TF Cornerstone, Dune Launch $1B Office-to-Resi Conversion Venture

Real estate investment firm Dune Real Estate Partners and New York City-based multifamily developer TF Cornerstone announced the launch of Alta Residential, a $1 billion venture that the two companies will use to convert vacant offices into housing at scale.

Dune and TF Cornerstone said in the announcement that converting office buildings to residential is a “generational opportunity,” pointing to the widespread distress many office markets have faced since the pandemic emptied offices. As office owners have grappled with low occupancy and the country has faced an ongoing housing shortage, many people have considered transforming offices into housing as a solution to both problems.

With Alta, TFC and Dune plan to jointly develop a number of conversion projects in NYC and will target other housing markets with higher barriers to entry that have transit-oriented residential neighborhoods. Alta will initially target cities including Washington, DC, Boston, Charlotte, Raleigh, Atlanta, Dallas, San Francisco, and Los Angeles.

Additionally, both TFC and Dune will “source, analyze and due diligence” other potential conversion opportunities for Alta, according to the companies. “Given the need for owners of underperforming office assets to reevaluate the highest and best use of their properties, combined with an ever-increasing need for new housing, we are confident that we’ll be able to scale Alta very quickly, “ said Thomas Elghanayan, CEO of TF Cornerstone, in prepared remarks.

TFC has a long history in ground-up residential development and has previously completed more than a dozen commercial to residential developments totaling close to 5 million square feet. The conversions include a former refrigeration facility in NYC’s Meatpacking District and a former FBI headquarters building. Dune has been focused on high yielding real estate equity investments in the US and manages the Dune Real Estate Funds, which have raised more than $4B of equity capital to date.

Growing support

Recognizing the severe lack of housing and the growing number of empty office buildings, a number of cities around the US have begun launching programs and incentives to help owners and developers convert office space to housing. Last year, NYC Mayor Eric Adams unveiled the Office Conversions Accelerator, a one-stop-shop program for developers to help speed up adaptive reuse projects that create 50 or more housing units. The city is hoping to convert vacant offices into as many as 20,000 apartments over the next decade to tackle the city’s housing shortage.

Lawmakers in Washington, DC, a city that has experienced some of the highest office vacancy rates post-pandemic, recently announced three commercial-to-residential conversion projects would be the first to receive support from the city’s Housing in Downtown program. The innovative program is designed to spur more residential development to the city’s downtown area by granting 20-year tax abatements to owners who convert properties from commercial to residential use.

Other cities like San Francisco, Seattle, Minneapolis, and Denver have introduced legislation or streamlined planning and permitting processes in order to help developers speed up office-to-residential conversion projects. At the federal level, the Biden-Harris administration recently announced new resources to help cities create more affordable housing through office-to-residential conversions.

Nationwide, office vacancy rates hit 19.4% in August, according to CommercialEdge, a sharp rise from the previous year, and some reports have estimated that close to 1.2B square feet of office space could be converted into housing. Meanwhile, the new incentives and support for conversions are already making a big difference nationwide: the number of apartments created from former office spaces increased from 12,100 in 2021 to 55,300 by the beginning of 2024, according to a report from CommercialCafe, a stunning 357% jump in just three years.