NYC’s Silverstein to Raise $1.5 Billion for Office-to-Housing Push

I can't recall which thread veered into a discussion of converting office buildings to residential, but, based on this article and some others, it seems to be an accelerating trend. We need more housing stock and corporations need less office space. It seems like a great idea to me.

NYC’s Silverstein to Raise $1.5 Billion for Office-to-Housing Push

December 5, 2022 at 10:00 AM ESTUpdated onDecember 5, 2022 at 12:21 PM EST

New York developer Silverstein Properties is seeking to raise $1.5 billion for converting older offices to residential buildings. 

The landlord, known for developing towers at the World Trade Center, is in talks with investors to kick-start what could be a “$10 billion-plus” opportunity, Chief Executive Officer Marty Burger said in an interview. The firm is exploring acquisitions of Manhattan office buildings that are facing growing vacancies or debt burdens. The effort could potentially expand to other areas of the US, such as Washington, D.C., Boston and the West Coast.

“It’s a huge market,” Burger said. “Our acquisition group is solely focused on this right now.”

Earlier this year, Silverstein Properties agreed to buy a Financial District office building with partner Metro Loft Management. They plan to start transforming the property, at 55 Broad St., into residential units in 2023, Burger said. It will be Silverstein’s first joint-venture conversion project with Metro Loft. 

Last year, Silverstein purchased 116 John St., a former office tower that Metro Loft had already converted to housing. 

New York landlords are exploring opportunities to convert obsolete offices to residential use as vacancies and costs for modernizing the properties mount. With some tenants scaling back their space, and others flocking to newly built developments, many older towers sit largely empty. At the same time, demand for apartments in Manhattan pushed rents to records this year.

“Now is the perfect storm where office is not in favor, and the residential market is very hot,” Burger said. “Hopefully we can acquire some of these office buildings that may be obsolete or may not be their highest and best use as an office building, and convert them to residential use, which the city desperately needs.”

Eastdil Secured is advising Silverstein on the fundraising effort. 

In reply to dyintorace :

It's a great idea, there are a lot if buildings out there waiting to be used and rents are out of control here

Since Covid, many businesses realize their people are just as productive and happier working from home.  Why pay for an office downtown?  I would consider it if the building came with parking.

In reply to dyintorace :

It’s a start, something needs to happen.  Rents in Boston average $3,500 a month, here in our area roughly 30 miles outside Boston it’s $2,500 a month for a one bedroom apartment or $400K for a small ranch style home.   30 odd years ago my wife and I couldn’t afford to live in the towns we grew up in.  Our kids quite possibly won’t be able to afford to live in the state that they grew up in.  

Relevant article that just came out: https://www.businessinsider.com/remote-work-gutted-city-downtowns-office-real-estate-apocalypse-2022-12

A likely even bigger effect than the reduction in home prices will be the reduction in geographic income concentration. Right now people are taking their big city incomes elsewhere, but in the future those big city incomes just won't exist (some companies are trying to speed this up by cutting workers' pay if they move to cheaper cost-of-living areas).  This will reduce home prices again as it drives down 2nd home ownership and reduces the number of people who can make stratospheric offers on houses, and as pay equalizes by region it will incentivize people  to move to cheaper areas.

I read one article recently that said New York City has the largest exodus of millennials among major cities in the U.S. It's not by a little, either - It was like 3x as much as the others. They make all this housing, but who's going to be using it? Plus, will it actually be priced at a level for someone other than the 1%? 

Nevertheless, it's an interesting concept as many cities will have this issue of excess office space. Heck, office space always seems to be in overabundance. I always found it amazing how the commercial landlords actually made money.

I would like to think this is going to happen in an impactful way but I'm skeptical. The article in the previous post compares cities and high rises to manufacturing buildings from the 20's. Well you see some of those converted to living spaces but the % is really low. There are far more of those torn down or converted to warehouses than made into housing (that is not data based, that's personal observation based). I think we will see some commercial real estate in cities turned into housing but it won't be cheap and I don't think it will be ubiquitous. 

GameboyRMH said:

Relevant article that just came out: https://www.businessinsider.com/remote-work-gutted-city-downtowns-office-real-estate-apocalypse-2022-12

A likely even bigger effect than the reduction in home prices will be the reduction in geographic income concentration. Right now people are taking their big city incomes elsewhere, but in the future those big city incomes just won't exist (some companies are trying to speed this up by cutting workers' pay if they move to cheaper cost-of-living areas).  This will reduce home prices again as it drives down 2nd home ownership and reduces the number of people who can make stratospheric offers on houses, and as pay equalizes by region it will incentivize people  to move to cheaper areas.

I haven't heard of companies cutting wages if you move somewhere cheaper. I can find articles of companies that were threatening to do it 15+ months ago, but didn't follow through. I work for a big tech company, but live somewhere relatively cheap. I do know they absolutely will not increase your pay if you decide to move somewhere more expensive. 

As for the effect of housing prices? I suspect the "most desirable" cities may pull back a bit, but on the whole will still continue to grow. I think bigger impact is going to be in traditionally more affordable cities seeing big rises in prices. For example, where I am. Typically the middle of the country sees the typical 3-5% increase in home prices every year (barring crazy stuff like the '08 housing crisis), no big booms, no big busts like the coasts. 

Of course my speculation is worth exactly what you paid for it. 

Doesn't $1.5 billion in NYC just about cover the permit costs? But seriously, that's not going to go very far.

That said, San Francisco is in the same pickle only probably worse. With tech trimming down or moving out and lots of people working from home, downtown is looking mighty empty. Problem is, whenever I see " affordable" housing, it means that it's merely very expensive instead of insanely expensive.

J.A. Ackley said:

I read one article recently that said New York City has the largest exodus of millennials among major cities in the U.S. It's not by a little, either - It was like 3x as much as the others. They make all this housing, but who's going to be using it? Plus, will it actually be priced at a level for someone other than the 1%? 

Nevertheless, it's an interesting concept as many cities will have this issue of excess office space. Heck, office space always seems to be in overabundance. I always found it amazing how the commercial landlords actually made money.

Isnt a big part of exodus due to housing prices?

In reply to 93EXCivic :

It isn't helping. I moved out 20 years ago because housing was insane. It's only gotten worse.  Almost none of my coworkers live close to work except in very small apartments or neighborhoods that are pretty inconvenient to commute from.