Researchers have identified several dozen North Texas office buildings that could be potential candidates for future office-to-apartment conversions.
The Dallas-Fort Worth area could see an increase in the region’s housing supply if efforts are made to transform the 80 office buildings into new multifamily apartments, according to a recent report by the National Bureau of Economic Research (NBER).
Such buildings would undergo “adaptive reuse,” the process of altering an existing building for a purpose other than the one for which it was originally built, designed, or zoned.
Such conversions would allegedly “[pave] the way for restoring asset values and tax revenues, alleviating housing shortages, and meeting climate goals while mitigating the negative externalities of vacant offices,” according to the report.
Although North Texas could benefit from the extra housing units gained through such projects, the researchers determined that carrying out conversions in Dallas proper would not be financially feasible.
However, office-to-apartment conversions would be financially feasible in New York, San Francisco, San Jose, Boston, Washington, D.C., and Denver because apartment rents in the six aforementioned markets are high enough to overcome the purchase cost of the office building plus the cost of the conversion, the report noted.
This is not the case in Dallas, where the median cost of an office building is $88 million, and the average conversion cost is more than $230 million.
According to a recent report by RentCafe, Dallas failed to complete any new adaptive reuse projects in 2022 despite having more than 1,900 units in the development pipeline.
Of the 1,900 units in the pipeline in 2022, fewer than 20% are under construction, with the remaining projects still in the planning stage, according to information provided to The Dallas Express by RentCafe. Dallas has also seen its “projected conversions backlog” grow by 60% since 2021, partly due to the City’s slow permit approval process, which is a necessary step in getting an adaptive reuse project off the ground.
According to the NBER report, the exorbitant costs associated with transforming Dallas’ roughly 8.8 million square feet of vacant office space would leave investors with a “net present value” of zero, meaning the project would not be profitable as an investment over the long run.
To achieve long-term profitability, researchers claimed the purchase price of an office building would need to be under $43.2 million. For Dallas to be a candidate for such conversions, apartment rents would need to be much higher, and local and federal policymakers would need to get behind the effort.
“Modifications to local zoning regulations, building code adjustments, local property tax abatements, and debt subsidies, and the activation of federal programs, including the Inflation Reduction Act, all have a role to play,” the report reads. “While challenges abound, the potential to reimagine urban spaces for an economically and ecologically more sustainable future is immense.”
Some of the local high-rise buildings identified as candidates for conversion by the report include the Adolphus Tower and St. Paul Place in Downtown Dallas, as well as the 35-story office tower at 500 Throckmorton St. in Fort Worth’s downtown area.
Downtown Dallas regularly logs higher crime rates than Fort Worth’s downtown area. The latter is reportedly patrolled by a special neighborhood police unit that works alongside private security guards.
