The answer to sky-high housing prices may also be sky-high

Turning “zombie” office buildings into residential towers could help correct a brutal market.

Sure, NYC’s Empire State Building makes a fine list-topper as America’s favorite piece of architecture.

apartment graphic

But it ain’t my favorite — that’d be LA’s 2121 Avenue of the Stars, a gleaming 34-story beauty that holds two secrets:

  • Its unofficial, fictional name, Nakatomi Plaza (AKA the setting of Die Hard).
  • It’s actually pretty empty — it has 186.9k square feet currently for lease.

It isn’t alone on the latter one. In the 10 largest US markets, ~50% of office space sat unoccupied in June, per Investopedia.

We’re in the thick of a commercial real estate crisis — one in desperate need of a hero.

John McClane = housing conversions?

A new paper from the National Bureau of Economic Research (NBER) lays the groundwork for shifting America’s underutilized office space into much-needed housing supply, per Insider:

  • The NBER team found that ~11% of office towers in the 105 most-populous US cities could be converted into residential properties.
  • The report outlines 2k+ “zombie” office buildings — empty and unrentable — that could be turned into eco-friendly 200-unit apartment towers.

The best-case scenario would add 400k homes to the market, making a dent in the millions of units needed to steady the housing crisis.

Could it really work?

… Yeah, seems like it. Bringing these zombies back to life could make financial sense:

  • It can be cheaper and quicker to retrofit existing structures than to start from scratch, anyway, but 2022’s Inflation Reduction Act also incentivizes green building — if the new homes meet efficiency standards, they could qualify for $10B+ in federal grants.
  • The opportunity is particularly massive in NYC, SF, and LA, which have the most towers fitting NBER’s residential conversion criteria — and an insatiable demand for more housing.

The first step: real estate leaders fully accepting that the combo of remote work and high interest rates mean commercial tenants (like, say, the Nakatomi Corp.) aren’t coming back anytime soon.

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