Office-to-resi conversions sweep through DFW
Dallas-based Bluelofts going all in despite skepticism
Ike Bams and John Williams hear all the noise. Too risky, too complicated, too much red tape, and the list goes on. But the intrepid duo who run Bluelofts in Dallas are banking on office-to-resi with nearly 3,000 units in the pipeline. And they don’t plan on stopping there.
Office-to-residential conversions aren’t new, but the trend has taken off since remote work became more the norm, pushing many companies out of their old spaces. Over 16 percent of Texans work remotely now, a figure that has tripled since before the pandemic, according to U.S. Census Bureau data.
Texas is faring better than most markets when it comes to workers returning to the office, with a demand for new Class-A mixed-use spaces, but some older, vacant buildings in urban areas are struggling to attract tenants. And that’s exactly what Bluelofts is looking for.
The firm has acquired office buildings in the downtown areas of Atlanta, Cleveland, Fort Worth and Dallas in the past few years. Williams and Bams say the key to conversions is going after the right investment.
“Our construction cost is often several times the acquisition cost,” Bams said. “We know what we are looking for, so when we acquire an asset, we look for the best location, straightforward to convert, and we utilize as much of the existing building as we can.”
The plan is to gut and redevelop about 900,000 square feet across the firm’s various acquisitions and turn them into residences with high-end amenities and ground-floor retail and commercial spaces.
The duo met around 10 years ago while they were working for Harvard Companies. They eventually branched off to start their own acquisition based venture and began identifying office-to-resi conversion projects four years ago, with little success or support. But Bams said the onset of the pandemic quickly changed that notion and they took advantage of it.
“Building owners who didn’t want to deal with us before or take our offers, started reaching out. We knew that if office was struggling before COVID, now is the time to double down and get after it. In Dallas, they overbuilt during the ’80’s and now there is no way to attract enough tenants to occupy these spaces. And on the flip side, there is a shortage of housing; it’s a natural transition,” Bams said.
Now finding partners and investors willing to bet big on resi conversion projects isn’t so difficult. Notably, Kenneth Wolfe of Wolfe Investments based in Plano has financially backed Bluelofts acquisitions.
With Wolfe, the company dropped a reported $21 million on 45 Erieview Plaza in Cleveland and recently acquired the famous Oil and Gas/Star-Telegram Building at 309 West Seventh Street in Downtown Fort Worth for an undisclosed amount. The team plans to convert the 166,000 square foot, 16-story building into 180 apartment units.
These projects have potential to bring massive returns if the buildouts go smoothly, though some say that’s a massive “if.” Still, the Bluelofts team is projecting an annual 25-30 percent return on investment, according to its website.
The challenges of office-to-resi conversions are spelled out in a blog post by Will Curtis, managing director of real estate firm Phyllis Browning Company. The difficulty in finding a fully vacant building, fronting the high costs, dealing with zoning and code compliance issues, plus the length of construction is too high a barrier of entry for most developers, Curtis wrote.
“Conversions do happen, but quickly changing market conditions and the challenges presented by other factors make this type of project difficult,” he wrote.
Bams and Williams said they know it won’t be easy, but if it was, wouldn’t everyone be doing it?
“We strongly oppose the idea that it’s not feasible. By 2050, it’s said that over 50 percent of the overall population will be living inside of the world’s downtowns,” Williams said. “As the population is growing tremendously in these urban markets, we are in the right place at the right time.”
Here is a look at some other prominent office-to-residential conversion projects across Dallas:
The 50-story Santander Tower — formerly the Thanksgiving Tower — at 1601 Elm Street in Dallas’s Central Business District is getting its resi makeover.
Built in 1986, The tower’s transformation is part of a long term plan by Dallas-based Woods Capital to convert about 800,000 square feet of its office portfolio into luxury apartments. Redevelopment plans include 228 new apartments in the 1.4 million-square-foot office tower.
Energy Plaza, a 49-story tower that opened on Bryan Street in 1983, is also set to be converted into apartments by its new owner Todd Interests.
“The conversion of some of these 1980s towers to residential could be one of the best things that has happened to our central business district,” said Phil Puckett, vice chairman of CBRE Group. “If all of these conversions take place, this could reduce our total office space square footage by approximately 3.7 million square feet.”
Comerica Bank Tower
The Comerica Bank Tower in downtown Dallas recently acquired a new owner, with plans for a hotel and resi makeover for part of the building. Woods Capital — already one of the largest owners downtown — is taking a large stake in 1717 Main Street.
The 60-story Comerica Bank Tower contains 1.5 million square feet of office space. Woods Capital affiliate Pacific Elm Properties will work with TriGate to renovate the building. They plan to add residences and hotel rooms to the office tower.
Bryan Tower, another Woods Capital acquisition last year, is located at 2001 Bryan Street and will be partially converted into residences. The 40-story, 1.1 million-square-foot high-rise built in 1973 was sold after dropping to about 35 percent occupancy.