In 2002, Southern Management Companies transformed the former 15-story Standard Oil Building on 501 St. Paul Street from its previous commercial office configuration to a multifamily use, initiating a wave of conversions across the greater Baltimore region.
This trend has continued for more than two decades, including high-profile transformations of 2 Hopkins Plaza and 10 Light Street, as well as smaller re-use efforts at former educational institutions and hotels. As recently as two years ago, Baltimore City was cited in RentCafe’s Adaptive Reuse Report as among the most prolific areas nationally for these conversions, trailing only Los Angeles; Kissimmee, Florida; and Alexandria, Virginia.
207 E. Redwood Street. Rendering by: Michael Graves Architecture & Design
But according to Brad Byrnes of Byrnes & Associates, a Baltimore-based boutique real estate company active in this asset class, opportunities for office-to-apartment conversions may be diminishing locally. The reasons include lack of suitable product to make these conversions economically feasible and escalating materials and labor costs.
The current demand for studio and one-bedroom apartment units in downtown Baltimore City is definitively not one of the challenges to conversion projects, Byrnes said, as the overall vacancy rate currently stands at approximately four percent.
Byrnes & Associates has deep experience with these conversions, including a nearly $20 million redevelopment strategy underway at 207 E. Redwood Street. Formerly the Hotel RL Baltimore Inner Harbor, the property now features more than 130 studio, junior one-bedroom and one-bedroom units. The 10-story tower was originally constructed as a commercial office building in 1905.
Byrnes & Associates initiated leasing efforts last fall. Despite the traditionally weaker leasing environment over the winter, occupancy has passed the 50 percent mark. Young professionals aged 25 to 35, including graduate students, were the primary demographic and that “is great news for the long-term prospects of Baltimore City,” Byrnes said.
Local and national developers have scooped up buildings that were prime candidates for these conversions. California-based Vivo Investment Group acquired the former Radisson Hotel Baltimore Downtown-Inner Harbor and the Holiday Inn Baltimore Inner Harbor several years ago and announced “hotel upcycling” projects involving more than 700 apartment units.
“Expansive floorplates which are ideal for office cubicles and the norm for many older commercial office buildings downtown, are not good candidates for conversions,” Byrnes explained. “The problem is the lack of windows which can only be solved by drilling a light well through the entire infrastructure and is, as you can imagine, extremely costly. Installing necessary plumbing and life safety features, such as fire sprinklers, also make the conversion ‘difficult to pencil.’ The cost and time to access materials, led by windows, is only increasing and time costs money.”
Given all the office conversions that have occurred over the past two decades, Byrnes said that Baltimore’s central business district should be renamed as a neighborhood. The redevelopment of the CFG Bank Arena, plans for the Harborplace site, and the reopening of restaurants has created a renaissance in the downtown area that cannot be ignored and developers “will find a way to build more multifamily units in the city” to meet demand.
Omninet Capital is investing more than $20 million to transform a former Holiday Inn, located near the stadium complex, into nearly 250 studio units. Next, the group intends to remake a nearby building into nearly 100 units.
“It requires incredible expertise to pull off an office conversion but investors and developers recognize that Baltimore represents a lower cost-of-living alternative to other East Coast cities, and residents can easily commute to Washington, D.C. for higher-paying jobs,” Byrnes said. “Despite the current challenges, as new supply diminishes, rental rates should increase in the coming years making more conversions to apartments pencil out. This will especially be true if we see lower interest rates and construction costs.”