Many Office Developers Adding Other Types of Real Estate to Portfolio
New York, NY, January 10, 2023-Many of the most prominent office developers in the U.S. are shifting gears, looking to buy or build real estate that isn’t office, reports the Wall Street Journal.
“Boston Properties Inc. is planning to develop 2,000 residential units up and down the East Coast. The firm, which owns more U.S. office space than any other publicly traded company, also is developing millions of square feet of lab and life-science space.
“New York office owner SL Green Realty Corp is teaming up with Caesars Entertainment Inc. in a bid to convert a Times Square office tower into a casino.
“Even the companies behind some of the world’s most glamorous skyscrapers are seeking out other types of real estate. Empire State Realty Trust, owner of the Empire State Building and other office towers, late in 2021 started adding multifamily properties to its portfolio for the first time. Silverstein Properties, best known for developing the World Trade Center in lower Manhattan, is raising a $1.5 billion fund for converting obsolete office buildings into apartments.
“The efforts come as the Covid-19 pandemic and rise of remote work have reordered American habits around the workplace, dimming the importance of office towers that populate city business districts. Shares of publicly traded office owners have broadly declined as investors and analysts worry that the companies’ growth prospects have been hurt by the likelihood of a long-term decline in office demand.
“‘Office is in a state of flux these days,’ said Rich Gottlieb, president of Keystone Development + Investment, a West Conshohocken, Pennsylvania-based developer specializing in offices that has four residential projects in the pipeline in South Florida and the Philadelphia region. ‘But there’s still a housing shortage out there.’
“Office developers pivoting toward residential or other property types say they remain bullish on the office business. Many have predicted throughout the pandemic that businesses will return in greater numbers because, they have said, the best collaboration requires face-to-face meetings in a workspace-not over Zoom.
“And more recently, office owners can point to encouraging signs, including the growing number of employers who are ordering workers back to the offices and the strong demand for space with the best facilities and locations.
“But developing state-of-the art office space requires an enormous capital investment to meet workers’ desire for the highest possible air quality, energy efficiency and amenities.
“The economics of the residential business are currently more compelling, said Tony Malkin, chief executive of Empire State Realty Trust. He would still buy office buildings at the right price. But apartment-building acquisitions produce an immediate return and require ‘minimal capital expenditure,’ he added.”