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<\/p>\nA near collapse at the largest office-to-residential conversion in the U.S. figures to have substantial ramifications for the\u00a0dozens of other large-scale conversions in the pipeline.<\/p>\n
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\n Building inspectors detected multiple beams and columns in the 42nd Street conversion project that buckled under the weight of an addition.\n <\/p>\n
New York City\u2019s commercial real estate players are largely shrugging off the threat of collapse at MetroLoft Management<\/a> and David Werner<\/a>\u2019s project at 235 E. 42nd St. as a one-off. But behind closed doors, they are expecting to face higher levels of scrutiny from lenders and insurers at future projects, adding to development timelines and delivery costs.<\/p>\n \u201cThis is something that is avoidable, and the fact that this has happened is going to have cascading effects for those people involved in this project,\u201d Parkview Financial<\/a> CEO and founder Paul Rahimian<\/a> said. \u201cWhether I’m the lender or the builder, I don’t want to get that call that this happened.\u201d<\/p>\n The developers’ 1,600-apartment, luxury transformation of Pfizer’s former headquarters is just a piece of the 19M SF of office-to-residential conversions<\/a> planned or already underway in the city. But it wound up in the spotlight in early July<\/a>,\u00a0when two steel support columns buckled underneath new floors the developers added on top of the existing structure.<\/p>\n The near collapse happened because reinforcing plates weren\u2019t installed on columns across three floors of the project, including the 21st floor, where the columns buckled, the project’s engineer\u00a0told Gothamist<\/a>\u00a0on Thursday. However, the NYC Department of Buildings has yet to release its report confirming an official cause.<\/p>\n MetroLoft, which has already completed<\/a> 8.3M SF of conversions across 14 NYC buildings and has a further 3M SF in its pipeline, didn\u2019t respond to a request for comment for this story. CEO Nathan Berman<\/a> has downplayed the incident as a \u201cfreak accident<\/a>\u201d\u00a0and one that didn’t actually have a risk of structural collapse<\/a>.<\/p>\n \u201cLenders are certainly going to be much more on top of the engineering issue if you’re adding weight to the building,\u201d Rosenberg & Estis founding member Gary Rosen said. \u201cEverybody is going to be interested in finding out why these beams buckled, and could it have been predicted?\u201d<\/p>\n The huge project\u00a0is the largest of a nationwide push for office-to-residential conversions as a fix to the housing shortage. As of March, underway office conversions\u00a0were expected to eventually yield 90,300 apartments across the country, according to RentCafe<\/a>.\u00a0<\/p>\n In New York City, legislators have looked to conversions as one of the solutions to its\u00a01.4% vacancy rate and its record rents<\/a>. In 2024, the state introduced the\u00a0467-m<\/a>\u00a0subsidy that exempts converted office buildings from paying property taxes for up to 40 years<\/a>\u00a0if the owner sets aside a portion of the apartments as affordable housing.<\/p>\n Then-Mayor\u00a0Eric Adams<\/a>\u00a0introduced a sprawling citywide rezoning policy in the same year<\/a> and rezoned Midtown South<\/a> to allow for conversions\u00a0in 2025<\/a>. Mayor Zohran Mamdani<\/a>\u00a0is also prioritizing conversions in his administration\u2019s housing plan, expecting incentives to yield 12,000 units<\/a>\u00a0in the coming years.<\/p>\n With that momentum behind conversions, the commercial real estate industry\u2019s reaction to the near collapse has been muted. Developers, insurance brokers, lenders and engineers are waiting for city investigators to release a final report on what happened before taking any steps at their own ongoing projects, industry players said.<\/p>\n \u201cAs a community, we need to just take a step back,\u201d Wajdi Atallah, president of engineering firm SBI Consultants, said at a Bisnow event in Miami on Thursday. \u201cLet this thing shake out and let the experts investigate.\u201d<\/p>\n The industry appears to be doing just that. Engineers with whom developer RAL Cos<\/a>. is working across the country are waiting for more information before they look at refining their processes, said the firm\u2019s president,\u00a0Spencer Levine<\/a>.\u00a0<\/p>\n \u201cUntil that information is available and we can all use it and understand what went wrong, I think it’s a lot of almost banter,\u201d he said.\u00a0<\/p>\n Lenders, too, are waiting to hear exactly what happened before subjecting ongoing conversions to fresh scrutiny.