High Cost of Office-to-Residential Conversions Adds to Developer Reluctance
At a time when there has been the push to convert obsolete office buildings to residential use, in addition to considering determining if the building’s structure makes is a feasible candidate for conversion, another major factor is the cost. Recently SL Green Realty revealed some insight into the finances for a conversion project, citing its 750 Third Avenue building as an example. Spanning the entire blockfront of 3rd Avenue between East 46th and 47th Street, the planned 639-unit conversion of the 34-story, 818,000-rentable-square-foot building built in 1956 will have a cost of more than $800 million according to reported statements by the REIT; and despite respective state and city enacted 467-M tax incentive and M-Core incentive programs to help subsidize conversions, the high cost on top of other structural challenges illustrates why developers are reluctant to undergo this type of project. SL Green has owned the property since 2004, paying $255 million upon purchasing it from the Teachers Insurance & Annuity Association. Construction is slated to break ground next summer. A “13-floor slice of the building’s midsection overlooking the avenue” will need to be removed in order to create adequate living space, and “11 floors will be added to the western half.” A members-only club and fitness center will be constructed on the lower floors and interior units will be turned into storage facilities. As part of the project, 25% of the residential units will be designated for affordable housing, while the “market rates are to be around $7,000 a month for an 800-square-foot unit,” according to reported figures shares with investors yesterday. An additional development incentive aimed at reactivating the sites of office buildings that are no longer viable is currently under discussion between the Adams administration, the Real Estate Board of New York (REBNY) and the New York City Economic Development Corp. (EDC). The proposal would help bring down the cost of demolition of buildings that “aren’t landmarked and which no longer attract tenants.” A recent news release cited the estimated $160 million cost incurred by JPMorgan Chase for the demolition of 270 Park Avenue three years ago to make way for the currently under construction $3 billion new 70-story tower. However, unlike JPMorgan, many developers without the financial giant’s resources would need some “combination of property tax discounts, loan subsidies, or even cash grants to incentivize these projects.
Source: https://www.crainsnewyork.com/real-estate/sl-green-reveals-high-cost-residential-conversion-midtown