2023 Sees 151K Units in Adaptive Reuse, Hotels Top Offices

Adaptive reuse projects jumped 17.6% last year, converting more outdated buildings to apartments than in 2022.

2023 Sees 151K Units in Adaptive Reuse, Hotels Top Offices

Adaptive reuse projects jumped 17.6% last year, converting more outdated buildings to apartments than in 2022.

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Good morning. Adaptive reuse projects shot up in 2023, with hotel-to-apartment conversions leading the way, followed by office conversions. Meanwhile, Goldman Sachs and Ballast Investments have decided to hand back the keys to 82 apartment buildings in San Francisco.

Today’s issue is brought to you by 10 East—a membership-based investment firm focused on private market exposure.

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*Data as of 5/09/2024 market close.


2023 Saw Surge in Adaptive Reuse Thanks to Hotel Conversions

2023 Saw Surge in Adaptive Reuse Thanks to Hotel Conversions

Adaptive reuse projects saw a remarkable surge last year, with +17.6% more outdated building-to-apartment conversions compared to 2022. 

By the numbers: According to a new report from RentCafe, approximately 12.7K new apartments entered the markets in 2023 via adaptive reuse, a return to the higher levels observed in 2019–2020 but still well below the peak in 2016–2017. Currently, a staggering 151K apartments are in various stages of conversion across the country, with 58K units repurposed from former offices.

Out with the old: Hotel conversions dominated adaptive reuse projects last year, surpassing even office conversions. Nationwide, over 4.5K apartments were converted from repurposed hotels, making up over one-third of all conversions. This trend was strongest in destination cities like NYC, where many half-empty hotels have been repurposed into apartments due to the city’s ongoing supply shortage.

Regional leaders: Manhattan led all metros in adaptive reuse kickoffs, with 733 apartments created from repurposed hotels. Richmond, VA, saw 662 apartments hit the market via adaptive reuse, followed by Alameda, CA, which repurposed 372 new apartments from a former warehouse property. Ohio had multiple cities in the top 10 list for apartment conversions, with Cincinnati and Cleveland near the top.


Sustainable solutions: Adaptive reuse offers a sustainable housing alternative that minimizes environmental impacts associated with new construction. It’s also a cost-effective method to create new housing quickly in dense urban areas. Despite the high upfront costs of conversion and permitting hurdles along the way, converting neglected buildings into vibrant residential spaces won’t stop anytime soon.


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✍️ Editor’s Picks

  • Tax battle royale: In 2024, big city landlords are aggressively appealing property tax assessments, seeking reductions up to 75%, causing city revenue concerns.

  • Digital gold: Digital Realty Trust’s (DLR) $1.5B stock sale marks the largest U.S. public company offering since March, a welcome sign of rebounding market activity.

  • Drawing the line: Senators Romney and Manchin introduced the Back to Work Act, which would limit federal employee telework to just 40% of annual work days.

  • Tuck in those belts: Despite expected interest rate cuts in 2H24, CFOs must prepare for higher-for-longer rates, which could impact debt costs, acquisitions, and sales.

  • Working compass: Compass (COMP) reported a $132.9M net loss in Q1, turning cash flow positive for the first time and aiming for steady growth.


  • New record: Manhattan apartment rents hit a new high in April, reaching $4,250 per month, driven by a lack of relief and increased occupancy.

  • Rent revival: Barry Sternlicht of Starwood Property Trust (STWD) predicts a rise in multifamily rent growth next year due to lower construction activity.

  • Tax upgrade: The 421a tax abatement update is nearly finalized. Romain Sinclair outlines key changes and what developers and investors need to know.

  • Staying strong: U.S. multifamily rent growth is expected to accelerate in 2H24, with Q1 seeing 0.4% YoY growth to $2,163 with a 5.5% vacancy rate and 52K-unit net absorption.

🏭 Industrial

  • Power play: Georgia's governor, Brian Kemp, vetoed a measure suspending data center tax breaks to support the booming industry amidst infrastructure power concerns.

  • Tick, tock: Although industrial remains resilient, Q1 marked the sixth consecutive quarter of declining net absorption for industrial nationwide.


  • Substitute store: Nordstrom (JWN) is opening a Nordstrom Rack in Apple Valley, MN, in a former Bed Bath & Beyond, per recent Costar data.

  • Terrific tenants: Retail landlords are upbeat as nationwide vacancies drop to 4.1%, with Kimco Realty Corp's (KIM) occupancy rate near all-time highs at 96%.

  • Retail riches: Urban Edge Properties spent $83M to acquire a newly redeveloped North Jersey shopping center, expanding its Garden State portfolio.


  • Office shuffle: Google (GOOGL) will vacate a 300KSF office at One Market Plaza but remain in the Landmark building in an effort to consolidate its office footprint.

  • Tower troubles: Trump's 40 Wall Street tower faces serious financial struggles due to rising vacancies and a $120.50M mortgage maturing next year.

  • Discounted digs: A downtown Chicago office building at 550 W. Washington Blvd. is likely to sell for a steep discount due to a 69% vacancy rate.


  • Old money drama: Longtime Palm Beach residents are not very happy about the area’s first new luxury condo project in decades, and they’re raising hell.

  • Iconic exchange: Billionaire and New England Patriots owner Robert Kraft sold the Plaza Hotel in Midtown Manhattan for $22.5M, after buying the hotel for $14.7M in 2007.


Goldman Sachs, Ballast Hand Keys Back to Over 82 San Fran Buildings

The investor duo is set to transfer three portfolios with about 1,200 apartments to RBC Real Estate Capital through a deed-in-lieu of foreclosure.

Giving back the keys: Goldman Sachs and Ballast Investments are negotiating with RBC Real Estate Capital to return 82 apartment buildings in San Francisco after defaulting on a $688 million loan, highlighting the volatility of the city's multifamily real estate market.

Some background: Earlier this year, Ballast, alongside Brookfield Properties, acquired 2,149 apartments in San Francisco from Veritas Investments. Veritas, alongside its partners, had defaulted on two loans totaling $915 million, prompting the debt to be sold to Brookfield and Ballast for $615 million. They later secured the portfolio through a foreclosure auction.

The portfolio: Goldman and Ballast together manage around 106 apartment buildings in San Francisco, including the 82 currently financed by RBC. Their acquisitions between 2017 and 2020 amounted to over $1.1 billion.


Why it matters: San Francisco's apartment market continues to see a pattern of significant defaults, with Mosser Companies recently defaulting on an $88 million loan covering 459 units across 12 buildings, and Veritas Investments selling the mortgages of 20 properties for $124 million.

If Goldman Sachs and Ballast Investments proceed with their deed-in-lieu transaction with RBC, it will be yet another example of the city’s apartment portfolios changing hands due to mounting loan challenges.


According to Moody’s, the first three months of 2024 have seen significantly more CMBS office maturity-related defaults and fewer modifications compared to 2023. In fact, 2024 defaults were already up to $536.2M by the end of Q1, compared to $757.7M across all four quarters of 2023.

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