The recent shutdowns of construction projects in Manhattan, including SL Green Realty’s $805 million conversion project at 750 Third Avenue, have raised concerns about the future of office-to-residential conversions in the city. According to the report, work was also stopped on the conversion project at 222 Broadway, but picked up again soon after at both projects.
Former developer Laura Rapaport, founder of C-PACE lender North Bridge, believes that while there will be more scrutiny, there will also be successful conversion projects in New York and other cities. Rapaport said, “I have to imagine there will be more scrutiny, but I also believe that there will be very successful conversion projects in New York and other cities.”
The alternatives to office-to-residential conversions are limited, and the margins are getting slimmer due to spikes in inflation and other costs. Developers like Richman Group and Monadnock Development are trying to make the state’s 485-x development program work, but building 99 units at a time is not going to meet the Mamdani administration’s goal for 200,000 units of new housing and the preservation of another 200,000 units.
Some developers have gotten ambitious, with Richman Group and Monadnock Development filing plans for an 828-unit residential building at 243 East 125th Street in Manhattan’s East Harlem. However, until more information is available about the project, it’s difficult to say whether it can be easily replicated.
Last week saw nearly a dozen important earnings calls, with reports varying from poor to excellent. Empire State Realty Trust saw a dip in funds from operations, due in part to a dropoff in tourists to the Empire State Building, which experienced a drop in visits. Blackstone Mortgage Trust logged $81.2 million in net losses, while Welltower boasted the acquisition of Amica Senior Lifestyles and $7.2 billion of outpatient medical property sales.
Vici Properties seemed to hint that the company is gearing up to build a National Basketball Association arena in Las Vegas, riding the city’s “massive growth in pro sports.” The major real estate firms, including Newmark, JLL, and CBRE, all had solid news to report, with revenue increases and growth in cash flow from operations.
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Other companies, such as Equinix, also reported better-than-expected results, with Equinix seeing a revenue uptick.
Data center developers are doing well in the current climate, with some building on spec. Morris Betesh, founder of Arrow Real Estate Advisors, calls these developers “wildcatters” because they buy land with the optimism that they can turn it into powered land with 100 megawatts of power. As Betesh said, “I call them ‘wildcatters’ because, in the same way people would buy tracts of land, drill, and hope to find oil, they buy land with the optimism they can turn it into powered land with 100 megawatts of power.”
In terms of the impact on the people most affected by these developments, it’s likely that the increased scrutiny of office-to-residential conversions will lead to more careful planning and execution of these projects. This could result in better outcomes for residents and communities, as well as more successful conversion projects for developers. The growth of data centers is also likely to have a significant impact on the industry, with more developers building on spec and investing in this area, such as Equinix raising its forecast.
The Gotham Organization’s Picket family is one example of a family that is prioritizing affordable housing, with Matthew Picket saying that the Mamdani administration is prioritizing a lot of affordable housing and deeply affordable housing getting built, and that’s obviously in their core expertise. They are focusing on this area.
They will continue to evolve.
