Converting empty office buildings into apartments sounds like a no-brainer, but big landlords are resisting for one big reason
But investors and office power brokers are fighting the sector's decline, slowing the change.There's a certain obviousness to the idea of converting empty office towers into housing. There's too much of one type of building and not enough of the other type, so why not make the move?
The idea of conversions"makes a lot of sense and sounds logical," said Deborah Smith, a cofounder and the CEO of the real-estate investment bank The CenterCap Group, which has worked on multiple office and multifamily deals over the past 12 months. Even if office landlords accept lower valuations, their behavior is tailored to the whims of their investors and creditors, who've financed their buildings with massive debt. Investors often try to delay losses, rather than take them head-on. Hurdles like that likely mean that it will take five to 10 years before owners will have little choice but to accept that the pre-pandemic office environment is gone and relent on high valuations, Rubin told Insider.
Meanwhile, the median new office transaction in 2021, a slow year for the sector, was $542 a square foot in New York, more than 50% above the target price in the Moody's example. Only 20% of offices traded below the target price. , office owners will have a harsh reality to deal with in their $40.5 billion in maturing loans because of refinancing at valuations reflecting the stunted income of their properties.
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