Introduction to Conversion Mania
Last year saw twice as much Manhattan office space start to be converted into apartments as the year before – a boom that’s poised to change the chemistry of Midtown neighborhoods historically dominated by office towers, hotels and entertainment venues.
Affected Areas and Buildings
Among them: at least four buildings on Third Avenue in the East 40s and 50s and 135 E. 57th St. at Lexington Avenue, once a symbol of the late-1980s office-development craze. The conversions will bring 24/7 energy and domestic warmth to blocks that are typically quiet after dark.
On the other hand, RXR’s conversion of 5 Times Square into 1,250 apartments — which was one of the quartet of West 42nd Street towers that proclaimed a new era for the “Crossroads of the World” — might have a calming effect on the frenetic street scene around it.
Conversion Statistics
Apartment conversions are occurring in at least four buildings on Third Avenue in the East 40s and 50s and 135 E. 57th St. at Lexington Avenue (above).
A new study by Cushman & Wakefield, reported in the Commercial Observer, found that conversions of 3.3 million square feet were underway in 2024, compared with 1.6 million square feet in the year before.
The momentum continued after the last New Year’s Eve ball drop, Cushman found, with 4.1 million square feet of conversions begun through August.
Addressing Crises
The transformations address two simultaneous crises — the city’s well-known rental housing shortage and the galloping obsolescence of many older office buildings.
Cushman senior research manager Reed Hatcher told the Commercial Observer that “policy support” was helping to accelerate conversions — namely, rezonings by the city to make conversions possible where they weren’t previously allowed, along with state-approved tax incentives to sweeten the deals for developers.
Examples of Conversions
RXR is converting 5 Times Square into 1,250 apartments.
The rezoning of Midtown South, passed last summer, quickly brought results. A partnership just bought 12-story 29 W. 35th St. with plans to create 100 studio apartments.
Now the wave is swamping Midtown, including the former Pfizer headquarters at Third Avenue and East 42nd Street.
Miller Samuel appraisal expert and market analyst Jonathan Miller told The Post that converted units tend to be as popular with renters as newly built ones.
“They’re generally accepted in the same manner as ground-up construction,” he said. “Of course, there may be projects of either type that are slower to be accepted, but not because one involves conversion and the other ground-up construction.”
Impact on Office Inventory
Conversion mania contributed to a drop in Manhattan’s office inventory from 466.1 million square feet in the second quarter of this year to 449.4 million square feet in the third quarter, according to Savills.
Most conversions before 2020 were in Lower Manhattan, especially in older buildings in the Wall Street area. The phenomenon continued recently at 25 Water St., where tenants are moving into 1,230 rental units.
Ongoing Projects
SL Green is carving over 600 rental units out of 750 Third Ave.
Now the wave is swamping Midtown, including the former Pfizer headquarters at Third Avenue and East 42nd Street. The project by MetroLoft Developers and David Werner Real Estate Investors will yield 1,602 new rental homes — the largest such project in the US. As The Post reported, it will boast 100,000 square feet in tenant amenities including a rooftop pool.
SL Green is carving over 600 rental units out of 750 Third Ave., where 13 floors are being chopped out on one side to create a winter garden. Meanwhile, Vanbarton group just nailed down a $300 million loan from Brookfield to purchase the vacant office building at 6 E. 43rd St. near Grand Central Terminal and convert it to 441 rental units.
Buildings Department filings showed that nearby, Rudin plans major East Side conversions at 845 Third Ave. and 355 Lexington Ave.
Conclusion
The conversion of office space into apartments is a growing trend in Manhattan, driven by the city’s rental housing shortage and the obsolescence of older office buildings. With policy support and tax incentives, developers are increasingly turning to conversions as a way to meet the demand for housing. As the trend continues, it is likely to have a significant impact on the city’s neighborhoods and office inventory.
FAQs
Q: What is driving the conversion of office space into apartments in Manhattan?
A: The conversion of office space into apartments is driven by the city’s rental housing shortage and the obsolescence of older office buildings.
Q: How many square feet of conversions were underway in 2024?
A: 3.3 million square feet of conversions were underway in 2024, compared with 1.6 million square feet in the year before.
Q: What is the impact of conversion mania on Manhattan’s office inventory?
A: Conversion mania contributed to a drop in Manhattan’s office inventory from 466.1 million square feet in the second quarter of this year to 449.4 million square feet in the third quarter, according to Savills.
Q: Are converted units as popular with renters as newly built ones?
A: Yes, according to Miller Samuel appraisal expert and market analyst Jonathan Miller, converted units tend to be as popular with renters as newly built ones.
