Courtesy of Franco Faraudo
– Editor, Propmodo
Jul. 7, 2026
The office market’s post-pandemic bifurcation has created a situation that would have seemed implausible a decade ago. Trophy and Tier 1 buildings in major cities are posting record rents and strong absorption. The buildings below them, older, lower-floor, poorly amenitized, and uninspiring, are sitting empty. At the same time, housing shortages in nearly every major American city have created demand for residential units that new development alone cannot meet fast enough. The overlap between those two conditions, a glut of unloved office space and an acute need for homes, is driving the increase we are seeing in office-to-residential conversions.
Converting and office building into housing has a lot of pitfalls. An incident just this week at the former Pfizer headquarters in Manhattan, where columns buckled during what is the largest office-to-residential conversion in U.S. history, will draw attention to the risks of these projects. Architects and city officials were quick to note that incidents of this kind are highly anomalous across the hundreds of conversions that have been completed in New York alone. Developers who have spent the longest time in this space have accumulated a body of knowledge about what makes a conversion viable. That knowledge is increasingly the difference between a project that works and one that doesn’t.
The starting point for any viable conversion is the acquisition price. These projects are expensive. They involve gut renovations of existing structures, complex facade work, mechanical and electrical upgrades, and tenant buyouts, all of which add cost on top of an already capital-intensive process. The math only works when the building is bought at a significant enough discount to what a stabilized residential asset would cost to build. “We like to think we can convert any building as long as we can get it at a significant enough discount,” said Joey Chilelli, Partner at Vanbarton Group. Vanbarton Group, a privately owned, vertically integrated commercial real estate investment and advisory firm with over $9.7 billion invested in equity and credit transactions since inception, is one of the firms that has been doing this the longest. The company has been converting office buildings to residential use since 2011, working across different building types, different markets, and different points in the cycle.
The true opportunity lies not in every underperforming office building but in the ones whose owners have accepted that the asset has limited future as an office and are willing to sell at a price that reflects that reality. As more of the lower-tier office market reaches that conclusion, the pipeline of viable conversion candidates grows.
The permitting environment is one of the first filters Vanbarton applies to its acquisitions. The ability to convert without triggering a lengthy community review process is a meaningful determinant of whether a project moves forward. “We like to have them be able to be converted as of right,” Chilelli said. “We don’t like the building to have a zoning that needs community or neighborhood board approval.” That preference reflects a hard-learned truth about the development process: uncertainty kills returns. A project that requires six months of community review and carries the risk of denial or material modification introduces costs and delays that compound quickly in a conversion context where the carry on a distressed building is already a drag.
Cities are hearing that message. New Rochelle, New York has become one of the most closely studied examples of what a developer-friendly permitting environment can produce, building an as-of-right approval process that has generated over a billion dollars in private investment and created a development pipeline that continues to grow. Boston has been building a comparable framework from a different starting point. The city launched its Office to Residential Conversion Program in October 2023, offering developers a 75% property tax abatement for 29 years, as-of-right zoning within the designated downtown area, and a fast-tracked permitting process. Boston is now considering expanding the as-of-right conversion framework beyond its original downtown boundaries, allowing projects in buildings outside the initial zone to qualify. That kind of expansion reflects a growing recognition that the supply of viable conversion candidates extends well beyond any single district, and that making the permitting process predictable is more important than drawing precise boundaries around where it applies.
The physical characteristics of a building are the next filter. Not every office building can be converted into housing that people actually want to live in, and the determining factor is almost always light and air. “We first think about light and air,” Chilelli said. “Does it have it on all four sides? Are there buildings built right up against it to prevent windows from being installed?” A building with a deep floor plate and limited perimeter exposure is difficult to convert into habitable residential units because the interior spaces can’t be reached by natural light. The ideal conversion candidate has a narrow floor plate, windows on multiple sides, and a physical configuration that allows for reasonable unit layouts without requiring extensive light wells or artificial workarounds.
The existing tenants of any building being considered for conversion are often the most complicated variable to manage. Most office buildings still have some tenants in place, even when vacancy is high, and those tenants have leases, have made tenant improvements, and have legal rights that a developer has to work through before conversion can begin. “We sit down and negotiate termination agreements with each tenant,” Chilelli said. “Oftentimes, if occupancy is low, the buildings might be deteriorating and poorly managed and the tenants might already be motivated to move to a better space.” The negotiation is a cost that has to be underwritten carefully, and the outcome depends heavily on the specific situation of each tenant. In some cases, a buyout is straightforward and the tenant welcomes the opportunity to relocate to better space. In others, a well-capitalized tenant with a long-term lease and substantial tenant improvements in place is a meaningful obstacle to the conversion timeline. Understanding the tenant composition of a building is essential due diligence that happens before a deal closes.
The product that emerges from a conversion is also critical to a profitable outcome. The mix of unit types, studios, one-bedrooms, two-bedrooms, larger family units, has to be calibrated to the specific submarket and to what residents in that area actually want and can afford. Vanbarton’s approach resists the temptation to maximize unit count at the expense of product quality and market fit. “We don’t try to cram as many units as possible,” Chilelli said. “We look at the submarket first and put together a unit mix that seems to represent what people really want.” That discipline pays dividends in lease-up and in long-term retention.
A building with a diverse mix of unit sizes serves a broader range of residents and gives people a reason to stay as their circumstances change. “We want people to feel like they can grow in the building and stay even if their family gets bigger.” That approach to unit mix is also a form of risk management. A building that can accommodate a range of life stages and household sizes is more resilient to market shifts than one calibrated narrowly for a single demographic.
The facade is often the final major investment required to make a conversion feel like a new building rather than a repurposed one. At a minimum, conversions require operating windows, a feature that most commercial office buildings don’t have. In many cases, Vanbarton goes further, replacing the entire curtain wall or facade system to give the building a completely new exterior appearance. “We want these to look brand new on the outside because they are brand new on the inside,” Chilelli said. “We want people to not even know that it used to be an office building.” A building that reads as a modern residential property from the street attracts a different tenant, commands a different rent, and builds a different kind of reputation in its neighborhood than one that retains the visual vocabulary of its prior life as a corporate office tower.
The conditions that have made office-to-residential conversions an increasingly attractive strategy are not temporary. As housing shortages deepen in major cities, as lower-tier office stock continues to struggle to attract tenants, and as more municipalities build the permitting frameworks that make conversion projects financially viable, the pipeline of viable candidates will keep growing. The 42nd Street incident may prompt additional scrutiny of construction oversight on complex conversion projects, but the fundamental economics driving the category, distressed office stock selling at significant discounts against an acute housing shortage, are unlikely to be materially affected by a single highly unusual event. The developers who have built the expertise, the relationships, and the operational discipline to execute these projects well have a meaningful advantage in a market that is only beginning to understand how large the opportunity actually is.
