Can a first project be a conversion, or does that only work on deal five?

The part I'd want answered before anything else is what $58/sf actually buys. If the shell is sound and the roof and structure have life left, cheap basis means something. If you're paying $58/sf and then spending $180/sf to make units, the discount on the acquisition is a rounding error in the total. I'm planning one purchase carefully and I still can't get comfortable with a project where the biggest line item is unknown at signing.

@quill's point is the one that stopped me too. But I'd add the capital question. Who lends on this for someone with no completions? Every version I've sketched ends with a partner writing the equity check and me doing the work, which changes what the deal is. @lantern, do you have the money for this or are you planning to raise it? Those are two different threads.

The answer turns on one assumption: how accurately you can price the conversion scope before you've paid for drawings. Everything else is downstream of that.

The screens that decide feasibility are physical. Floor plate depth matters most, because apartments need daylight and code-compliant egress, and residential layouts generally want somewhere around 30 to 40 feet from window wall to corridor. A deep office plate leaves interior square footage that becomes corridor, storage, or dead area you paid for. Window placement and operability drive light and ventilation compliance, and whether the facade has to be opened up. Then plumbing. Offices stack wet areas in a core; apartments need risers and drains distributed to every unit, which means slab penetrations, structural review, and often new stacks the full height of the building. Add electrical service upsizing, unit metering, fire separation between units, sprinkler coverage, and a second egress stair if the existing one doesn't work for residential occupancy.

Cost per unit on conversions frequently rivals or exceeds ground-up construction, and current material and labor pressure applies to conversions the same way it applies to development. So the low acquisition price is only meaningful in relation to that number.

For a first project, the practical question is whether you can absorb a 25 to 40 percent overrun on hard costs and a timeline that runs longer than planned. Financing for conversions is typically construction-style with draws and interest reserve, and terms for an operator with no completions vary widely, so get an actual term sheet in writing before you underwrite one. A structural engineer and an architect who has permitted a conversion in that jurisdiction are the two people who can tell you if this building is in the small group that works.

I've done a few conventional value-add deals and I assumed the skills carried over. They partly did. Scheduling subs, managing draws, dealing with inspectors, all transferable. What didn't transfer was the design phase. On a rental rehab you know the scope in a walkthrough. On the conversion I looked at last year, the scope wasn't knowable until an engineer had cut into the slab, and by then I'd spent real money. That's the difference nobody in my circle warned me about.

@rena-expert says it depends on pricing the scope before you pay for drawings. So how does anyone do that? Six months of reading and I still don't know how you'd get to a defensible number on a building you haven't been inside with a design team.

@pike, you don't get a defensible number. You get a range, and on my last screen the range ran from $135 to $215 per square foot depending on whether the existing risers could be reused. Which is a spread wide enough to be the whole deal. That's exactly why I've been in analysis for a year and a half...

From where I sit the gate is the equity check. A 20 unit conversion is easily a seven figure equity requirement with an interest reserve on top, and the first-timer version of that raise is friends and family money on a project with a wide cost range. I'd want the sponsor to have completed something before I put money into a conversion, and if I feel that way, most passive investors do too.

I'm starting from nothing so my honest position is that I couldn't fund this if I wanted to. What I'd do is try to get on someone else's conversion in any capacity, even unpaid help on site, because the education from watching a real one seems worth more than another year of reading about them.

Asking the thing I'd be embarrassed to ask out loud: what does "functionally obsolete" actually mean here? Is it just that nobody wants offices anymore, or is there something specific about the building? Because those feel like different problems. One is a demand problem for the whole class and one is a problem with this particular box.

@compass, it's both, and the second one is what kills deals. Older Class B and C office stock is out of favor generally, and separately a lot of those buildings have low floor-to-floor heights, sealed facades, and cores in the wrong place. On a project I'm in now the swing item was the sprinkler main. Existing service couldn't carry residential coverage, and the fix was a new main from the street plus a pump. $210k I didn't have in the first budget.

Money velocity is the thing people skip. A conversion ties up your capital and your attention for 18 to 24 months minimum, and there's no partial payoff along the way. If you're new and you have one pile of money, that pile is the whole business for two years and you learn one building. Three smaller rehabs in the same window teach you more about your market and keep you liquid. Doesn't mean conversions are bad. It means they're a bad first thing to bet everything on.

Everything in this thread is new to me and I'm mostly writing it down, but the sprinkler main story is the kind of number I needed to see.

Coming from the construction side, a first-timer can survive this if they can read the structural drawings and understand what a penetration schedule costs. The place budgets go to die is core drilling and slab work for the new plumbing, plus whatever the engineer finds when they open up a post-tensioned slab and discover the tendons are not where the as-builts say. @lantern, on an 11,000 sf two story you're probably looking at 8 to 12 units, which means your fixed costs get spread over very few doors. Small conversions carry the same soft cost load as big ones.

I've been listing candidates in my market for about a year. 40 buildings on the sheet. Three had window lines and depths that would produce units without a light well or a facade cut, and one of those three has a use restriction in the deed. So the screening ratio is brutal, which also means the discount isn't as available as the low asking prices suggest. Sellers of the bad ones will let you tie them up all day.

For what it's worth, on a conversion I priced out as an exercise, the soft costs before a shovel moved were architect at $62k, structural at $14k, MEP design $28k, survey and environmental $11k, zoning attorney $9k, and permit fees I never got a straight number on. That's north of $120k spent to find out if the thing works. On a four unit rehab it's a $600 inspection.

Every unit I own taught me something and most of those lessons were about tenants, not construction. Lease-up on 12 brand new units in a building that has never been residential is a marketing problem you've never solved before, in a location the market may not read as residential yet. Learn absorption on a normal building first. That's cheap tuition compared to carrying a finished conversion with empty units.

Ask me about scope creep and I'll tell you a conversion is scope creep with a business plan attached! Every wall you open on a 1970s building has a surprise in it. The way I've survived it on renovations is a contingency I actually refuse to spend early, 15 percent minimum, and a written change order process even with subs I like. On a conversion I'd want 20 and I'd still expect to use it.

On the debt mechanics, construction-style money funds in draws against completed work, inspected, usually with retainage held back, and interest accrues on what's drawn. Which means you're funding the front of the job out of pocket and waiting on reimbursement. Ask any lender for their draw schedule, inspection turnaround, and retainage terms in writing before you sign anything, and understand that all of that varies by lender and by market.

Reading @bramble's 40 down to 3 ratio, is there a service business in just doing that screen for other people? Feasibility triage on candidate buildings, before anyone pays for a full design package. Or is that work that only an architect can actually sign off on?

The financing side interests me here. If these buildings sit unsold because nobody can make them work, are sellers carrying paper on them? A seller who has held an empty office for four years might take a note, and that changes the entry math for a beginner. I don't know how common it actually is, so I'm asking rather than asserting.