Investment Management

Repurposing Office Beyond Residential and Industrial Spaces

Mike Adams Mike Adams September 06 3 min read

In a rapidly changing commercial real estate market, office conversion projects are growing in popularity as vacant offices are transformed into or make way for alternative uses. Estimates show that 90% of development over the next decade will likely involve renovating or reusing existing assets due to the lack of developable land in major metro areas and the eco-friendly nature of these projects.  

Nationwide, cities are offering economic incentives to promote the conversion of underutilized office buildings into residential and industrial spaces to combat housing shortages and decentralize distribution closer to urban areas, with Los Angeles leading the way. In 2022, the city had the most office-to-residential conversions in the nation (1,242 through June), with an additional 8,000 to 16,000 new homes possible by converting just 10% of its 155 million square feet of office space into housing.  

Orange County has also been a hotbed of office projects sold for alternative uses, with The City of Lake Forest and Santa Ana being the most active for conversion projects. In the last 36 months alone, there have been 23 office projects for a total loss of 4,368,339 RSF of office product.  Office-to-industrial conversions have been most prevalent, with 13 happening in the last 36 months (accounting for 2,569,019 RSF coming offline).  

One such deal to recently hit the headlines was Kearny Real Estate demolishing a newly renovated 197,370 square foot Santa Ana office campus they bought for $34.8 million in 2018. In partnership with Dune Real Estate Partners, they plan to build a 163,000-square-foot warehouse at 3130 South Harbor Boulevard, replacing two office buildings they spent $15 million to renovate.  

Additionally, multifamily has had six office conversion projects with 1,425,946 RSF coming offline, residential has had three with 271,448 RSF coming offline, and medical has had one with 119,926 RSF coming offline. 

The possibilities with adaptive reuse projects are endless. 

Due diligence, deep market understanding, historical consideration, and comprehensive financial analysis are enabling markets across the country to breath fresh life into assets beyond residential and industrial spaces through entertainment districts, educational institutions, art galleries, and more. 

Case in point: The Eureka Building in Irvine, CA.  

Saddleback Valley Community Church was searching for a facility for its growing congregation, spanning 40,000+ square feet, with high ceilings for worship, outdoor space, great visibility, and 250+ parking stalls. They also needed a path to obtain a CUP (Conditional Use Permit) for religious use. After working with other representation, they partnered with our team to help them source the right location.  

An uptick in the area’s industrial redevelopment, and rising capital costs with limited options within the desired two-mile radius made this a complicated assignment. Our team understood that we had to get creative to find a new home for the congregation as their lease was about to lose runway at their existing location.   

Having worked on countless conversion projects to maximize the value of struggling office buildings since 2017 (our first being a 4-story office building in Santa Ana that was acquired and demolished by AMCAL Multi-housing to make room for a 65-unit workforce housing project), we knew that an office reuse project was the best course of action. As such, we connected with 1,000 property owners, developers, and other stakeholders looking for off-market properties nearing near-term roll and found The Eureka Building off-market, which seemed the perfect fit.  

After a complex negotiation and due diligence process involving the city, legal, zoning, and financing, The Eureka Building experienced its own ‘religious conversion,’ transforming into a Saddleback Valley Community Church campus that is enriching our local community.  

Knowing which office assets are best suited for conversion.  

While conversion projects seem the perfect solution for vacated spaces, they’re not without challenges. Often the internal mechanisms of a building do not align with today’s building code, requiring immense knowledge and skill to remain cost-effective. Regardless, research has shown that conversion projects, on average, cost 16% less and take 17% less time.  

The key to an adaptive reuse project’s success is to determine:  

  1. If the surrounding area would support and engage with the project, which should accommodate a specific and evolving need. 
  2. If a building is sound structurally, how the mechanicals will integrate, environmental factors to address (ex: asbestos, lead), accessibility, parking, zoning, building codes, etc.  
  3. How to preserve the building’s unique features and materials, highlighting various trademarks while tactfully bringing the asset into the future. 
  4. The economic viability and sustainability of said conversion project, with adequate resources readily available. 

From residential to office and all that’s in between, office conversion projects are more than just a trend; they represent a paradigm shift in our approach to urban development.  

Media Contact

Stream Press

Related Stream Expert

Mike Adams

Mike Adams

Managing Director, Office Investor Services Contact