Converting empty office towers could provide affordable living

The Pew Charitable Trusts and architecture firm Gensler have a proposal for Denver renters trying to find a place to live that won’t break their budgets.

Will they rent a studio apartment in a renovated skyscraper for $850 a month, less than half the current market rent, with the catch that they’ll have to share a bathroom and kitchen and probably won’t have a place to park?

Pugh and Gensler propose co-living, or dorms, as an answer to two problems – creating more affordable housing and saving Denver’s aging skyscrapers, many of which are facing economic obsolescence.

“Half of renters spend more than 30% of their income on rent. One quarter spends more than 50%,” said Alex Horowitz, director of the Pew Housing Policy Initiative, during a press conference to explain their new remodeling model.

About half of Denver households rent, with half of that group consisting of single-person households. About a fifth of these single-tenant households earn between $20,000 and $40,000 annually, an income range that is largely underserved in today’s housing market.

Office-to-residential conversions have been a hot topic over the last couple of years, especially after the shift to remote work during the pandemic left many of the city’s signature office buildings half-empty and unable to repay their loans. But initial optimism gave way to pessimism about conversion costs and engineering challenges.

Running water and sewer to the edge of a high-rise building is expensive, and the large ceilings of buildings, especially those built after the 1970s, result in a lot of wasted space in the center. Designer models that include windowless apartments are not promising, and models with long, thin apartments are not far behind.

The housing advocacy group Up for Growth last year estimated that just five of 206 high-rise buildings, or 2.5% of the total in downtown Denver, are financially viable candidates for housing conversions. Another study by Gensler for the city of Denver found that number to be closer to 16, with another 13 trailing.

Either way, some downtown buildings could find new life using the traditional apartment or condominium model. However, using a co-living or dormitory model that separates sleeping areas from utility-intensive areas can reduce costs enough to make a much larger percentage of buildings convertible.

“This allows us to cut costs by a quarter to half compared to a traditional refurbishment or new build. There are dozens and dozens of buildings that meet these criteria,” said Wes LeBlanc, chief strategy officer at Gensler.

The average cost of creating an apartment using the co-living model in Denver is estimated to be $123,300 per unit, versus $400,000 for building a new studio apartment using the traditional model. If $100,000 is the construction cost needed to make an apartment affordable for a person earning 38% of the area median income or above, then it would require an outside subsidy of $23,300.

Every $100 million in subsidies Denver or the foundation contributes to a conversion project could produce 4,292 affordable units, compared with 333 under a traditional studio design approach, Horowitz said. And in Denver’s case, 30% to 40% of buildings could be candidates for conversion, LeBlanc said.

How the model works

A typical studio apartment is about 440 square feet, including a small kitchen and bathroom. In downtown Denver, the average rent for a one-bedroom apartment was $1,420 per month in August. Private sleeping accommodations of approximately 150 square feet are offered with a rent of $850 per month.

Bathrooms and kitchens that require large utility costs are separated and moved to common areas, eliminating the costs associated with redistributing water and sewer services from the center of the building to the periphery. The smaller footprint allows for more units per floor, with each unit receiving dedicated window space.

Gensler, with the help of Turner Construction, provides an estimated cost to convert an unknown high-rise building in Denver into a co-living tower. The acquisition of the building and land will cost approximately $21 million, with construction costs expected to be approximately $128 million, for a total cost of approximately $152 million.

The model includes 44 apartments per floor: 34 singles, six premium singles and four doubles. As a result, the building under study is home to 1,232 units or 1,344 people. Most studio rooms have two XL single beds, a desk and chair, a nightstand, a microwave and a half-size refrigerator. There would be a shelf for storage and a closet for personal belongings, but nothing more.

Each floor will have four kitchens with conventional fixtures and appliances including sink, microwave, electric range, oven, etc. Each floor will have two living rooms. Existing bathrooms will be repurposed and other single-use shower stalls will be added to comply with city building codes.

The rent will cover the costs of security of the building and cleaning of common areas. Parking spaces will cost $50 per month, but there are only 110 of them, highlighting the weakness inherent in conversions. Although the city center has excellent transport links, the vast majority of renters will have to give up their cars or park them further away. Denver planners will have to compromise on the number of parking spaces.

Other sources of income include leasing ground-floor retail space and leasing 10,000 square feet of office space. About 70% of the building’s area will be used.

Why the Coliving Model Could Work Well in Denver

Several things make Denver the best city for home remodeling. There is a high office vacancy rate here: about a third of all office space in the city center is empty. Construction prices, especially for giants built in the 1970s and 1980s, are falling, lowering upfront costs.

There is also a large gap between the current average rent of $1,820 in the third quarter and what the model estimates it could achieve. A new condo for under $900 a month in a great location can find plenty of buyers.

Compared to, say, Seattle, Denver also has relatively lower construction costs, making the math more accurate, LeBlanc said.

“It brings all these buildings into the conversation that weren’t discussed before,” Horowitz said.

City planners are also proactive in removing regulatory hurdles. Last year, Denver launched an Upper Downtown adaptive reuse pilot program to help businesses, developers and property owners convert outdated buildings for other uses. The program has a facilitator to help expedite the permitting and approval process, which could lead to incentives at some point.

Not all cities allow homesharing or home sharing in their codes, but in Denver it is allowed in mixed-use commercial areas, and the zoning where the tallest buildings are located allows use rights, allowing them to be converted to residential.

One thing that could speed up the transformation would be an expansion of the Denver Downtown Development Authority, which was started in 2008 to help spur development around Union Station through a special district that collected small amounts of additional property and sales tax revenue. .

The issue of expanding the authority to the Central Business District will go before voters in November. If passed, it could generate $500 million in additional funds for downtown revitalization, with housing becoming an eligible investment category.