Obsolescence Equals Opportunity_final (002)

CHART 19: ACQUISITION PRICING BY PRODUCT TYPE, P/SF

and soft costs to come down by an estimated 40% compared to other office-to-residential conversions within the same city.

$700

Office to Mixed-Use Strategies

$600

Creativity in defining the scope and the outcome of the project is a key component of repurposing strategies. Often, the solution isn’t purely a multifamily play, and expanding across property types can diversify the property income stream as well as potentially save on retrofit costs (as mentioned above). • High Rise Mixed-Use: The proposal for One AT&T Center, one of St. Louis’ tallest structures, utilizes this diversification and cost-saving strategy. The 1.4 million sf building represents the largest loan loss in the second quarter of 2022 at $107 million and was sold for just $4.5 million in April. According to CoStar News, the new owner is planning to add 318 apartments and a 150-key hotel among a host of other amenities. 23 Lower floors totaling about 20% of tower would remain office space, though the exact specifics of the redevelopment may shift in the months to come. With a reduced

$500

$400

$300

$200

$100

$0

High-Rise O ce Converted

Overall O ce Market Average

High-Rise O ce Market Average

High-Rise Multifamily Average

Source: Costar Group; Cushman & Wakefield Research

If the basis for buying office space is low enough, conversions can remain competitive with ground up construction. PMC Property Group’s acquisition of Allegheny Building in Pittsburgh is an example of this. The firm, which has executed several repurpose conversions along the East Coast, purchased the asset for roughly $65 per square foot in August 2020. Last renovated in the late 1980s, the property was converted into 174 units by early 2022. Ownership was able to execute a quick lease-up by offering effectively new product at below-new build rents, all linked to the property’s low initial basis. Adjust the Scope (Mix) of the Repurpose to Multifamily Project to Save on Costs: Another strategy to offset costs is to dial back the amount of space converted to multifamily within the building. As a real-time example, one of Cushman & Wakefield’s investment sales teams is working a project with this consideration in mind. By keeping about a third of the existing space as office and relocating tenants to those floors, they’ve been able to use existing windows. This allows the hard

One AT&T Center, Photo credit: Costar Group

23 “After Massive Loan Loss, Shift to Mixed-Use Envisioned for One of St. Louis’ Tallest Buildings,” CoStar News, December 12, 2022.

The Next Evolution of Office and How Repositioning and Repurposing Will Shape the Future | 31