I know that commercial and residential building codes are different, but you would think converting them to residential units would fix this..
> The city of Seattle estimates that, with aggressive incentives, conversions could generate up to 6,000 housing units over the next seven years. At a rough approximation, that would use around a fifth of the city’s present office surplus.
> But “potential” is doing a lot of work here.
> Newer, larger office buildings, like the U.S. Bank Center, are hugely impractical for conversion, thanks to massive floor plates, centralized plumbing and other utilities and a host of other constraints.
> The preferred candidates are typically smaller, older buildings, especially those with C- or E-shaped floor layouts, which make it easier to create smaller units with adequate windows.
> But these buildings can be prohibitively costly to bring up to seismic and energy building codes, said Jen Pasquier, a Seattle developer who wants to convert the 10-story Liggett Building, at Fourth and Pike, into 93 apartments.
Can also combine with capsule hotels.
It's a bit like how suburban commercial areas are now in trouble because there are fewer companies interested in the big box anchors, and without them many a strip mall stops making economic sense. But there at least the anchor is just a big empty box, not an 8 or 9 digit investment.
This is weird regulation to me. Why it is not allowed for apartment, but it is OK for office? Both buildings are sheltering humans, just during different stage of being awake.
Even if that's solved the bigger problem is earthquake code. These older buildings aren't up to modern code and significant renovations would require structure changes.
Unless we are talking about super large appartment with tons of rooms, they need windows
If they can’t rent the interior for much, that’s going to make replacing it with a new building look better because it’s more efficient.
Plumbing and sewerage turns out to be a huge headache. Large office buildings often have all the plumbing and sewerage in a small vertical core. The rest of the building is just flat slabs on columns. Adding a sewer line means punching through the floor and hanging pipe in the space above the apartments below. If you're in SF and want to see what that looks like, park in the 4th and Mission garage on the lower level, where you can see the plumbing from the restaurants above hanging from the ceiling. Also, sewer lines are gravity fed, with a 2% slope typical. Long pipe runs get lower along the run, so you probably have to put them along a wall. Then you have to hide and soundproof that stuff, although you might be able to get away with leaving it exposed if you market to hipsters or sell it as low-income housing. If the original building has enough ceiling height, it's easier.
Then there's HVAC, exhaust ductwork for kitchens and bathrooms without windows, partitioning the electrical distribution for the individual units, fire breaks between units, etc. Overall, it's maybe 30% cheaper than a new building, and all custom work requiring experienced people. If botched, it can be more expensive than a new building.
One company that does such conversions admits they're building tomorrow's slums.
And then there's the fundamental problem that if jobs are leaving the downtown core, why have more housing units there?
[1] https://www.pbs.org/newshour/economy/analysis-heres-what-it-...
If they sign a lease at a new lower rent it basically triggers a re-check of "can they repay the loan based on their rental income?", which comes back as "no". That trigger _doesn't_ occur if you just leave the building empty, with _no one_ paying rent, because your last mark to market rent was high enough.
Fundamentally changing the type of tenant in the building would presumably trigger that check as well.
It's a shell game that eventually leads to the loan defaulting, but both the bank and the building owner are happy to pretend they can't see the train coming down the tracks at them.
For an example of this in Seattle that everyone was calling years ahead of the collision, see the Martin Selig sagas https://deepnewz.com/real-estate/seattle-developer-selig-war...
Giant, vacant towers locked by some asshole sitting in their second home in Nantucket, while hordes of homeless mill around the bottom.
Minimum DSCRs have long been used to monitor the current value of a property, and less income is less income.
https://www.jpmorgan.com/insights/real-estate/commercial-ter...
> It's a shell game that eventually leads to the loan defaulting, but both the bank and the building owner are happy to pretend they can't see the train coming down the tracks at them.
This makes no sense. Why would a lender not want to keep tabs on their investment? What does shell game (a game where someone is intentionally deceived) even mean here?
The banks know this is a structural issue, but are likewise incentivized to keep "strong assets" on their balance sheet, rather than a bunch of troubled assets bound for default.
The claim isn't that they can keep this up forever, it just needs to last another quarter, every quarter.
The shell game is both parties knowing that the cups are all empty but still playing because it's better for them both to do so.
> The claim isn't that they can keep this up forever, it just needs to last another quarter, every quarter.
I don’t understand what this means, or what is being “played”, the lenders all have a near real time view into the business. The lack of cash flow can’t be papered over without engaging in fraud, but it’s also up to the lender to decide if they want to take action due to a failing DSCR.
Add in required shrubbery, section 8 housing set-asides, rent control, etc., it becomes unattractive -- especially if the jobs have moved to business friendly suburbs