Courtesy of Propmodo, By Travis Barrington
Office-to-residential conversions are often presented as a broad answer to two stubborn urban problems at once: too much empty office space and not enough housing. But the reality is much narrower. Whether a building can actually make the jump usually depends on a small set of physical and financial variables, and if too many of them are out of alignment, no amount of civic enthusiasm can make the deal work.
That was the message from a recent Propmodo webinar featuring Franco Faraudo, editor and co-founder of Propmodo, Steven Paynter, principal and global practice area leader for building transformation and adaptive reuse at Gensler, and Aaron Kraus, managing director and head of market development and strategy at Nuveen Green Capital. Their conversation did not treat conversions as an inevitable reuse strategy for aging office buildings. Instead, it focused on a more practical question: how do owners and developers know when a project deserves serious pursuit, and when it is smarter to walk away?
A big part of the answer is recognizing that office distress alone does not create conversion opportunity. The office market remains split between stronger, higher-quality buildings and weaker assets that continue to struggle. Paynter noted that employers coming back to the office are generally looking for better space, which has helped support demand for top-tier properties while leaving many lower-quality buildings behind. But that does not mean every underperforming office is a viable housing play. In many cases, the same attributes that make a building unattractive to office tenants also make it unattractive for residential use.
That is especially true in weak suburban locations or areas with limited transit, amenities, or neighborhood appeal. As Paynter pointed out, if a building sits in a “non-desirable, non-commutable location, it’s bad as office, and it’s bad for residential.” Some buildings are now so compromised that even very low acquisition prices do not solve the problem. There are assets trading at extreme discounts, but that is often because they are functionally obsolete, not because they are hidden bargains.
That is why the first screen is usually physical, not financial. Before a developer gets deep into assumptions about rent, financing, or incentives, they need to understand whether the building itself can become housing without requiring so much intervention that the numbers collapse. Paynter described Gensler’s approach as a process of comparing buildings against each other to understand which ones are naturally closer to a workable residential form. “A good building is still a good building,” he said. “You want to pick up a building that you can convert with the minimum amount of effort.”
That mindset matters because conversion costs rise quickly once a project requires major surgery. If the facade has to be replaced, elevators reworked, exits reconfigured, or systems substantially overhauled, the deal gets harder fast. The most promising projects are the ones where changes are selective and value-driven, not cosmetic or speculative. The goal, as Paynter framed it, is to get “the maximum amount of value” from “the minimum amount of work.”
Even then, the project only works if the market side holds up. Kraus emphasized that there is no single office market and no single residential market. Conditions vary dramatically by metro, by neighborhood, and by building type. A weak office basis in one city may be paired with strong apartment demand, while another city may have distressed offices and soft housing fundamentals at the same time. He pointed to markets like Austin, where apartment oversupply has put pressure on rents, making conversion math harder even when office assets are under stress.
That is a critical point because conversions are often discussed through a national lens, while actual projects are underwritten locally. Developers are not converting into a broad housing shortage. They are converting into specific rent levels, absorption expectations, concession environments, and construction conditions. A building may look compelling on the office side and still fail because the finished apartments will not generate enough income to support the total cost.
That brings the conversation to the capital stack, where many projects break down. Kraus described the standard financing structure as insufficient for most deals. “A straight-up vanilla capital stack of, call it 65% loan-to-value, traditional debt, 35% equity,” he said, has “probably not been a pencil in 90% plus of these conversion pitches, because the math is just not there. You just can’t make it pencil.”
That shortfall helps explain why so many conversions depend on some combination of public support, policy intervention, and alternative financing. Tax abatements, TIF districts, historic tax credits, New Markets Tax Credits, and C-PACE financing all show up repeatedly because they can fill the gap between cost and value. Without some additional layer of support, many deals simply cannot absorb the acquisition basis, the construction budget, and the risk premium that lenders and equity providers now demand.
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Kraus made clear that this is not a niche wrinkle but a defining feature of the sector. Conversions can work, and in the right cases they can revitalize downtown districts, restore tax base, and bring new life to struggling commercial corridors. But that does not mean the market is broad. “This is a subset of offices that will ever convert economically to residential,” he said. “This is not every office you see that’s 70% vacant.”
Propmodo has been building resources around that early-stage screening process through its Office-to-Residential Playbook, including a growing database of conversion projects and a conversion calculator that helps users pressure-test feasibility assumptions. For owners, developers, and investors trying to separate promising candidates from costly dead ends, those tools bring more structure to an increasingly crowded conversation.
The timeline also matters more than many people assume. Entitlements, zoning approvals, and design review can stretch projects out by years, and every additional month adds carry costs and uncertainty. In that sense, policy changes that reduce friction can be as important as direct subsidies. If a city waives parking minimums, simplifies zoning, or streamlines approvals for buildings that remain within the same envelope, it can materially improve feasibility without writing a check. Saving time is often another form of capital support.
The webinar ultimately framed conversions less as a trend than as a discipline. Success depends on asking the right questions early: Can the building be bought cheaply enough? Can it be converted with limited structural intervention? Will the local apartment market support the finished product? Can the capital stack be assembled without assuming perfect conditions? If the answer to too many of those questions is no, then the building is probably not a candidate, no matter how badly a city wants it to be one.
That may be the clearest takeaway from the discussion. Office-to-residential conversion is not a blanket solution for obsolete office stock. It is a selective strategy for a narrow band of buildings where basis, building form, market rents, timelines, and incentives all line up at once. In a market full of distressed assets, the real skill is not just knowing how to structure a deal. It is knowing which deals are worth chasing in the first place.
By
Travis Barrington
