Playbook #102: Converting Office Buildings to Apartments
🖼️ The Big Picture
Converting select office buildings into apartments could be one of the most exciting niche opportunities of the next decade. There are a lot of challenges to work through, and you have to be picky about the projects you choose, but the upside potential - especially with current real estate market trends - makes this an incredible opportunity for the right investor.
Depending on who you talk to, some will say this is a great idea… but way too difficult to tackle right now, with not many properties being an option. Others are very bullish on this now and moving forward.
When you look at the data, it’s hard not to see the massive problem… which also means massive opportunity.
- Almost 20% of office space in the U.S. is vacant
- Many more leases are expected to expire in the coming years thanks to the remote/hybrid working environment (which has now led to the highest job satisfaction in 30 years)
- Commercial real estate is in serious trouble in this high interest rate environment
- America has a major housing shortage
So… we’re either going to have ghost downtowns with massive office buildings empty and being returned to the bank through foreclosure (which doesn’t look good for cities who need businesses and people for tax revenue)...
Or entrepreneurs, real estate investors, and cities are going to work together to repurpose these empty buildings in prime locations to provide value once again in the form of housing. Calgary, Canada has emerged as a leader in this movement already, setting aside $153 million for its office-to-residential program, catching the eye of cities like San Francisco where office vacancy is the highest in the country.
As you dig into this opportunity, you’ll find the challenges and criticisms from investors are legitimate. It’s not easy to take an office building and make all the changes needed for people to call it home.
But those who figure this out - and especially those who align with government incentives (which we’d bet are coming soon to a city near you) could do extremely well with this strategy in coming years.