To see the challenges developers across the country face in transforming office parks into housing, just take a look at efforts underway in Wayne, a New Jersey township less than 20 miles from New York City.

Three former corporate headquarters are set to be transformed into multifamily housing, encompassing some 2,300 units, in a suburb where office parks have reigned for decades and demand for residential construction is pressing. The projects have hit some snags, however, in a clear sign of caution for developers in areas around the United States with similar plans.

Wayne, a municipality in New Jersey's Passaic County, is home to the vacant headquarters of not only liquidated retailer Toys R Us but also roofing provider GAF Materials and regional Valley Bank. Two of those office sites, Toys R Us and GAF have sat empty for years as Wayne and the nonprofit Fair Share Housing Center negotiated how much affordable housing should be made available at new projects under state rules.

A settlement for Wayne was reached and approved by a court a year ago, letting developers get the local approval process underway for the sites. But the biggest proposed redevelopment, the repurposing of the bucolic nearly 200-acre former Toys R Us campus, so far has stalled. A second project, planned by Arlington, Virginia-based AvalonBay Communities, overcame a hurdle when it successfully sued the township over a hastily passed building requirement. A third project at the former GAF campus is currently proceeding. Wayne Mayor Chris Vergano didn't respond to emails from CoStar News seeking comment.

The redevelopments proposed for the three Wayne locations that are no longer owner-owned and occupied also reflect the latest chapter in a national trend: the reinvention of large suburban office parks, but this time into housing. In the past, such campuses have been transformed into industrial properties or into mixed-use developments that typically encompassed retail, dining and entertainment uses, commercial real estate sectors that have seen high demand.

However, the push to repurpose former headquarters has been exacerbated in the wake of the pandemic, with some companies paring back their office space as they adopt hybrid work schedules for employees.

Until recently, multifamily housing hasn't been the first choice for repurposing corporate headquarters. For instance, in the Chicago suburbs insurance giant Allstate sold its 232-acre headquarters campus in Northbrook, Illinois, for $232 million to Dermody Properties in October 2022.

Instead of housing, Reno, Nevada-based Dermody plans to build more than 3.2 million square feet of last-mile distribution space at the site. In September last year, Dallas-based Compass Datacenters paid $194 million for the headquarters of shrinking retailer Sears, a 194-acre campus in Hoffman Estates, Illinois. Compass plans to build a 200-megawatt data center complex, with demolition of the existing office buildings starting later this year.

In other cases in the past, large corporate campuses have been turned into mixed-use complexes that include office, healthcare and retail space, which is what happened at pharmaceutical maker Hoffmann-La Roche's former 116-acre campus straddling Nutley and Clifton in New Jersey. The Garden State has had a spate of such conversions over the years.

But now, coast to coast, housing is increasingly replacing office space at former headquarters sites. For example, Chevron's headquarters campus in San Ramon, California, is being redeveloped as a mixed-use residential hub with 2,600 homes. That mirrors what is happening in Wayne, where there's a risk that the pipeline of apartment development will at some point surpass the demand.

Opponents of such projects often voice fears about the influx of new residents burdening a town's resources, like bringing more children to schools. But those concerns are outweighed, and the Garden State is unique in this way, in some municipalities by obligations imposed on them by a New Jersey Supreme Court ruling known as Mount Laurel. That court decision mandated that towns provide their “fair share” of their region’s need for affordable housing. That obligation, which towns individually negotiate with the Fair Share Housing Center, in some cases, requires hundreds and even thousands of affordable housing units to be built in a municipality.

Jeffrey Otteau, managing partner and chief economist for Otteau Group, said the high court's ruling has been an ongoing driver of multifamily development in the Garden State during a panel at NAIOP NJ's annual meeting last Thursday in Short Hills, New Jersey.

“So the Supreme Court finally stepped in to take control of housing production because New Jersey's suburban communities pretty much universally didn't want anything to get built and developed in their towns,” Otteau said.

The Mount Laurel ruling basically allows developers to set aside one unit of every five built for affordable housing, according to Otteau. So if a municipality has an obligation of creating 1,000 affordable housing units, it has to approve a relatively dense development, in that example 5,000 overall housing units, to get to the 1,000 affordable-unit set-side, he said.

The former Toy R Us campus is the largest former headquarters parcel left in Wayne where redevelopment hasn't progressed far enough to even go before the Township Planning Board with a site plan.

Point View Wayne Properties, an affiliate of developer Dobco Group, as part of the township's fair-housing settlement, is allowed to build up to 1,360 residential units, with 272 of them characterized as affordable, at the 193-acre former Toys R Us campus at 1 Geoffrey Way. However local officials haven't been able to come to an agreement with Point View about exactly how housing should be distributed on the property.

