The Shoe Doesn't Always Fit: Converting Office into Multi-Family Dwellings

Commentary by Principle Martin Goldstein, featured in Colorado Real Estate Journal, March Edition.

As we kick off 2023, we wanted to provide insight into one of the most popular and discussed trends of the past year, converting office space into multifamily dwelling units. We’ve conducted extensive research on the topic and are actively designing a project that will convert an existing eight-story office building in downtown Denver into 116 dwelling units. Adaptive reuse is not a brand new idea, but it has significantly picked up steam over the course of the last 12 months as seen by the massive number of articles depicting the decrease in office building occupancies coupled with a shortage of apartments. It’s safe to say that this technique sounds like a win-win solution to solve both problems. Especially from an environmental standpoint, reusing existing buildings is much more sustainable than demolishing and rebuilding foundations, structures, skin and egress systems. However, the reality can be more complicated. 

On paper, converting the surplus of office space into much-needed dwelling units seems like a no-brainer, and depending on the project’s details, it can be. It’s similar to how tenant improvement/office projects often are thought to be easier to design and construct than new-builds, whereas the exact opposite can often be true. Based on our experience with this adaptive reuse, although an office building may have existing components that would be helpful and cost-effective to reuse for residences, some of those same “helpful components” also can cause unexpected headaches and cost down the road when fully vetted. 

From the outset, the basic layout of office buildings can be markedly different from what residential projects need. That’s because they have different needs that influence how they’re both configured. For example, apartments typically require longer, narrower building footprints. Office buildings are more flexible in this way. They require workplace strategies that respond to coworking layouts and private, heads-down work and teaming spaces – all of which can be laid out in ways that residences cannot. So, it’s critical to evaluate each project and the particular existing building on a case-bycase, detail-by-detail basis. 

This is especially true when you take a building design that typically was intended to solely function as an office building and then try to convert it into apartments. For instance, consider the systems inside and services provided to an office building. They simply are not the same as a multifamily residence. Just visualize all the additional bathrooms located inside every unit or the number of kitchens provided to all of the units. It’s easy to encounter insufficient existing water and sewer services to the existing office building. Upgrades to utilities (i.e., water, electrical, gas) may be required. Those seem like isolated and quantifiable costs, but they can in turn expand when those components need to be run up and through the building – especially if the existing structure needs significant adjustments to accommodate increased primary service/riser lines/shafts running up the interior of the building. 

A more recent obstacle has evolved from the 2022 Denver Amendments to the 2021 IMC that affects any project submitted after May 1. They will no longer be able to utilize operable windows in their air-flow calculation. While modern office buildings often have fixed windows, and replacing them with operable ones is expensive and technically challenging, it was still a lesser of two evils. With the recent amendments, conversion projects may be forced to add makeup air systems that could potentially be an insurmountable hurdle turning what once was a slam dunk into a potentially sunken pro forma. 

There are certainly scenarios where converting office space into apartments isn’t only feasible but is also the best solution for the developer and the community. If a building is the right shape, has the right location and the existing building upgrades fit within the proforma’s constraints, then it can be a viable option. Understanding when and where the conversion makes sense will be the key to keeping this much-needed trend afloat. With the right team, and a creative, exploratory minded approach, the problems can often be solved with excellent results. In those cases, these conversion projects afford tremendous value and sustainability by delivering much-needed multifamily from today’s lesser-needed office stock.

CREJ Article