What Is A Candidate For Office Conversion?

On today’s show we are talking about the conversion of office space. 

The problem with most office buildings is that they are the wrong shape to build apartments. Many office buildings are square in shape and most apartment buildings are rectangular, or L shaped, or U shaped. 

Apartment buildings need lots of windows. Living rooms need windows and bedrooms need windows. Offices do benefit from natural light, but in truth, a sunny south facing window creates so much glare that it makes it impossible to read the screen on your desk. Windows remain covered for much of the day. 

We’re going to be using a case study of an office building that is part of the Kanata Research Park. The building is part of a very large office park and is located next to a four star hotel that is also located within the office park. 

It’s no surprise that office vacancy has hit this location, just as it has impacted many offices during the pandemic and the slow return to office trend since the pandemic. 

So the owner of the building made the decision to convert one of the half dozen buildings on this particular site to residential and move the remaining commercial tenants to other buildings within the same complex. 

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Episode Transcript

(00:02):
Welcome to the Real Estate Special Podcast.
Good morning shot of what's new in the world of real estate
investing. I'm your host, Victor Minash.
On today's show, we're talking about the conversion of office
space. The problem with most office
buildings that they're the wrongshape to build apartments.
Many office buildings are squarein shape.
Most apartment buildings are rectangular or some are l-shaped
or even U-shaped. Apartment buildings need lots of

(00:24):
windows. Living rooms need windows.
Bedrooms need windows. Offices do benefit from natural
light, but in truth, a sunny S facing window creates so much
glare makes it impossible to read the screen on your desk.
These windows often remain covered for much of the day.
Some office buildings have a very large floor plate.
For example, in New York City it's very common to see floor

(00:45):
plates that measure 200 feet by 200 feet.
These are so large that you havenearly one acre of land on each
floor of the building. There's too much area in the
core of the building. There's only so many bathrooms
and closets and laundry rooms and kitchens that you can put in
the core. At a certain point it just gets
silly. So the question we're going to
examine on today's show is what's the maximum dimension

(01:06):
that you can practically have ina square building and still have
a viable conversion project? We're going to be using a case
study of an office building that's part of the Canada
Research Park in Ottawa, Canada.The building is part of a very
large office park and it's located next to a four-star
hotel that's also located withinthe office park.
It's no surprise that office vacancy has hit this location
just as it has many offices during the pandemic and the slow

(01:29):
return to office transcends the pandemic.
So the owner of the building made the decision to convert 1
out of a half dozen buildings onthe property to residential and
move the remaining commercial tenants to other buildings
within the same complex. Now, I'm familiar with this
particular building because my son is actually in charge of
managing facilities within the research park.
The building in questions an 11 story building that measures 51

(01:52):
meters by 51 meters, 167 feet ona side.
It's not an ideal shape for residential and the floor plate
is pretty big. However, the architect has
designed a typical floor which has a fairly fact, surprisingly
efficient unit layout. The overall design consists of a
commercial ground floor with apartments on the upper levels

(02:12):
for a total of 115 apartments. The typical floor is 13
apartments. The core of each floor has 2
fire escape stairways and the elevator core and a couple of
rooms with storage lockers in the utilities.
The hallway then circulates around that to meet up with each
of the individual units. Overall, the layout was just
under 80% efficient, which is not terrible considering the

(02:34):
very large core on each floor. The largest apartments measure
40 feet in depth from the windowto the hallway, the center of
the building, which is pretty deep for an apartment.
Most apartments would be closer to 35 feet, and the smaller
apartments are about 25 feet deep.
The apartments are definitely onthe large side.
The smallest one bedroom is 681 square feet, and the two-bedroom

(02:56):
apartments are just under 1000 square feet.
One bedroom plus 10 or about 800square feet.
So if you were designing a brandnew building from scratch, you
would never make the units quitethat large.
The numbers wouldn't make sense in that location.
But if you're already on the building and you're leveraging
the structure, the extra floor area might still work.
It all comes down to understanding the numbers and
whether you can get the base building at a low enough price.

(03:18):
This particular building is about the limit of what I would
consider to be possible as a candidate for conversion.
Now the good news is the building has windows on all four
sides with no visual obstructions.
There's numerous office buildings with single air
handling systems and a wide openfloor plate.
All of that's got to be removed.The windows are often window
walls with no opening windows. That doesn't work for

(03:40):
residential, so we're going to be replacing the building's
exterior with new Windows and insome cases adding balconies.
That will add a lot of cost to the entire conversion process.
There's numerous obstacles to converting office buildings to
residential. You need to fully gut the
building, and you need to drill thousands of holes in the
concrete slabs just for the plumbing.
At the same time, you have to make sure that none of those

(04:02):
holes will compromise the structural steel that's embedded
in the concrete, and that often means X raying the building
prior to drilling. This is an example of a building
that will make a successful conversion project.
It's also what I would consider to be the limit of an
economically viable conversion project.
What that would look like. By studying the plans of other
conversion projects, you can getideas for what might be

(04:23):
feasible. Now, we're not going to copy
another architect's intellectualproperty, but you can definitely
study these designs for insightsas to the types of design ideas
that might work to satisfy various design constraints.
There's hundreds of millions of square feet of vacant office
space across the US and Canada. There's over 100 million square
feet of vacant office space in New York City alone.
And so far in New York, about 12and a half million square feet

(04:45):
have been converted to residential.
There's a large number, and it represents something in the
range of about 17,000 units of new apartments in New York that
have been repurposed from office.
So pay close attention to the types of buildings that might be
candidates for conversion. As you think about that.
Have an awesome rest of your day.
Go make some great things happen.
We'll talk to you again tomorrow.