"We are still negotiating with Point View as part of our Mount Laurel [affordable housing] litigation," Christopher Kok, Wayne township planner, said in an email to CoStar News. "However, there are no updates at this time."

Point View didn't respond to several emails from CoStar News seeking a comment.

The company acquired the Toys R Us site nearly five years ago, paying $19 million for it in March 2019 as part of a bankruptcy sale. Toys R Us had filed for Chapter 11 protection and subsequently liquidated in 2018, shutting all its stores. The retailer has now been reborn under entirely new ownership, with a flagship store at the American Dream megamall in East Rutherford, New Jersey, and boutiques within Macy's stores.

In August 2022, a report on how the ex-Toys R Us campus should be repurposed from its original use — as a one-tenant, 621,000-square-foot office complex — was released. That study was commissioned by Passaic County, Wayne and Point View with a $50,000 grant from the New Jersey Economic Development Authority. Consultant BRS Inc. of Medford Lakes, New Jersey, envisioned the former headquarters as being redeveloped similar to Bell Works in Holmdel, New Jersey, the successful reimagining of a large former Bell Labs research facility into a mixed-use center dubbed a "metroburb."

Point View had proposed a plan that would convert the Toys R Us property into a "multi-tenant, mixed-use complex including new commercial development and new multi-family/apartment residential development within the entire site footprint," according to the BRS report. That study itself suggested that the site could be transformed into a hub that combined flexible workspace, business incubators, experiential retail, entertainment offerings and recreation — anything but traditional offices.

In April last year, Wayne authorized planner Kok and consultants to determine if the Toys R Us site should be designated as an area in need of redevelopment, which would give the municipality more control over any project planned for the location. That came after Mayor Vergano expressed concern that negotiations with Point View weren't progressing, according to a story on NorthJersey.com.

"We're going absolutely nowhere," the local media outlet quoted the mayor as saying. "We feel this is the next step to bring this to a solution."

Kok didn't respond when asked about the status of that study.

Wayne signed off on a site plan in October for the Villas at Wayne Hills when Ridgewood Real Estate Partners got the go-ahead to build 439 townhouses and 10 single-family homes on GAF's former headquarters site at 1361 Alps Road. GAF moved to 1 Drive in Parsippany, New Jersey, in early 2015. The property was listed for sale after Wayne and GAF settled what the affordable housing obligation was for the site.

"It’s 100 acres," Jonathan Grebow, president of Ridgewood Real Estate, told CoStar News about the GAF campus. "It’s in a great location, great town, great county, a place that’s in need of housing.”

His Florham Park, New Jersey-based company will have to tear down roughly 300,000 square feet of vacant office space on the property, demolition that Grebow said is slated to start in May and take four to six months at least to complete. The Villas will be developed in several stages, according to Grebow, with model homes possibly ready by the end of the year. The project is expected to take years to complete.

AvalonBay's effort to redevelop Valley Bank's former headquarters didn't go quite so glitch-free. The real estate investment trust obtained local approval in December 2022 to construct 473 residential units at 1455 Valley Road, Valley Bank's former site. The bank, formerly known as Valley National Bank, relocated its headquarters to 52-74 Speedwell Ave. in Morristown, New Jersey. That city, the seat of Morris County, has a lively downtown bar-and-restaurant scene and a train station on a rail line to Manhattan — attributes attractive to the younger workers that companies like Valley Bank want to employ.

But the developer's project hit a snag. The township, after approving AvalonBay's site plan and negotiating a settlement on how much affordable housing the development should have, in January last year passed a resolution mandating that the developer add an elevator to one of its multifamily buildings. AvalonBay sued the municipality, and won, with the resolution invalidated by Superior Court Judge Thomas Brogan in August last year.

In his ruling, the judge said Wayne's Planning Board had "unequivocally breached the settlement agreement with Avalon by adopting a supplemental resolution in January 2023 which purportedly imposed additional obligations on Avalon’s project."

Wayne appealed Brogan's decision, and that appeal was dismissed in November. The township was also ordered to pay AvalonBay's legal fees.

Now work on Avalon Wayne is pushing ahead. The REIT paid $17.1 million for the Valley Bank site in September last year, according to CoStar data.

"Wayne is a wonderful community and we are very pleased that we are now moving forward with the development of Avalon Wayne," an AvalonBay spokesman said in an email. "Prior to any demolition taking place, we have made the buildings available for both the Passaic County Sheriff’s Office and Wayne Township’s Fire Department to conduct training. AvalonBay always looks for ways to give back to the local community and the surrounding area."

This story was updated March 5 to correct the size of Sears’ headquarters campus from 197 acres to 194 acres.