At a moment when new studies indicate that housing will stay a serious crisis in Denver despite a slower-paced real estate market, some new apartments that were created from an older downtown office are set to open next month.

The city is studying whether other offices left vacant after the pandemic can help boost the supply.

But developers who put a pencil to the details of those “adaptive reuse” projects are skeptical whether office buildings can really do much to improve the housing outlook downtown.

Meanwhile, amid a hotly contested race for mayor, candidates are touting ways to tackle the dearth of affordable housing, and its twin problem — the ongoing visage of homelessness in and around the central business district.

“It makes sense to look both at downtown and other commercial corridors; I would love to see that happen,” Councilwoman Debbie Ortega, mayoral candidate, told The Denver Gazette about the idea of repurposing empty office spaces to housing. On her campaign website she lists housing among her top platform issues and has highlighted the idea as one she would look to as mayor.

According to a January report by commercial brokerage CBRE, the downtown submarket still has around 30 million square feet of vacant office space — a vacancy rate of over 27% — after another 435,000 feet were lost over the last year. Office vacancies for the wider Denver market stand at around 20%.

In Denver, as in other large markets, Class A buildings —the nicer, newer ones with stylish finishes and employee amenities — have proved resilient amid the pandemic forces that drove workers home and employers to downsize their leases. But that’s headed the wrong way now, according to newer reports.

Moody’s Analytics began tracking a downturn in Class A occupancy in Q4 of 2022, according to a copyrighted story in the Wall Street Journal, and is seeing some long-term investors defaulting on their financing for newer buildings in major cities, as a potential recession looms.

All of that — the available space, and commercial investors nervous about holding on — should work in favor of the apartment conversion idea. Earlier this month, Denver contracted for a $75,000 study on the feasibility of reusing up to 30 buildings downtown, after concluding that offices “are unlikely to return fully to the way they were pre-pandemic,” according to Laura Swartz, spokesperson for the city’s Community Planning and Development Office.

“The city believes there is an opportunity here to help create a more complete neighborhood downtown with more housing options by focusing on vacant commercial and office space,” Swartz added. The study could wrap up later this year, while the city launches a pilot program to urge along possible conversions of a few buildings that owners have already suggested as feasible.

But the likelihood of those projects yielding bedrooms and kitchens from office spaces depends on whether the numbers make sense to prospective developers, said veteran urban builder David Zucker, CEO of Zocalo Community Development. He and his firm have done a host of successful core-urban projects, including a recent Lakewood conversion that quickly leased up.

“It comes down to acquisition price,” Zucker told The Denver Gazette. “For a building at $200-a-foot it doesn’t work; at $60 it may.”

Those numbers, developers say, favor smaller suburban offices where the prime value is in the ground and the parking. Developers see a likelihood that many of those could eventually find residential uses.

“Most of the functionally obsolete office space in the CBD has the wrong bay-depths, floor-to-floor height and parking, making transition away from office use very difficult,” added Carl Koelbel, COO of Koelbel and Company, who has done some 700 affordable-type units as well as offices in downtown’s RiNo redevelopment area.

Bay depth is the span from the outside windows to the building’s corridor wall, where the elevators, water and utilities tend to be. It’s a factor that can kill the deal on newer, larger buildings, he said, echoing other developers sentiments.

Parking ratios also tend to be well below what is needed for office-to-residential conversions downtown, Koelbel said. 

“The key thing is a floorplate shallower than 60 to 70 feet, while later buildings tend to be fairly deep, 90 to 120 feet,” said Tobias Strohe, partner at JNS Architects — which designed the conversion of the 1960s-era Art Institute building at 12th Avenue and Lincoln Street into Art Studios apartments, set to open soon.

The floorplate — the entire span of a floor level — can be large in newer offices, where elevators, bathrooms and windows don’t have to be close to every desk, every conference room. But apartments and condos need more natural light and place a higher demand on sewer and water service, Strohe notes.

“You don’t want these really deep plates where you don’t get daylight,” he said, noting that his firm has had  with a number of such downtown projects either completed or submitted.

Those specifics favor historic buildings, such as the classically styled Symes Building on the 16th Street Mall at Champa Street, which JNS had studied for possible conversion. It was built in 1906, back when large offices still needed deep interior atriums to deliver air and light.

“It has a nice character to it,” Strohe added, noting that prospective renters might be attracted to the historic personality.

The Art Studios at 12th and Lincoln will show the livability and better pricing that such a project could provide downtown, according to Melissa Rummel, development director for the Nichols Partnership, project developer.

Boutique Apartments will begin leasing Art Studios in May, and if all goes well, renters could tour two studio models around the same time that capture how a dated office can alter into new-urban homes, two blocks from the Denver Art Museum. Rents will start around $1,300 a month and transit up to $1,750 for a “penthouse” unit.

“We’re very proud to be delivering this at an attainable market rate that undercuts rates of similar projects,” Rummel told The Denver Gazette. She adds that Nichols had done numbers of adaptive reuse projects in the past.

“The units live and feel bigger than they are in square footage,” Rummel said. “They’re smartly designed. It hasn’t been done in Denver.”

But although Nichols has a number of post-pandemic projects underway, the developer has no other office-to-apartments on the drawing board now.

“I think there are a lot of Class-B and C buildings, but only a fraction of those will be suitable,” Rummel said. “Just because it’s there doesn’t mean it’s ripe for conversion.”

Developers and brokers add that the market allure of any new units will also require good outcomes to basic issues of safety and livability, following four decades when downtown’s soaring popularity had made it a national showplace for new urban living.

“It’s about safety, whether people feel safe,” said broker Jon Treter with Coldwell Banker Commercial Realty at E. 6th Avenue and Grant (CB Commercial is not affiliated with CBRE).

“When you’re walking a tenant around downtown, does one feel safer, can they drive in and walk up to their building, or go out to get a coffee?”

Treter, who brokered some conversion-type deals before the pandemic, says he feels people are starting to return downtown, but doesn’t expect offices to regain their full complement of employees again.

“It may look different,” he said. “A company that once required 100,000 square feet may get by with 70,000.”

“I continue to believe that people want to live downtown,” added Strohe, who offices across from Union Station.

“Look at LoDo and nobody wanted to be down here 25 years ago.”

Now he senses that commuter traffic is back, and lunchtime demand for tables at nearby restaurants is outstripping supply, as restaurateurs continue struggling to attract employees.

Meanwhile, developers note that the viability of adaptive reuse projects, as with other new projects, will require cooperation of city planners on code and zoning changes related to affordable housing that builders may find daunting.

“Be aware, the city of Denver may be expecting converted office buildings to meet a set of hurdles that will be expensive,” said Zucker.

Among those may be commitments to providing mandatory affordable units, fire codes that differ between commercial and residential uses, and Denver’s Model Energy Code. The latter, he added, would almost certainly trigger having to replace the single-pane curtain wall windows that are the face of many downtown offices — a massive cost, Zucker believes, that would create a big challenge.

“Building reuse is, itself, the heart of sustainability,” Zucker added.

Bottom line, Zucker said, “Is this method less expensive than new construction? At $60 per foot, many office buildings in downtown Denver, I bet, work as a residential conversion.”

The new Art Studios apartments have a website at artstudiosdenver.com.