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Why investors are converting office space to residential units

On Behalf of | Feb 24, 2024 | Real Estate Purchases And Sales |

Real estate markets constantly fluctuate, and investors need to be ready to pivot if they hope to maximize the profit-generating potential of their capital. When someone buys property, when they sell it and how they utilize it while owning it can all affect the return on their initial investment.

For many years, investing in commercial spaces was considered a sound real estate investment. Office space, for example, was in high demand. Businesses need facilities in which to conduct their operations, and commercial leases often last for many years, thereby minimizing the legwork required from landlords.

Unfortunately, changes in the market across New York City have undermined the value of certain commercial real estate holdings. Office space, for example, now regularly sits vacant for long periods between tenants and often doesn’t command competitive prices anymore. Those seeking to optimize the return on their real estate investments may want to consider converting unused office space to residential units.

Residential demand remains high

While there have been issues in the commercial real estate market in the last few years, demand for residential real estate has pushed prices higher than ever. The prospect of converting unprofitable, vacant units into high-demand housing can be very appealing to those frustrated by a lack of return on prior real estate investments.

New York City currently has a program to help facilitate the conversion of vacant office buildings to residential units in part because there is a need for housing and also because vacant properties attract crime and affect the value of other properties in the area. Even with support from local authorities, there are many challenges ahead for those hoping to convert a commercial building into residential units.

Zoning is only the beginning of that process. The rules for structures are different when there are residential tenants as opposed to commercial tenants. Landlords or prospective condominium sellers may need to install complex HVAC systems, rewire buildings and add insulation. There are many different legal considerations to address depending on whether the residential units are rental units or potentially condos. Overlooking even one of those considerations could delay the completion of the project and reduce how profitable it proves to be for investors.

Looking into ways to maximize the value of a real estate investment can be a smart decision for those frustrated by the current market. Seeking legal guidance to better determine what would be involved in turning a profit is generally a good way to get started.