Why a $64 a foot office building can still fail to pencil as a residential conversion
Take a three story office building from 1963, about 22,000 gross square feet, asking $1.4M. That works out to $64 a foot for a structurally sound building, which sounds like a gift until the conversion math gets built out. A reasonable first pass: rentable area drops to around 18,500 feet after corridors and stairs, yielding maybe 18 units, mostly one bedrooms around 700 feet. Hard cost for a full residential conversion in most markets runs $175 to $200 a foot on the gross, putting hard cost near $4.0M at the midpoint. Soft costs, architecture, engineering, permits, legal, at 15 percent of hard adds another $600k. Carry and contingency add perhaps $500k more. Acquisition plus all of that lands around $6.5M, or roughly $360k a unit. On the income side, comparable new one bedrooms in a submarket like this might rent near $1,375. Eighteen units at that rent, minus 8 percent vacancy and credit loss, minus operating expenses around $6,000 a unit, gets to roughly $165k of net operating income. At a 6.5 cap that supports a $2.5M building value, several million short of the all-in cost. When the math lands that far underwater, one of three things is usually true: the construction number is wrong, the unit count is wrong, or the building is a demolition candidate dressed up as a conversion. A floor plate 66 feet deep with a center core is often workable structurally, but plumbing stacked at the core tends to be the expensive part of any conversion like this. The number most worth pressure-testing in a case like this is the $175 to $200 a foot figure itself. That range holds for a genuine wet conversion of a 1960s office, and a builder who is actually pricing this as ground-up new construction instead will land on a very different, much higher number.
