Few Empty Office Spaces Can Convert To Residential Housing, But Chicago Is Leading Other Cities In Making The Transition

Chicago continues to be one of the most aggressive municipalities in the country in its efforts to develop more housing through the transformation of abandoned office space. An initiative from Mayor Lori Lightfoot to invest $550 million with the goal of adding more than 1,000 office-to-residential conversions along LaSalle Street offers developers tax-increment financing dollars to re-fit historic buildings. But not all office buildings are designed the same and many are not built for living space conversion.

“First of all, they’re hard to underwrite because the cost of renovating an existing building compared to building new is the same. Demolition is a big number,” said Lee Golub, executive vice president of the Chicago-based real estate development and investment firm Golub & Co., a family-owned business that recently completed the transformation of the historic Tribune Tower into 162 luxury condominiums. 

A building’s design can make it difficult to convert to condos or apartments, Golub said.

“You’re re-doing the walls, interior systems and elevators, and in some, you might be able to save some stuff, like the roof. But most everything else is basically a new building,” he said. “When you look at some of the buildings available in other cities, you have to ask, ‘Is the layout of the structure too deep, and can you create new spaces?’ You can’t have long, thin residential buildings because you have to have natural light and for a bedroom to be a bedroom, you have to have natural light.” 

Condos in the historic Tribune Tower, the former home of the Chicago Tribune, cannot be considered affordable housing. According to Crain’s Chicago, one a cannabis company CEO is selling one of the tower’s more expensive condhttps://www.benzinga.com/alternative-investments/real-estateos for $8 million.

“The Tribune building is one of a kind and one of the greatest buildings in the world because it cannot be built again. It’s actually four buildings put together. Because we did high-end condo conversions, it’s a different capital structure and if it’s done right, people are going to buy, no matter what,” Golub said. 

Golub also has high praise for the city’s efforts in the LaSalle corridor but added it was a financially tricky proposition. 

“The City of Chicago and the mayor’s office got together to try and solve housing and the fact the former banking center turned into a ghost town. They got nine proposals and awarded three. It’s just a lot harder to do without getting some kind of subsidy from a private-public partnership and a lender who realizes the best way out is to get some sort of value in writing down the loan on the building. Now those loans are 30 to 40 cents on the dollar. You have to do the math. The one thing you know is you’re not going to save on the construction costs.”

Lightfoot’s initiative in the old business district at Monroe and LaSalle streets has led to goodwill in the city with the requirement for 132 affordable apartments among the 1,000 new apartments. 

“The LaSalle Street corridor is a vital economic engine for our entire city, and we must ensure it remains that way by transforming it from a homogenous office district into a thriving, mixed-use community,” Mayor Lori Lightfoot said in a press release. “By converting underutilized office space to residential units, we will make the Loop a safer, more dynamic and vibrant place to live and work.”

Photo provided by Golub & Co.