Whether a first project can be a conversion, or whether that only works after a few deals

The part worth answering 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 real. If the entry is $58/sf and then $180/sf gets spent to make units, the discount on the acquisition is a rounding error against the total. Even for someone planning a single purchase and taking it carefully, it is hard to get comfortable with a project where the biggest line item is unknown at signing.

@tashaford30's point is the one that stops most people considering this. There is also the capital question. Who lends on a conversion like this to an operator with no completions? Most versions of this plan end with a partner writing the equity check while the operator does the work, which changes what the deal actually is. @mikeoconnell7, is the money for this in hand or still being raised? Those are two different plans.

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.

@jordan_ellis2, you do not get a defensible number. You get a range, and on a building like this one the range typically runs from $135 to $215 per square foot depending on whether the existing risers can be reused. That is a spread wide enough to be the whole deal, and it is the reason so many first conversions stall in analysis for a year or more.

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.

It's both, @jessreyes12, 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 and sealed facades, with the core in the wrong place for residential. A common swing item on a conversion is the sprinkler main. Existing service often can't carry residential coverage, and the fix is a new main from the street plus a pump, which can run around $210k that was never 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.

From the construction side of this, a first timer can survive it 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 a post tensioned slab gets opened up and the tendons are not where the as builts say. On an 11,000 sf two story, @mikeoconnell7, the likely yield is 8 to 12 units, which means the fixed costs get spread over very few doors. Small conversions carry the same soft cost load as big ones.

Screen a market of 40 candidate buildings and the sheet usually comes back the same way. Three have window lines and depths that would produce units without a light well or a facade cut, and one of those three carries 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.

Most of what a first building teaches is about tenants rather than construction. Lease-up on 12 brand new units in a building that has never been residential is a marketing problem you have never solved before, in a location the market may not read as residential yet. Learn absorption on a normal building first. That is 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 only on what has been drawn. That means the borrower funds the front of the job out of pocket and waits on reimbursement. Ask any lender to put the draw schedule and inspection turnaround in writing, along with the retainage terms, before signing anything, and understand that all of it varies by lender and by market.

Reading @devon_pierce'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 is the interesting part 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 will often take a note, and that changes the entry math for a beginner. How common it is varies by market, so it is a question to put to the broker rather than something to assume.