In an effort to alleviate the affordable housing crisis in cities and make better use of vacant office buildings, developers are looking at adaptive reuse projects. In L.A., planned updates to the city’s Adaptive Reuse Ordinance could be a boon to developers, especially those with buildings downtown that are still sitting empty post-pandemic.
Almost one-third of office buildings in 14 major markets in North America are potential candidates for conversion into residential spaces, according to a new report. But is adapting office space into apartments and condos a viable strategy for downtown?
The Los Angeles Department of City Planning estimates that the city currently has about 44 million square feet of unused office space, with the office vacancy rate standing at 26%, the highest ever reported.
Office building vacancy rates have shot up across the U.S. due in large part to the successful adoption of hybrid work. Workers’ reluctance to return to commutes and the 9-to-5 grind has left locations like downtown Los Angeles with large, historic buildings now sitting empty.
Global real estate firm Avison Young, based in Toronto, found that nearly 9,000 properties in more than a dozen markets might be used to house thousands of families in North America. The concept is called “adaptive reuse,” and some hope it’s part of the solution to fill empty buildings.
“People are rethinking how they use office buildings and how they view the entire downtown,” said Sheila Botting, principal and president of professional services Americas at Avison Young. “Whereas most downtowns have mainly office buildings, a mix of uses provides much-needed energy and vibrancy – and that’s where adaptive reuse provides a tremendous opportunity to reimagine great spaces for people to connect.”
Necessary criteria
The firm narrowed its search for convertible spaces by looking only at properties built prior to 1990 with floor plates below 15,000 square feet, two anchoring criteria that tend to help isolate buildings that offer long-term potential for conversion . It found about 1,200 properties in Los Angeles that fit this basic criteria for adaptive reuse. However, there are certain qualities that make certain properties easier to convert than others.
“This is framing the art of the possible,” said Botting. “You have to look at the individual buildings and conduct a feasibility study. Are they a rectangle? Rectangles are easier than squares and certainly better than triangles or stars.”
When those elements are taken into account, it whittles down the overall inventory of potential convertible buildings to investigate in Los Angeles to about 296, and just 241 of those were built before 1990.
Los Angeles’ City Planning Department is currently updating its “Adaptive Reuse Ordinance” to make it easier for developers to transform office buildings into residential units. The ordinance, which has been in place since 1999, has enabled the creation of more than 12,000 housing units in downtown alone.
Until now, only buildings built prior to July 1974 were eligible for the program, but a draft of the updated ordinance released in May would expand the language to include all buildings completed before 2008, in addition to buildings between five and 15 years old with zoning approval. Parking garages five years and older would also be eligible.
But to convert more downtown office space into residential units, there would need to be an uptick in amenities to cater to residents.
“When you look at adaptive reuse and conversion of class B and C offices into residential, in my opinion, the downtown core lacks the fundamental infrastructure, transportation and amenities,” said Chris Cooper, principal and managing director of Southern California at Avison Young. “And I mean basic amenities — low-cost to mid-cost restaurants, groceries, drug stores and schools.”
In addition to amenity access, developers also have to take other difficulties into consideration when converting a property.
“One of the common challenges that people have when they’re adapting these buildings is they don’t have a good handle on how much it really costs,” said Mark Weinstein, president of MJW Investments, which is based in Sawtelle. Weinstein has 10 high-rise industrial office buildings located in the downtown Fashion District that he is adapting to residential and retail properties.
Weinstein noted that the infrastructure of many older office buildings doesn’t line up with housing floor plates. In addition, there are elevator systems, plumbing and electrical systems to upgrade. Buyers and renters prefer more windows in a residential unit, but those can be hard to accommodate, especially if the structure has been dubbed “historic.”
“I think there are a lot of people that think it’s easy, and it’s actually harder to remodel a building than it is to build,” Weinstein said.
Other considerations
While it may be cheaper for developers to build new structures, new construction isn’t more sustainable for the environment. The city planning commission pointed out in its recent Citywide Adaptive Reuse Ordinance Fact Sheet that “encouraging the reuse of buildings is a sustainable practice to extend the life of buildings and retain much of the resources that went into their initial construction.
“Even with the most energy-efficient new construction, it can take up to 80 years to recover the energy that went into the demolition, production, manufacture and transportation of new building materials.”
Weinstein does credit L.A.’s Adaptive Reuse Ordinance for his projects, because otherwise they would have been “too expensive, too hard and too long.”
Weinstein was able to donate 20% of his first phase of construction to affordable housing at his three-building property at Santee Court, about 33 apartment units. He said, however, that for many developers, creating affordable housing out of adaptive-reuse buildings might be challenging and would depend on the tax credits and financing made available.
“It’s doable, but I don’t see people doing it very often,” Weinstein said.
There are a few other Los Angeles-based developers in the space. Jamison Services Inc. in May filed plans to convert a 17-story, 144,000 square-foot office in Carthay into an apartment building with 210 units. ABC Properties Inc. last July began converting the historic Hollywood Western Building, also known as the Mayer Building, in Hollywood to retail and residential.
To support affordable housing, the city has said that the “linkage fee,” a dollar amount charged per square foot, applies to both new buildings as well as conversion of existing buildings. These fees, paid by developers, are put toward Los Angeles’ affordable housing crisis.
The city planning commission is considering allowing adaptive reuse developers to set aside deed-restricted housing units with an in-lieu fee. The commission is also conducting an economic feasibility study to determine if additional affordability incentives are possible.
The concept of adaptive reuse not only applies to private-sector buildings. “There are many public sector buildings that could be converted as well,” Botting pointed out.
“Public sector tends to have older buildings that could use new capital to be redeveloped; some of them are in downtown [Los Angeles] that have great locations,” said Botting. “It goes back to the individual building feasibility, making sure that that works and has proximity to all of the things that we would like to see, to live, work by, experience and learn.”
