Following the near collapse of the Pfizer building conversion project on East 42nd Street last week, real estate developers and city officials are assessing how the structural failure could reshape the economics of office-to-residential conversions in New York. The incident, which caused floors to sag and support columns to buckle on one side of the former Pfizer headquarters, has already triggered discussions about new regulations and tighter enforcement of existing rules.
City agencies and members of the New York City Council appear to be talking about the fallout, according to people familiar with the matter. While the full impact is still taking shape, many in the industry expect the aftermath to bring additional hurdles for such projects that involve adding floors above existing structures.
Developers MetroLoft and David Werner were adding 15 floors above the old Pfizer headquarters when the trouble occurred. That kind of overbuild — stacking new apartments on top of an aging office building — is a known risk in this work, developer Andrew Heiberger told the publication. It’s not uncommon, because it lets builders create more units and collect more rent. But it also adds significant cost and time to an already complicated math problem.
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Heiberger and his partner Marty Burger faced the same question on a conversion in Midtown South. They had roughly 40,000 square feet of air rights above their West 35th Street site, but decided adding floors atop the aging building wasn’t worth the trouble.
That calculation is now likely to spread.
Office-to-residential conversions have become a popular tool for addressing housing shortages while repurposing underused commercial space, but they carry engineering challenges that are easy to underestimate. The Pfizer incident shows how even well-planned projects can hit serious problems when piling weight onto older frames.
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He suspects more builders will follow his lead and skip the overbuild entirely, especially if the city adds red tape that makes such efforts more expensive and time-consuming. Lenders, already cautious about office conversions, could become even more wary of projects with significant vertical additions.
Sale prices of prospective conversions that include unused air rights could drop as a result of this change. Over the last year, those rights have been a particularly lucrative asset for owners. “When the seller of that property lists it for sale, these days, they’re baking in the extra air rights,” the developer said. “They want the developer to pay for it.”
But in a world with more regulation and fear of future structural failures, the value of that extra space could drop sharply. “Existing owners of these conversion projects, I think, just lost all the value of their air rights,” he added, noting that he wouldn’t give them “anything” for them. “That’s a pretty strong statement, but I think that’s something that’s a reality right now.”