Real estate software giant Yardi has introduced a new online tool that evaluates the suitability of office buildings for multifamily conversion, potentially making it easier for developers and investors to identify over a billion square feet of underutilized office space nationwide that could benefit from being repurposed into housing.
The Conversion Feasibility Index, unveiled by Yardi subsidiary CommercialEdge, claims to serve as “a valuable starting point for market research, identifying local trends and targeting properties of interest.” The proprietary tool assigns a “CFI score” based on a wide range of variables, including building characteristics, location and transit accessibility, and architectural and environmental considerations. These factors are weighed based on their relative importance and used to produce a final CFI score ranging from 0 to 100 (divided into three tiers: more difficult conversion candidates, quality conversion candidates, and top conversion candidates).
Of course, commercial real estate professionals would need to do a lot more digging to evaluate the suitability of candidate properties, as the CommercialEdge announcement makes clear. Yardi data can also supply key information on local market trends, detailed property data and verified ownership information – all necessary to determine whether an office building can feasibly be turned into a residential property.
CommercialEdge offers an example of how the index can be applied to real-world projects. A developer looking for potential conversion opportunities in New Jersey could use search filters to build a list of properties that fulfill certain criteria – say, Class B office buildings with a minimum CFI of 85 and maximum loan maturity date of January 2027. The resulting buildings can be saved to a shortlist for more thorough research to determine whether any of them have potential.
The sudden adoption of remote and hybrid work during the pandemic, which emptied out offices nationwide, gave prominence to the idea of office-to-residential conversions, and a number of state and local governments offer incentives for these types of projects. Although the number of actual conversions has been limited so far, Yardi used the Conversion Feasibility Index to argue that more than 1.2 billion square feet of office buildings nationwide, or 15% of the total stock, are quality candidates for residential conversion.