Jul 26, 2016

Do Office Buildings Make Good Residential Conversion Candidates?

As you can see from this footage, Washington Avenue has a wealth of
terrific architecture and streetscapes, which combined with federal, state
and local tax credit programs, combined to make a successful conversion
district from business to residential. Many cities do not have this type of
architecture that lends itself so well to conversion.

A couple of months ago Washington DC took steps to encourage a mix of uses in place of aging office buildings at and around L’Enfant Plaza. This area is centered on a metro stop, has some older office stock that is competing for tenants in a booming office market with many new buildings popping up in more walkable, activity centers along other metro stops. The goal is easy to identify, bring residents into this aging office area. In practice, this is not so easy without incentives, something unique to offer and a building stock that converts easily and offers a product people want.

Could Calgary do things to encourage some of older higher vacancy office buildings into alternate uses such as residential? I’ll cover two efforts, one I worked on in Toronto in the late 1980’s and St. Louis where the downtown of the city was revitalized through conversions. The success of the two efforts are dramatically different.

What comes first, housing or retail and other amenities? That was our challenge when I was Planning Director in St. Louis. We were trying to convert dozens of abandoned historic shoe factories in downtown St. Louis into a vibrant mixed-use community. The key was the use of Community Development Block Grant funds to lure retailers into the ground floors where the demand was almost nonexistent. After all, having sandwich shops turn off the lights after the office workers go home does not a 24-7 community make.
Once a few retailers are convinced to stay open past 2 p.m. comes the challenges of converting an office building into a mixed-use building. It costs more to rehab than it does to build new, but creates more jobs. Added to this are the design restrictions of the floor plate that affect light: too deep to get light into the depths of a residential apartment and the lower ceiling heights of 40–year-old office buildings accelerate the shadows.

In St. Louis, historic tax credits on the stunning heritage factory buildings allowed up to a 37-percent write off on taxes, offsetting the restoration costs as well as the initial lower sales prices for the first "settlers". But here lies the difference between this success story and what we did not achieve in Toronto, and why Calgary office buildings are a similar challenge.

The St. Louis buildings are one of the biggest clusters of late 1800’s and early 1900’s factory / office spaces in North America. With 3m+ high wood beamed ceilings, terrific architecture, proximity to each other, the space offered cannot be replicated. And even then, large tax incentives were and continue to be needed to make the conversions viable.

This former catholic girl’s dormitory in centre city St. Louis has been vacant for years while dozens of buildings around it were converted into new uses. The challenge was that the windows are way too small for any modern uses and historic tax credit requirements will not let those openings be altered.

Washington Avenue, St. Louis, the center of one of the biggest inner-city turnarounds in the U.S. The catalyst was grand, historic buildings coupled with tax credits and a federal grant to rebuild the street and incentivize early businesses. Today, over 6,000 new residential units coupled with street retail have brought new life to buildings that were vacant 15 years ago. The large building on the left was a challenge. A large center light courtyard was cut into the building, and creative solutions for ventilation were necessary to accommodate a restaurant on the ground floor while maintaining the historic fa├žade.

Newer, 1950’s and up office buildings generally have deep floor plates with low ceiling heights over dozens of floors that do not offer any structural amenities for a residential conversion. In Toronto, setting the bedrooms deep into the units with half walls separating rooms allowed some light to filter into the space. When we introduced the office conversion zoning for Toronto back in the late 80’s, it did not result in very many conversions. The reason, cost of converting and meeting the different building code requirements for the change of use.

Ceiling heights are a real challenge for retail as well. With low floor to ceiling heights, attracting restaurants, which need ventilation, is difficult. Venting out the front of the building impacts the aesthetics, and if the building is to qualify for historic tax credits, it requires some convincing of historic preservationists.

Parking is usually not a problem for 40-year-old office buildings as they are way over parked. If there happens to be an issue if ceiling heights are just under nine feet, then a car stacker for two cars can fit. For an SUV and a car stacker, 9.5 feet height is needed. The cost here is the cost of retrofitting the garage for the electrical needs of the stackers.

To combat the office market downturn in the 1980s, Toronto implemented zoning incentives to encourage the conversion of marginal office space to residential uses. The number of takers was disappointing, primarily because of the costs associated with trying to convert buildings with low ceilings, deep inefficient floor plates and difficult window options with the buildings constructed so close to the lot lines where building codes require greater setbacks. This building was one of few that were converted. Being next to the subway stop helped.
Of course, this all costs big dollars. In an area trying to emerge from the evening shadows into a more vibrant 24-hour place, where the high sales prices or rents make a revenue stream difficult, any cost savings or incentives can mean the difference between it happening or not. The St. Louis experience shows that to establish a revenue- friendly market to compete with other areas of the city where the amenities already exist, you have to establish incentives.

Here in Calgary, any thought of converting an office building has to take into consideration the dozens of residential projects with several thousand units that have already been approved and are either under construction or waiting to start based on market conditions. In most cases, buying into an approved condo project carries a significantly lower risk than taking on all the "hair" of an office conversion and trying to get financing.

Finally, an office market that offers a range of office space, can help our economy diversify. A small trend is emerging in some North American metro areas where new small innovative companies are being lured away from the high rent metro areas to those offering entry level office space. Could we see a few conversions? Possibly, but they will compete with a lot of purpose built residential in the marketplace now. And financing this type of project will be difficult.

Let’s get the message out that Calgary is a terrific place to help establish or grow a business, with a diverse range of both office and housing types that are affordable. Couple that with amazing amenities and we have assets that today’s entrepreneurs are attracted to.

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