Assessing Office-to-Residential Conversion Feasibility with CommercialEdge Research, Powered by Yardi

As the CRE landscape evolves, repurposing office buildings into multifamily residential spaces can be a strategic move for developers and investors. However, assessing the viability of such conversions is complex, involving many factors that can significantly impact a project’s success.

High office vacancy rates, driven by the rise of remote work and followed by loss of property value in many instances, are prompting developers to seek alternative uses for underutilized spaces. At the same time, the growing demand for housing, coupled with government incentives, makes office-to-residential conversions an attractive option. Developers are also drawn to the prospective cost-efficiency of repurposing existing structures compared to new construction, especially in dense urban areas where land is scarce and expensive.

To adapt to shifting market conditions, CRE professionals must conduct thorough research when choosing potential candidates for adaptive reuse. This is where specialized CRE tools come into play.

Yardi Conversion Feasibility Index

Powered by Yardi and backed by more than 15 years of experience in commercial data research and know-how, CommercialEdge Research has introduced the Conversion Feasibility Index, a proprietary tool that provides property-level scores assessing the potential for residential conversion of office buildings.

With additional data points, the index can serve as a valuable starting point for market research, identifying local trends and targeting properties of interest. CRE professionals can gain a better understanding of local market trends by also examining factors such as DSCR (Debt Service Coverage Ratio), vacancy rates, listings, leases, loan volume and maturity dates, Rental Competitiveness Index (RCI) and more — also provided by Yardi data.

Scoring Methodology

The Conversion Feasibility Index analyzes a comprehensive set of factors, including:

• Building characteristics: Age, total square footage and building depth, number of stories and floor plate shape
• Location and placement: Mid-block location, walkability and transit accessibility
• Architectural and environmental considerations: Ceiling height, green building certifications, primary use subtype

Each factor is assigned a weight based on its relative importance in determining conversion feasibility, and points are awarded based on the specific attributes of the building being evaluated. The weighted scores for each factor are then summed to produce a final CFI score.

A higher CFI score suggests a greater likelihood of a successful conversion, while a lower score indicates potential challenges or limitations. To provide a clear and actionable assessment of a building’s conversion potential, the CFI score is classified into three tiers:

• Tier I – Top Conversion Candidates (90-100 points): These buildings exhibit the most favorable characteristics for conversion, suggesting a high likelihood of success with minimal challenges.
• Tier II – Quality Conversion Candidates (75-89 points): While not as ideal as Tier I candidates, these buildings still possess strong potential for conversion and may require some modifications or adjustments to optimize their suitability for residential use.
• Tier III – More Difficult Conversion Candidates (0-74 points): These buildings face significant challenges or limitations that may hinder their conversion potential and require extensive modifications or creative solutions to achieve a successful transformation.

By classifying buildings into these tiers, the CFI provides a comprehensive and nuanced assessment of their conversion potential, allowing CRE professionals to make informed decisions and prioritize projects with the highest likelihood of success.

Integrating Property Data, Distress Info and Mortgage Insights

In addition to evaluating office-to-residential conversion potential, CommercialEdge Research offers detailed property data and verified ownership information.

Moreover, the platform provides insights into distressed property info and mortgage details. Subscribers have access to verified loan maturity dates and amounts, up-to-date foreclosure information, as well as true owner data and building contacts. These resources enable industry professionals to identify at-risk properties, assess investment risks and uncover off-market opportunities, further enhancing the decision-making process in adaptive reuse projects.

Practical Application and Case Studies

This index is more than just a theoretical tool — it’s designed to be applied to real-world projects. For instance, industry professionals can leverage CommercialEdge Research to research a specific market and put together a list of buildings potentially suitable for adaptive reuse.

Let’s say a developer wants to explore potential conversion candidates in New Jersey. First, we can use search filters such as property type and class, the minimum CFI and the maximum loan maturity date, among others.

In this example, by selecting Class B office buildings with a minimum CFI of 85 and a maximum loan maturity date of January 2027, our search yielded four results. These buildings can be saved to a property list and then thoroughly researched to assess whether any of them are, in fact, promising conversion candidates.

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The CFI is an invaluable tool for developers and investors looking to tap into the hidden potential of underutilized office buildings. Considering the growing prevalence of remote and hybrid work and the widespread need for housing supply, the idea of repurposing empty offices into residential units has attracted attention from property owners and policymakers.

With local governments across the U.S. increasingly prioritizing incentives, we expect this trend to continue growing in the upcoming years.

And thanks to the CFI, which provides a data-driven analysis of buildings’ conversion potential, industry players can navigate the complexities of this trend with more confidence.