<\/p>\n While lenders haven’t sought out additional\u00a0meetings specifically because of the events in Midtown Manhattan, they have been seeking reassurance on existing projects\u2019 safety during prescheduled conversations, one developer with active conversion projects told Bisnow.<\/p>\n \n Deputy Mayor for Housing Leila Bozorg, Mayor Zohran Mamdani and Department of Buildings Commissioner Ahmed Tigani at the former Pfizer building on July 7.\n <\/p>\n \u201cWe’ve clearly talked about it, but it hasn’t led to any concern about the work we are doing,\u201d the developer said, speaking on the condition of anonymity. \u201cWhat some have asked to do is just to refresh them on our policies and procedures so that they understand and feel comfortable that we’re doing all the appropriate steps in our regular course to build these projects.\u201d<\/p>\n Other developers may not be as lucky moving forward. In addition to potentially increased scrutiny from government agencies, lenders and insurers may add their own checks to the process and increase their\u00a0rates for office-to-residential conversions to reflect the higher risk levels now associated with conversions.<\/p>\n Insurers will be looking over deals with a fine-tooth comb before offering liability coverage, said Marcus Callegari, a broker with Florida-based insurance brokerage Hub International.<\/p>\n \u201cThe underwriting process will be more granular about who the subcontractors are, who the GC is on the project, what are the hard costs and the site plan,\u201d he said. \u201cThe projects are going to need to be extremely detailed. Insurers are going to really underwrite them to death.\u201d<\/p>\n Levine said he expects to see \u201ca bit of a tightening of the market\u201d when it comes to construction insurance.<\/p>\n \u201cIt’s a highly educated industry,\u201d he said. \u201cWhen there is information about what happened, I’m sure we’ll see that impact.\u201d<\/p>\n Similarly, lender Parkview Financial is likely going to want to hire its own engineers to review developers\u2019 engineering reports or, at the very least, contract a review out to a third-party engineer, Rahimian said. Parkview will also look for an existing track record on office-to-residential conversions before signing off on lending, he added.\u00a0<\/p>\n Those processes will add time to projects, creating longer timelines and higher expenses for completion, Rahimian said.<\/p>\n \u201cThe process could take a little longer, and maybe it’s a little bit more expensive,\u201d he said, adding that a 50-to-100-basis-point increase \u201cwould not be unwarranted.\u201d<\/p>\n Increased cost of capital, higher\u00a0insurance premiums<\/a>\u00a0and further costs\u00a0from additional engineering reviews extending development timelines\u00a0would make office-to-residential conversions even more expensive, industry players said. But the appetite for housing in NYC \u2014\u00a0with\u00a0rents at all-time highs<\/a>\u00a0\u2014 means the risk won\u2019t stop anyone from building.<\/p>\n \u201cUnfortunately, in construction, there’s a risk, and there’s always a risk,\u201d Rosen said. \u201cNo matter what you do, you can only limit the risks. You can’t eliminate them.\u201d<\/p>\n Chloe Gallivan contributed to this story.<\/p>\n","protected":false},"excerpt":{"rendered":"A near collapse at the largest office-to-residential conversion in the U.S. figures to have substantial ramifications for the\u00a0dozens…\n","protected":false},"author":2,"featured_media":300723,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[39],"tags":[38065,10911,81,114123,426,98949,114120,9,24,63,444,62242,114122,114121,38062,110003,28792,134,136,135,82],"class_list":["post-300722","post","type-post","status-publish","format-standard","has-post-thumbnail","category-staten-island","tag-467-m","tag-david-werner","tag-eric-adams","tag-insurance-premiums","tag-kathy-hochul","tag-metroloft-management","tag-nathan-berger","tag-new-york","tag-new-york-city","tag-nyc","tag-nyc-housing-crisis","tag-office-to-residential-conversion","tag-parkview-financial","tag-paul-rahimian","tag-pfizer-headquarters","tag-ral-cos","tag-spencer-levine","tag-staten-island","tag-staten-island-headlines","tag-staten-island-news","tag-zohran-mamdani"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts\/300722","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/comments?post=300722"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/posts\/300722\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/media\/300723"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/media?parent=300722"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/categories?post=300722"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-ny\/wp-json\/wp\/v2\/tags?post=300722"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}<\/p>\n