic planning to deliver results quickly, efficiently, and at a cost that makes more projects possible in the first place. In the process, the firm aims to upend 100 years of conventional drywall construction and innovate a better way of building. The Real Deal sat down with Arthroto’s President and Founder Doug Hayden, COO and Co-Founder Spencer Marks, EVP of Government Relations and Development Eric Lieberman, Director of Marketing and Communications Julie Haskill, and Benjamin Urban, CEO of prefabricated interiors company DIRTT, to get a look at how the firm is building partnerships that will take office to residential conversions into the future.

The Calgary Example

The major problem that Arthroto exists to solve is the overstock of office space and the corresponding lack of housing in the same geographical area. Hayden was first inspired to build Arthroto when he watched his hometown of Calgary institute a program to convert office to residential in the wake of a major downturn in the oil industry. The city’s downtown core was hollowed out as longtime office tenants went out of business, creating an imbalance between office space and housing.

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“The city came up with a program that was essentially a tenant improvement. They automatically zoned buildings within a certain area for conversion and would write a check for $75/square foot of a building that you converted into residential,” recalled Hayden. “It was so successful that they recently had to suspend it.” 

The Post-Pandemic Landscape

The success of the Calgary initiative inspired architects and developers to create a basic framework for office-to-residential conversation that could be applied across North America. Hayden kept an eye on these developments over the years, and, as the post-pandemic environment created a series of Calgary-style collapses in downtowns across the continent, he saw an opportunity to build a solution that could be applied at scale. 

Another crucial piece of the puzzle was the move by the Biden administration to support office-to-residential conversions with measures similar to those deployed in Calgary. “At the end of the day, this type of conversion needs to be subsidized,” said Hayden. “Fortunately, the Federal Government understands that and came up with a program to make this possible.” With all these elements in place, the time for Arthroto had arrived.

Hayden, who comes from the world of prefabricated construction, approached Marks, a tech sector veteran with experience building partnerships in that industry. Together, they created Arthroto as an integrator focused on forging partnerships that would facilitate office-to-residential conversions at a scale never before possible.

“Arthroto means ‘to join,’” explained Marks. “We’re bringing solutions partners together with investment and capital partners, along with building owners, particularly those with distressed assets.” It was time for Hayden, Marks, and their team to put their ideas into practice.

Changing the Possible with Prefabrication

Arthroto forged its first major partnership with DIRTT, a leading Calgary-based interior construction firm that utilizes prefabrication to streamline the building process from beginning to end. Arthroto is bringing DIRTT, which is already a major player in commercial and life sciences interiors, into the residential space in what Hayden and DIRTT CEO Benjamin Urban see as a natural extension of the firm’s strengths.

“From a reuse perspective, there isn’t any other vertical that requires or has an appetite for change like residential,” said Urban. “Arthroto is spearheading the ability to not only convert existing structures, but provide a different level of future-proofing.” 

By utilizing DIRTT’s prefabricated interiors, Arthroto is able to reduce the lead time, material cost, and the physical disruption of converting a space from office to residential. Interiors are designed and built at DIRTT’s factory before being shipped to the location in a form that can be installed in a fraction of the time it takes to build a traditional interior. These interiors also come with elements like electrical already in place, reducing reliance on trades whose costs are increasing due to labor shortages. 

“We’re talking about a completely different timeline when it comes to prefabricated when compared with traditional construction,” said Hayden. “What might have taken twenty-five to forty weeks, we can come in and do in six.”

What does this mean for building owners? “We call it construction without disruption,” said Hayden.  The efficiency of prefabricated interiors makes converting a single floor quick and easy compared with a lengthy construction process that requires weeks of rotating various tradespeople in and out of the building. 

“We have the ability to flex with whatever the demand is within a single building,” said Urban. “You don’t have to build out the entire thing before you can start leasing it, which allows you to build it and lease it just in time.” 

Better still, once the interiors for a building have been designed, they live in DIRTT’s system, meaning that a building owner can convert floors on an individual basis as leases end or tenants leave. “As other floors become available, we already have a layout,” explained Marks, “so we just go back to the factory and print out more floors.” 

A New Vision for Building

Thanks to the efficient nature of prefabrication, the cost scales from an individual floor to an entire building, introducing a level of flexibility to these types of office-to-residential conversions that were unheard of before Arthroto. 

This vision represents a fundamental shift in how we can look at our built environment moving forward. By making scalable office-to-residential conversion a reality, Arthroto is creating a future for buildings that would otherwise have been demolished. This not only helps reduce waste from needless rebuilding, it opens up new opportunities for creating mixed-use spaces in areas that had been dominated by business districts that were vacant after work hours.

“It’s a perfect storm for urban planners,” said Lieberman, who spearheads Arthroto’s Government Relations and Development arm. “We’re helping them bring their dream of revitalizing these single-use communities to life.”

“A big part of Arthroto’s mission is getting people out of that mindset that there is only one way to build, that there’s only one way that things can go up,” said Haskill. “Prefabrication is quicker, it’s more efficient, and the spaces it creates are beautiful.” Arthroto is building partnerships across the industry and putting together capital stacks that ensure projects get off the ground in the first place. By combining prefabrication with its vision for the next phase of urban living, Arthroto is giving owners of distressed assets a new way to make adaptive reuse happen.

Arthroto is positioned to make major contributions to solving the dual problems facing the office and residential real estate markets. To learn more, sign up for “The Future of Housing in North America,” a virtual conference being held on February 22 where attendees will gain insight into the evolving residential real estate landscape as well network with other builders and investors.