Chicago's Mayor Lightfoot is attempting to pass a new program to offer incentives to convert older office buildings in the downtown core into multifamily housing. These programs include affordable housing stipulations and tiered tax incentives for builders.
Cities are ever evolving. I view many of these conversions as inevitable. Leveraging preexisting structures in downtown cores to produce a healthy mix of affordable and market rate housing is an obvious next step for downtown CBD's that have been gutted by WFH (San Francisco, Chicago to name a few). Considering the weighted average lease terms (WALT) for office tenants in many U.S. downtown cores are ~2.5 years, there is an exodus on the horizon. Sure, some firms will stay 5 days per week, and others will keep some space, but back offices and tech firms have already begun their exit.
The biggest challenges facing developers looking to pursue these conversions:
- Office owners pricing their buildings at unrealistic precovid levels
- Zoning / city use restrictions
- Construction costs
- Floor plate size -- every apartment needs natural light and windows in almost all rooms. It's hard to have cooridor layouts with access to elevator banks in buildings with wide floor plates. Older, smaller class B-/C/D office buildings will be prime for these conversions as they generally have much smaller floor plates.
I'm interested to hear everyone's thoughts on the future of these older downtowns.
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