EllisDon has been involved with building retrofits for many years, but larger-scale office building conversions have become part of the construction service company’s playbook quite recently as conditions in the commercial real estate market have put a focus on this type of project.
EllisDon chief operating officer and executive vice-president of infrastructure services and technology Jody Becker told RENX it’s crucial to do extensive research and have a team of designers, contractors and others in place that has experience with conversions before attempting these projects, in an effort to minimize risks.
While many of these projects are progressing successfully, an example of what can go wrong was illustrated recently in Calgary. The conversion of the downtown Barron Building to multifamily residential use was recently paused by its developer, Strategic Group, due to unexpectedly high costs and other issues.
“There are a lot of smaller developers that are coming to conversion projects as a solution to an either entirely vacant, or partially vacant, building,” Becker noted. “They’re also feeling other economic pressures around that, whether it’s pressures to adapt that building from a carbon perspective, or whether it’s increasing construction costs on other projects that they’ve done.
“It’s really important to get that experience up front, to do the due diligence, to create a really sophisticated pro forma, and to think about the market and the rental rates that you’re seeking within the particular geography that you’re seeking to do the conversion.”
Viability of office building conversions
When considering the viability of converting an office building to residential use, Becker looks at factors including:
- site context;
- walkability;
- level of vacancy;
- floor-plate size;
- distance between spans;
- building materials used;
- facade type and the building envelope;
- parking availability;
- and municipal services, among others.
“Not all buildings are going to pencil out in terms of whether it makes sense from an economic perspective,” Becker explained. “A lot of times now on the conversion projects we’re working with smaller developers, that may be holders of class-B and class-C buildings. There’s a lot of due diligence that needs to go into determining all of the factors that will come into play in determining the economics of the project, including what’s behind the walls.”
Whether the conversion is to affordable or attainable housing, or will become a higher-end rental apartment, also plays a role in how to proceed.
Advantages of conversions
If it’s decided a building is a good candidate for conversion, as opposed to demolition, it can produce several advantages.
“We’re very focused on our impact on climate change, so one of the things that is really important to us is thinking about the embodied carbon within the building that already exists and not creating new carbon when we go into a new construction project,” Becker said.
“If a building is really suitable for conversion, we can complete that construction project in a shorter time period. That can mean a reduction in financing costs because the longer your financing runs, the more expensive it gets.
“It can also create less disruption in a city centre. If you think about what it’s like to drive around in downtown Toronto right now with everything that’s going on, it can create less disruption because you’re not coming in and excavating, demolishing and doing all of those activities. You’re working with the existing structure.
“And particularly in office-to-residential conversions, it’s really important to come up with solutions and tools to help solve the housing challenge that we have right now. So speed is an important one for us.”
Calgary leads the way
The City of Calgary has approved the conversion of 11 downtown office buildings encompassing 1.57 million square feet to more than 1,400 residential units and is continuing to offer financial incentives. The goal is to remove six million square feet of vacant office space by 2031.
The Cornerstone, a 112-unit apartment building from Astra Living and Peoplefirst Developments, was the first conversion project completed under Calgary’s Downtown Development Incentive Program when it was ready for occupancy in June.
Mississauga-based EllisDon is working on a number of conversion projects in Calgary, though Becker could not reveal details due to confidentiality agreements. She acknowledged, however, it’s involved with Palliser One, a 27-storey, 393,400-square-foot class-B office building owned by Aspen Properties that’s being converted to rental apartments.
Palliser One has been in pre-construction for a little over a year.
EllisDon also just completed pre-construction on another office conversion in the city.
Other potential conversion markets and uses
“Other municipalities are looking seriously at the success of the Calgary program and thinking about how they can replicate that,” Becker said. “There are a number of municipalities that have bylaws in place that prevent conversions from being feasible, so they have to go through the process of looking at those bylaws.”
Toronto has a rule that requires anyone converting commercial space to residential to replace the lost space with an equivalent amount. Lobbying to ease that restriction is ongoing.
Conversion projects are also underway in Ottawa. Becker said that should be a good market as the federal government is shedding office space and has a mandate to create more housing. She thinks there are also good prospects in London, Hamilton, Halifax and Edmonton.
A few office buildings are being converted to hotels and Becker believes there are also opportunities to convert unneeded office space to long-term care facilities, academic uses and laboratory spaces.
“Long-term care is another great need that we have across the country and there’s some some demand for speed in looking at how we can create more long-term care facilities,” she said.
“Office to lab is a bit more complicated because of the mechanical and electrical features that are part of a lab facility, but office to academic is certainly a very viable solution. Academic spaces are, in some cases, much more similar to office spaces.”
