What It Really Takes to Convert an Office Building Into Apartments

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, I think everyone sort of knows that, in many cities, but definitely in New York City, there's sort of this weird, like there's two simultaneous real estate problems, and they sort of complement each other in a weird way.

Tracy Alloway (0:28)

Right, okay, so rents are too high, there's a shortage of housing, and we have a bunch of empty office buildings, and there's a sort of obvious solution, which would be take all the empty office buildings and convert them into preferably affordable housing, and yet it seems to be very difficult to do that.

Joe Weisenthal (0:45)

I thought it sounded super easy, just like, oh, we're gonna turn these offices into homes now. Just let everyone move in.

Tracy Alloway (0:49)

Live in like an open plan trading floor or something.

Joe Weisenthal (0:52)

Yeah, it sounds nice.

Tracy Alloway (0:53)

It sounds all right.

Joe Weisenthal (0:53)

You know, put up some walls so people have some privacy.

Tracy Alloway (0:56)

Okay, but actually this reminds me, when I was at university, I had a friend who lived in a warehouse in London, and they built their walls out of cardboard to segment it. Hopefully that's not what we're doing here, but on a serious note, there are a number of difficulties, it seems, in doing this, and there are sort of physical ones around the actual layout of these former office buildings, but there's also regulatory, financial, and I hear people talk about it in a sort of abstract manner, but today I think we're gonna dive into them in a little bit more detail.

Joe Weisenthal (1:26)

Right, so it is, you know, we joked around, but it is, everyone says it is very difficult to convert an office into a residential building, but we're getting, you know, the opportunity is there, but we really understand, like, what are the constraints? What are, like, the real physical constraints? And how big is the opportunity? Because in theory, like, clearly more can be done, but, like, how much are we, like, moving, can this move the dial is, like, a really interesting question.

Tracy Alloway (1:50)

Yeah, and the other thing I kind of struggle to understand is New York itself is a city with a long history of carving up older buildings into new types of apartments. And so I wonder why it seems to be so much more of an issue this time around.

Joe Weisenthal (2:06)

Well, I'm very excited because today we do, in fact, have the perfect guest. You know, lots of people have been talking about this question really, you know, since the pandemic struck.

But our current guest has been working on it for a long time, since well before it was trendy to talk about, so the perfect guest. We are going to be speaking with Joey Chilelli. He's the managing director of the Vanbarton Group, which has been involved in the office to residential conversions for about a decade. So, Joey, thank you so much for coming on Odd Lots.

Joey Chilelli (2:33)

Thank you very much. Thank you for having me.

Joe Weisenthal (2:35)

What do you do at the Vanbarton Group?

Joey Chilelli (2:38)

So I'm within the asset management group and we oversee essentially the execution of the business plan once we acquire assets, different buildings.

Tracy Alloway (2:47)

So I'm gonna start very broad, but then hopefully we can sort of get more into like each one of these difficulties or problems. But what are the constraints around converting office buildings to residential?

Joey Chilelli (3:00)

Yeah, for starters, it's the zoning. So is the building that you're looking at within a zoning district that allows for it to be converted. That's number one. If that checks the box, there are essentially a whole list of things that you go through. And for me, and when I evaluate these, the structure and the light and air and the possibility of light and air, bringing that in to create residential units and ceiling heights.

So on a kind of concrete floor to the underside of the structure above, what is that height? And if that height is less than a certain distance, say if it's less than nine foot six or if it's nine feet, then once you factor in all of the MEPs, the mechanical systems that need to go in above.

Joe Weisenthal (3:51)

It's just like plumbing, electric, okay.

Joey Chilelli (3:53)

Plumbing, sprinkler, electric, all of those things that need to go in the ceiling above.

Joe Weisenthal (3:58)

Yeah.