From Office Space to Homes: The Battle Against Zombie Buildings

This episode of the Commercial Real Estate Daily podcast is brought to you by CRE Launch Pro. If you’re looking to take your investing skills to the next level with online courses, group coaching calls, and a community of other investors, head on over to www.CreLaunchPro.com

Episode Transcript:

In the realm of real estate, change is inevitable, and for many mid-career professionals like Doug Hayden, it's an opportunity for reinvention. After two decades in residential and commercial real estate, Hayden took up arms against a specific threat to the office asset class - zombie buildings.

But what are zombie buildings? These are structures facing a grim future of vacancy and obsolescence. According to a study by the Boston Consulting Group, a staggering 1.5 billion square feet of office space in the United States is at risk of becoming obsolete this decade. Factors like dwindling occupancy rates, soaring debt, and a "flight to quality" that leaves Class-B and C buildings behind have contributed to this dire situation. The study also highlights that converting underused office space to residential use is a potential solution.

Doug Hayden explains that these zombie buildings often have a good office tenant but lack the funds to upgrade the property to attract new occupants. However, converting only a portion of the building to residential use can be challenging with conventional construction methods.

Enter Arthrotó, a company co-founded by Hayden, which utilizes prefabrication techniques to repurpose unused office spaces into residential and mixed-use developments. This approach offers numerous advantages over traditional construction methods. It requires fewer on-site workers, is less disruptive, and allows for the assembly of entire floor plates off-site, minimizing disruptions to other tenants. Hayden aptly calls it "construction without disruption."

Arthrotó has partnered with technology pioneers like DIRTT, known for their industrialized construction solutions. They see potential in applying modular techniques to office-to-residential conversions, offering integrated building solutions for conversion projects.

Calgary, where Arthrotó is based, provides strategic advantages due to its experience with office-to-residential conversions during a previous downtown downturn. Incentives and streamlined permit processes encouraged these conversions, revitalizing the city's central business district.

Maxim Olshevsky, a developer familiar with Arthrotó's approach, sees the potential for time and cost savings. He believes that despite the upfront cost of prefabricated systems, the reduction in on-site labor and time delays could ultimately make them cost-effective.

Doug Hayden envisions a bright future for prefabrication in urban development. Arthrotó is set to announce a project in early 2024, with a mission to breathe new life into our cities by revitalizing zombie buildings. It's not just about repurposing structures; it's about ushering in a sustainable and affordable housing renaissance in our urban centers.

This is Tyler Cauble, Signing off