New York real estate firms are increasingly converting office buildings into apartment complexes as an antidote to the city’s housing crisis, taking advantage of tax incentives also designed to increase the supply of affordable homes.
Lower Manhattan’s Water Street has been a popular area for change, earning it the nickname “Conversion Street,” with buildings offering a mix of luxury and affordable apartments to qualify for municipal rebates.
“My belief is that any building can be converted to residential,” Joey Chilelli, a partner at real estate developer Vanbarton Group, told AFP during a tour of an office floor at 77 Water Street that the firm is converting into a residential building.
The real estate overhaul has reached famous structures like the Flatiron Building near Madison Square Park, which is currently being converted. Real estate firms see the projects as less risky and faster to implement than many new constructions.
The move comes as rental costs continue to rise. In April, the median rent for an apartment in Manhattan topped $5,000 for the first time as the vacancy rate fell to a six-year low of 1.55 percent.
In contrast, commercial real estate vacancies stood at 14.6 percent in the first quarter, reflecting a lingering impact from the pandemic period when remote work depleted downtown business districts.
Under current policy, the city abates 90 percent of property taxes for conversions that set aside at least 25 percent of the units as affordable housing. Affordable apartments can be rented for about a quarter of market prices, but otherwise look identical.
Such abatement policies have attracted interest from developers, along with a measure expanding the pool of qualifying buildings to those built before 1990 rather than 1961.
– Equipment –
In Manhattan, more than 44 commercial buildings have been converted to residential between 2020 and 2024, resulting in nearly 18,000 new apartments.
Real estate firm Cushman & Wakefield expects 31 conversions in 2026 compared to 18 in 2025 and nine in 2024.
In December 2022, former mayor Eric Adams set a target of adding 500,000 new apartments by 2030, while his successor Zohran Mamdani in April unveiled plans for another 200,000 affordable homes.
Vanbarton began converting buildings in 2013 and currently manages more than 5,000 apartments.
Construction at 77 Water Street is in full swing, with the first residents arriving in October and completion slated for mid-2027.
The 30-story building will contain 650 apartments, some with views of the Statue of Liberty.
Chilelli said the firm is anticipating hundreds of thousands of applications for affordable housing suites; winners will be determined by lottery.
At the Pearl House, a 1972 building at 160 Water Street, the conversion has resulted in nearly 600 new apartments as of December 2023.
“We’re very happy here,” said tenant Charles Wisell.
Wisell, a lawyer, originally rented a one-bedroom apartment, but has sought a larger space to accommodate his wife and son, who now prefer their new residence to their home outside the city.
Wisell was drawn to the building’s amenities, which include a bowling alley, a mock golf sports suite, a spa with a Jacuzzi, a pet “paw salon” and a “play den” with backgammon, board games and a table.
“The location is great, you’re in the middle of everything,” Wisell said. “I’m walking from my office.”
– Some affordable units –
At 77 Water, Vanbarton has implemented suggestions from tenants, including a light therapy room in the bathroom.
In other converted Manhattan buildings, developers have installed basketball courts, Pilates studios, and indoor and outdoor pools.
Such luxury services may be included in the rent or are available to residents for a monthly fee of $100-$150.
Monthly rents at Pearl House start at $3,995 for a studio and $6,475 for a one-bedroom. Rents for affordable units start at $932 for a studio to $3,286 for a three-bedroom.
In Manhattan, the average price in April for a one-bedroom was $5,228.
The biggest conversion so far is SoMA, which was built in 1969 and was once occupied by JPMorgan Chase and the New York Daily News. There are 1320 apartments.
But that will be overtaken in 2027 by the former Pfizer building downtown, which will have about 1,600 apartments.
