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Why Empty Offices Are Becoming Apartments in Texas’s Big Cities

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One morning last week, 200 workers in hard hats and safety vests flocked to the iconic IM Pei-designed Energy Plaza skyscraper in downtown Dallas to destroy the interior of the building. I kept working. The 49-story office tower, once the headquarters of energy giant Arco’s oil and gas division and later power company TXU, has been transformed into 500,000-square-foot updated offices and 293 luxury apartments. rice field.

Dallas-based Todd Interests, the developer behind REDO, has completed several similar conversions in the city since 2007. One of them, which launched its first phase in 2020, used tax credits available for historic real estate and local tax increases to fund it. Help transform the 51-story First National Bank Tower into a complex with several restaurants, a hotel, offices and 324 luxury apartments.

Todd Interests partner Philip Todd said the tower, renamed National, is a “large, bustling” development with a lot of activity, but Energy Plaza, just a stone’s throw away, is more high-end. says it will be something. Sophisticated ‘sophisticated’ boutique feel. It looks like a “true New York skyscraper”.

Redevelopments like Todd’s are increasingly happening downtown in Texas’ rapidly growing metropolis. Since the onset of the COVID-19 pandemic, the number of “adaptive reuse” projects has skyrocketed nationwide, emptying offices and initiating a move to work from anywhere. More than 20,000 U.S. apartment conversion projects were completed last year, according to RentCafe, which tracks the apartment market, nearly doubling the number of conversions in 2020 and he 2019 combined.

This trend seems tailor-made for Texas. Office vacancy rates are high in most of the state’s major downtowns (around 25% in Dallas and Houston, and he’s in his teens in Fort Worth and San Antonio). Single-family home prices are skyrocketing, interest rates are rising, and many would-be buyers are renting out. And the Texas Real Estate Research Center at Texas A&M University predicts vacancy rates in the single digits, monthly rents expected to rise even higher, and relatively few apartments available.

Moreover, experts say decades-old buildings could potentially be converted into housing more cost-effectively and environmentally friendly than building them from scratch. This is because the building shells are already in place, reducing the carbon footprint of creating new materials.

Chuck Danis, adjunct professor of real estate practice at Southern Methodist University, said of the office-to-apartment trend: “Fill the empty space, move some people back to the inner city, and raise the tax rate. I think all of that is good.”

consider the situation at San Antonio. The development group, which includes billionaire businessman Red McCombs and his real estate investors Ed Cross and Jon Wiegand, is transforming its offices in the 93-year-old Tower Life Building into 234 rental apartments and his first-floor retail space. I am planning to convert to The 31-story tower, currently approximately 40% leased to office tenants, is near the River Walk and the expanding University of Texas at San Antonio campus.

While Alamo City’s downtown office market has better vacancy rates than Dallas and Houston, Wiegand said the Tower Life building has been struggling with vacancies for years. “Any development project needs to understand what the market is interested in,” he says. “We’ve been focused on offering a product that has a strong market right now. That’s certainly the rental housing market in downtown San Antonio.”

Tower Life developers foresee renting apartments to tenants of varying incomes, and have designated some units for households with incomes below the median income in the area.

They’re not the only ones to jump on the urban office-to-residential trend. Similar projects under consideration or in progress include plans by San Antonio-based Weston Urban to transform offices in the Municipal Plaza Building into residential spaces and office space in the historic 10-story Travis Building. Includes plans to convert 63 luxury multifamily units. California-based developer Harris Bay. Travis’ redo takes advantage of the Texas Property Assessed Clean Energy program. It is a long-term financing tool that helps commercial, industrial, and multi-family building owners reduce operating costs in exchange for making improvements to reduce water or energy consumption.

Another 1920s landmark similar to the Tower Life Building will soon undergo a similar renovation in downtown Houston. The top 10 floors of his 32-story Niels Esperson building, known for its flamboyant Italian Renaissance style, will gradually be converted into luxury residential spaces starting this fall, said Cameron Management president, who owns the Esperson office complex. Dougal said his Cameron.

Once the tallest building west of the Mississippi River, the Niels Esperson offers quality and amenities that rival nearby Brava, a new luxury residential skyscraper developed by Hines. , just because our foundations are much less,” Cameron says. Starting at $10,309 per unit. (The median rent for a one-bedroom apartment in Houston is $1,084, according to the rental marketplace Apartment List.)

Although only 58% of Esperson’s offices are currently leased, demand for residential space in Houston looks strong, Cameron said. “It’s clear that he’s probably 20% to 30% overbuilt office buildings around the world because of working from home and Covid-19,” he says. “What we try to do is be responsive to whatever the market wants. You can proceed with housing from the top down.”

Fort Worth’s downtown office market is healthier than Houston’s, but Cowtown leaders have recently said there is growing interest in converting offices to apartments. High demand for Fort Worth’s residential housing appears to have “very long legs,” with critical downtowns needing full-time residents who look to their neighborhoods for dining, shopping and entertainment. It is positive because there is, they emphasize.

“Just yesterday I met with a developer who was interested in converting a Class C office building into about 260 residential units,” said Andy Taft, president of Downtown Fort Worth, the least desirable type of office space. mentioned about “Currently he has a second significant office building that is also being evaluated for apartments. It will be on the order of 300 units.”

city ​​of austinOn the one hand, it bucks the trend of adaptive reuse. DeWitt Peart, president and CEO of the Downtown Austin Alliance, said that in contrast to the transformation taking place elsewhere, “the downtown Austin office market remains in high demand for office space, especially in other areas around Austin. It has a completely different story compared to the city.” Country. “

In fact, according to Kastle, which tracks access data to office buildings in major U.S. metropolitan areas, Austin continues to lead Kastle Systems’ weekly return-to-work barometer for 10 cities, with 10,000 at the end of August. uses 60.4% of office space. Among the new downtown leases the state capital recently signed is with Facebook parent company Meta (589,000 sf). TikTok (126,000 sq ft); Cirrus Logic (120,000 sq ft). “To meet this demand, downtown Austin has his 5.5 million square feet of office space under construction, the only large downtown Texas that comes close to that size,” Pert said. . “We do not expect this increase in demand – demand that is gaining momentum despite the pandemic – to slow or wane anytime soon.”

Back in downtown Dallas, at least four large office-to-residential conversion projects are underway. In addition to Todd Interests’ project at Energy Plaza, the 50-story Santander Tower (formerly Thanksgiving Tower) is included, according to a release from Adolfson & Peterson Construction, where Dallas-based Woods Capital is building multiple floors. It will be converted into 228 apartments. A general contractor at work.

Jonas Woods, CEO of Woods Capital, said in a release:

Woods Capital is also reportedly converting the top half of the 40-story Bryan Tower into apartments, and San Antonio-based Graystreet Partners is planning new rental units in the 56-story Renaissance Tower. increase.

At Energy Plaza, construction crews have completed about 60% of the interior demolition. According to Philip Todd, unlike a national redevelopment, Energy Plaza (which will eventually get a new name) is being redeveloped without any tax incentives, which could create burdensome requirements for developers. There is a nature. The Energy Plaza, which opened in 1983, is also about 20 years younger than the First National Building, which was riddled with asbestos and had other unique needs, he says.

The Energy Plaza is due to be completed by late 2023 or early 2024, but is Todd worried there won’t be enough people returning to his downtown office to rent an apartment by then? No,” he quickly says, pointing to figures that downtown Dallas has 14,000 residents, up from 11,000 in 2016. Many people commute to other areas of the city. I think apartments will continue to thrive in Dallas. “

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