- New York has issued initial permits for 16 conversion projects since July’s near-collapse at the former Pfizer headquarters, after the city concluded the failure was specific to that one building.
- Inspectors checked 180 sites tied to firms on the Pfizer job, including 24 conversions, and found three violations and one partial stop-work order, but no structural problems posing imminent danger.
- Conversions could add as many as 12,000 apartments, but higher rates, construction costs and a recovering office market are slowing new projects and tempting some owners to hold.
Office conversions are moving again in New York after July’s structural scare at the former Pfizer headquarters, The Wall Street Journal reports.
Since the accident, the city has cleared 16 more projects to begin construction, Buildings Commissioner Ahmed Tigani told the Journal, though activity trails the first half of the year.
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What Went Wrong at Pfizer
In July, two columns gave way under the weight of newly added floor area at the Midtown tower. As a result, six floors began to droop. Responders evacuated nearby buildings and closed several blocks.
The project includes more than 1,600 planned apartments, making it the city’s largest conversion. Last week, developer MetroLoft finished jacking up the floors and replacing the steel supports. According to Tigani, the full build could restart within weeks.
However, investigators still haven’t explained why the columns weren’t properly reinforced.
No Systemic Risk Found
Following the accident, the department audited 180 sites linked to firms involved in the Pfizer job. Of those, 24 were conversions. The review resulted in three violations and one partial stop-work order. None of the findings posed a public safety threat.
Meanwhile, work has resumed at 222 Broadway and 750 Third Avenue, where projects had also been halted.
Tigani told the Journal that a complicated expansion of an existing structure caused the problem. However, this technique isn’t unique to conversions. Engineers say adding weight to an older frame can be done safely. The key is to strengthen the columns before adding new floors.
A Brooklyn Tower Gets a Second Life
Last month, a venture between BH3 Management and Capstone Equities secured financing for a 24-story downtown Brooklyn building. Completed in 2023, the tower never attracted an office tenant. The venture bought it at a deep discount last year and plans to convert most of it into apartments.
BH3’s Adam Falk told the Journal that the modern structure needs few structural changes. As a result, he expects the project to take 18 to 20 months. By comparison, new construction typically takes four to five years.
Comparable one-bedroom apartments rent for roughly $5,000 a month.
Zoom Out
Despite the scare, lenders continued financing conversion projects. In September, CRE Daily reported that Northwind Group provided a $219M construction loan for the conversion of 100 Wall Street. The Financial District tower spans 463,000 SF.
Northwind founder Ran Eliasaf told the Journal that his firm recently financed two additional conversions. Moreover, it has two Midtown loans in the works.
Why It Matters
The Mamdani administration is relying on conversions to help address the city’s housing shortage. Officials project that these projects could deliver up to 12,000 homes in the years ahead.
However, closing deals has become more difficult. Lenders and developers are scrutinizing sponsors’ track records more closely. At the same time, higher interest rates and construction costs are putting pressure on financing.
A stronger office market adds another challenge. JLL’s Melanie O’Brien told the Journal that improving office economics are encouraging some owners to keep their buildings as offices. Meanwhile, CRE Daily reported that Midtown availability has returned to its March 2020 level, according to Colliers.
What’s Next
Eliasaf expects conversion activity to slow in the coming years. That’s because developers may eventually run out of buildings best suited for these projects.
For now, however, Manhattan’s apartment shortage continues to support conversions. As Eliasaf noted, these projects can deliver housing faster than new construction.
