Many New Yorkers, Manhattan midtown, have its sparkling skyscrapers and busy transport hubs, lacking the cool, cache elements that their more culturally vibrant neighbors have. Hundreds of office workers, commuters and tourists usually flood the area, leaving a sense of non-residentiality.
But what Midtown has is an overload of underutilized office buildings. The two in particular took Metroloft CEO Nathan Berman to the area. It is a huge building at Pfizer's former headquarters on East 42nd Street near Grand Central Terminal. Metro Loft, along with David Werner Real Estate, is converting the building into approximately 1,600 rental apartments.
Once the project is completed, Berman said the project will be the largest office-to-apartment-to-apartment-to-conversion conversion in the nation. The first tenants are expected to move at the end of next year.
The developer recently purchased an office building around the corner from the Pfizer Site, creating around 450 homes. 25% of that will result in affordable housing.
“We go where there's an opportunity to transform what we believe is an undervalued asset, and we can do that anywhere in Manhattan,” Berman added. “Now, Midtown appears to present the most opportunities for us.”
Berman has remodeled office buildings in the financial district for more than 20 years, but the Pfizer Project is his first project in Midtown. He believes that future tenants, he calls “active young professionals,” will refrain from traditional areas like Greenwich Village, Chelsea and the Upper East Side, with charming cafes and green spaces, due to the amenities of the gaudy buildings, such as gyms, rooftop pools, lounges, coworking spaces, washing machines for each appeal, rooftop pools, cottage spaces, washer and dryers.
“No one needs a grocery store because everything is delivered,” Berman said.
Furthermore, as more businesses order employees to be brought back to their desks, he said he hopes more people want to live near their offices, even if they only have to be in their place for a portion of the week. People “want to walk, ride bikes, or even scooter into their office,” he said.
Arpit Gupta, an associate professor of finance at Stern Business School at New York University, said that proximity to thousands of workplaces is one of Midtown's selling points. And when people come in, it will help the neighbours. Ultimately, more tenants will “attract construction of the retail, food and beverage industries.”
Metro Loft was one of the first to turn Molibund Office Buildings in the financial district into an apartment. Berman's first big project downtown, located at 17 John Street, was converted in 1998. Since then he has converted 15 buildings in the financial district, developing four more buildings, and the others have converted into pipelines.
In cities across the country, more office buildings are being turned into housing as authorities resolve the discrepancy between the dissatisfaction of outdated office buildings and the lack of housing.
Rentcafe's February report shows that roughly 71,000 homes have been approved, under construction this year, or are in the planning stages more than triple the way they were three years ago. New York, the country's largest office market, has set up more than 8,300 offices to be converted into apartments this year.
In other cities, developers often choose areas where commercial and residential real estate are mixed. Michael Pestronk, chief executive of developer Post Brothers, prefers to remodel office buildings into apartments in areas that are already home-rich. But his Philadelphia-based company — which, according to its website, has recently begun work on converting a building in Washington, DC, although it has worked on more than 30 properties.
“We have certainly done developments in the Midori region, but with the large number of opportunities we see today, we don't feel like we need to be in a pioneering location,” Pestron said of areas that are not traditionally considered residential. “Instead, we're focusing on key places that are very obvious in terms of demand.”
Many developers were keen to convert office buildings as more properties are on sale at discounts. Many of them are sold in areas in the Central Business District, where for many years, they have suffered from empty buildings and streets.
“From 2012 to 2019, these buildings we were converting were trading at $400-500 per square foot, even if they were essentially outdated.
Adapting older commercial real estate can be less expensive than building a new home. A study by real estate company CBRE estimates that the cost of conversions will range from $100 to $500 or more per square foot, depending on the original layout. These costs are 20 percent less than building something new, as the building is retained, Pestron said.
He says the biggest difference in cost comes from when it's saved. Conversion structures can be completed a year faster than building something from scratch.
“The speed to the market is roughly the same as savings from reusing structures,” he added.
Commercial constructions have thick floor slabs built to accommodate heavy machinery, making them ideal for reducing noise with a tighter living arrangement.
However, not all empty or outdated buildings can be converted. Estimates vary, but only 3% of New York offices' analysis surveys of Moody in 2023 show that only 3% are suitable for change. A Brookings Agency survey suggested that between 9 and 11% of buildings across the country can be converted. This is a statistic that will be converted to around 2,500 buildings.
The hard thing about converting an office building into an apartment is that they are laid out differently. For example, in an office building, there may be no windows that have too much wall-to-wall space.
The buildings being converted are usually destroyed and reconsidered. The old Pfizer building has floors of about 200 feet deep, and Berman will need to divide the space to meet light and air regulations, including the requirement that each apartment has a minimum distance between the operating windows and the building's walls.
Berman has experienced this. Most recently he did it at 25 Water Street in New York's Financial District. Solution: Create two atriums so that more windows can be added to your apartment. The plan is to do the same thing in the Pfizer building.
There are complex zoning restrictions and higher interest rates, and even experienced developers like Berman can encounter unexpected costs that put their projects at risk. Not to mention potential tariffs. This is a wildcard that affects the price of materials needed for new construction or conversion.
The Post Brothers recently faced foreclosure in one of the Washington buildings, and Metroloft encountered financial problems despite rising interest rates on the two properties, both of which were occupied by more than 90%.
“If the leverage is high and the rate doubles, it's going to put you in a tough situation,” said a Metroloft spokesman.
As to whether young people willingly move into the bustle of midtown: if the past is any indication, it is possible. It happened in both the Financial District and Hudson Yard, a mixed use area on the western edge of Manhattan where Pfizer moved. Berman wants to replicate his success in Midtown.
He said, “If you shake and convert a building in the middle of an office area, an empty office building is away from the market, bringing homes, which revitalizes the area.”
