Chicago is offering financial help to developers willing to convert aging office towers into residential buildings, a new program that could become a test case for other cities looking to promote these office conversions.
City officials said they would provide 10 of mn of dollars in subsidies to revitalize the LaSalle Street corridor whose landmark office buildings made up the thriving center of Chicago business for decades. Since the pandemic, though, the strip’s mostly vacant streets and towers have come to symbolize the slow pace that employees have been returning to office buildings.
Chicago is hoping to create 1,000 apartment units in the initial phase of the program, at least one-third of them affordable to people with low or moderate incomes, and projects could begin as early as next year.
California Gov. Gavin Newsom signed legislation to accelerate zoning and permit approvals for conversions of properties such as office parks and strip malls into housing. A task force formed by New York City Mayor Eric Adams is studying subsidies, zoning changes, and building code modifications that would accelerate such investments. “We’re taking a look at everything,” said Dan Garodnick, Chair of the City Planning Commission and the Head of the task force.
Members of Congress have introduced legislation to provide tax credits for conversion projects. Modeled on historic preservation tax credits, the benefits would be available to buildings that were 25 years or older and are “underutilised in part due to Covid,” said David Downey, President of the International Downtown Association, a business group that is supporting the bill.
These programs reflect a recognition that the healthiest downtown areas emerging from the pandemic are those with a mix of housing, offices, and retail, while the most troubled are the ones primarily all-office. While developers have been converting obsolete downtown office and loft buildings for decades, these projects present challenges that prevent them from proceeding on a large scale.
Most business districts lack grocery stores, dry cleaners, and other services that people want in residential areas. Many office buildings, especially those built after World War II with floors bigger than football fields, can’t be carved up into apartments with windows, bathrooms and kitchens without prohibitive costs. Projects also typically require changes in city zoning and building codes. Still, conversion projects have begun to look more appealing to developers because the pandemic and the new workplace patterns triggered a sharp drop in office-building prices.
In cities like Washington, D.C., office buildings that sold for about $500 a sq ft before the pandemic are now selling for $200 an sq.ft, according to Michael Pestronk, Chief Executive and Co-Founder of Post Brothers. His company has completed four office conversion projects and is looking for others in other cities including Philadelphia and Washington, D.C.
