New York’s biggest office-to-residential conversion project — involving the redevelopment of pharmaceutical giant Pfizer’s former headquarters near Grand Central Terminal — has taken a crucial step as it begins physical work.

A joint venture between affiliates of Metro Loft Management and David Werner Real Estate Investments, which is redeveloping Pfizer’s former office space at 219 E. 42nd St. and the adjacent 235 E. 42nd, closed a $75 million senior mortgage acquisition predevelopment loan backed by 219 E. 42nd, said Northwind Group, a Manhattan-based real estate private equity firm that provided the financing, in a Thursday statement.

The nine-story building at 219 E. 42nd is planned to be redeveloped into a 29-story Class A multifamily rental property with up to 660 units, Northwind said. Combined with 235 E. 42nd, Northwind said the redevelopment will yield about 1,600 units, the biggest office-to-residential conversion in New York history. Pfizer decided before the pandemic to relocate its headquarters across town to Tishman Speyer’s newly built Spiral building at 66 Hudson Blvd.

The project comes as New York and other cities around the country, including Chicago and Washington, D.C., are exploring or have taken on office-to-residential conversions to make adaptive reuse of outdated or excess office stock. The efforts have become more urgent in recent years as officials grapple with low office attendance rates stemming from the pandemic-driven hybrid work trend as well as a nationwide housing shortage that has driven up apartment rents.

“New York City is a very supply-constrained market” when it comes to housing, Michael Ainbinder, managing director at Northwind, said in an interview, adding that the loan will help 219 E. 42nd to start interior demolition. “It continues to see rent increase due to lack of supply. … [This is] a well-located asset with strong sponsorship. David Werner is a longtime household name. Metro Loft is one of the best [developers] for [office-to-residential] conversions. … We are looking at the right projects.”

Metro Loft was founded by Nathan Berman in 1997 and has played a significant role in the office-to-residential conversions in lower Manhattan, Northwind said.
Metro Loft said on its website it has converted more than 5 million square feet of spaces to residential use in lower Manhattan in the past 20 years.

Northwind recently also gave a $95 million acquisition loan to David Werner and its partner BLDG on the joint venture’s purchase of the 515,000-square-foot 100 Wall St. office property in lower Manhattan’s Financial District that brokers involved have said also has a planned residential conversion.

However, despite opening its wallets to two conversion projects in less than one month, Northwind doesn’t say yes all the time.

“Most office buildings are not poised for good residential conversion given light and air and depth of buildings [constraints,]” Ainbinder told CoStar News. “We’ve been getting a lot of outreach for conversion. A lot of these are not poised to be easily convertible. We do a lot of due diligence.”

Northwind funds 10% to 20% of the conversion project requests it received, he said.  

Industry professionals have said office-to-residential conversions can be challenging and costly because of such factors as building layout, kitchen gas hookups and other infrastructure that may be required of a residential unit. As the value of some office buildings has declined, they say it may make more sense for developers to demolish the buildings and rebuild instead.

The former Pfizer building, “located in the heart of Midtown East, is fully vacated and primed for an as-of-right conversion,” Northwind founder and managing partner Ran Eliasaf said in the statement.

As to 100 Wall St., Northwind recently said the property has “efficient floor plans and good air and light on all four sides.”

Still, despite the challenges facing office-to-residential conversions, a slew of projects are underway in New York and elsewhere.

For instance, Gensler, the design architect behind the conversion of the former Pfizer headquarters, is set to soon open Pearl House, which is a conversion of a 1970s office tower to create 588 apartments and nearly 40,000 square feet of amenity spaces at 160 Water St. in the Financial District. The world’s largest architecture firm has more than 4,200 residential units in development in former office buildings across New York, a company spokesperson told CoStar News. Among projects outside of New York, it has converted 14 floors of a 21-story office tower into 168 residential units called The Residences at Rivermark in Baton Rouge, Louisiana.

A separate Gensler spokesperson told CoStar construction at the former Pfizer headquarters has recently begun.

As markets such as New York contend with what CoStar data shows as near-record-high office vacancy rates in contrast with multifamily rents also at near-record highs, more developers are eyeing conversions as cities and states come up with different incentive plans.

SL Green Realty, Manhattan’s largest office landlord, said earlier this year it’s converting its office property at 750 Third Ave. to residential use.

New York Deputy Mayor of Housing, Economic Development and Workforce Maria Torres-Springer said in July that New York has about 135 million square feet of outdated office space that could be converted, adding that about 70 office buildings have signed on to be part of the city’s office-to-residential “accelerator” program.

Northwind was represented by John Vavas of Polsinelli Law Firm.