Lenders Getting Less 'Scared' Of Funding Office Conversions

Conversions, once considered unrealistic for the vast majority of Manhattan office buildings, have become increasingly possible solutions with the combination of new legislation and interested lenders.

That is especially important for longtime family owners, who until now may have struggled to see a future for their now-futile office buildings, panelists said Thursday at Bisnow’s New York Conversions and Adaptive Reuse Conference.

“We've gotten a lot of interest from capital providers, but also a lot of the legacy owners in the city,” GFP Real Estate Head of Acquisitions Tom Ortinau said onstage. “Folks whose family has owned a building for many decades, they've got a low tax basis, and for reasons that are out of their control, there's just less demand. So they're trying to figure out what to do with their building.”

Those generational owners are likely less burdened by debt, allowing them to hold on to their assets while they undergo a transformation. For many, that included waiting until new policies — like the City of Yes rezoning and a state tax incentive passed last year — greenlight the production of housing.

Others remain in limbo as efforts like the Midtown South Mixed-Use Plan undergo review. 

Most conversion projects have been concentrated in the Financial District, but some have popped up elsewhere, like 5 Times Square and the former Pfizer headquarters in Midtown. 

Developers at the event, held at the New York City Bar Association, said feasibility studies have found that office buildings in the Garment District and on Third Avenue are ripe for conversion, if the city were to allow it. 

“On Third Avenue from 40th, maybe even 37th, up to 51st, where the buildings are newer, higher-quality, almost every single office building should be converted,” SL Green Executive Vice President of Development Robert Schiffer said. “That corridor has struggled through Covid. Many of the mainstay restaurants that line Third Avenue are gone. They've been replaced with fast-casual or even marijuana stores. It would be great to see that neighborhood become a true 24-hour, 365-day, vibrant neighborhood.”

If an owner is logistically able to move forward with a conversion, the next hurdle is often securing construction financing, which lenders have previously been cautious about.

MSD Partners, in partnership with Apollo, provided a $535.8M loan for the acquisition and redevelopment of 25 Water St., a former office building for JPMorgan Chase that GFP and Metro Loft turned into a more than 1,300-unit residential tower. 

Ortinau estimated the project cost between $550 and $700 per SF, including $150M of interest due to the time it took to complete the project, which included adding hundreds of windows, carving out light shafts and adding 10 floors to the top of the building. 

“That project scared me, even though we made the loan,” BDT & MSD Partners principal Ross Baldwin said on the panel.

MSD merged with BDT & Co. in 2023.

“When you look at these, you start with top-tier sponsorship, somebody who knows the business plan and can tackle it,” Baldwin said.

The financing for 25 Water closed in 2022. That year, just 23,100 apartments were underway via office conversions nationally, according to a RentCafe report. That has since skyrocketed to 70,700 in 2025, 8,310 of which are in the New York metro area. 

As more projects near completion, lenders are becoming more comfortable. 

“There's a few other folks with purses in the market right now, too, so it has become a competitive business,” Baldwin said.

Although that provides smaller sponsors with more opportunities for financing, there’s still intense scrutiny for each project, as lenders want to ensure that those with less development experience are up to the task. 

“We're typically looking for a partner for them, and in many cases, since they’ve owned the building for a significant period of time, they might have built up cash reserves,” Colliers Managing Director Zach Redding said. “So the groups that we're specifically working with are very well positioned for it, but I'm sure there's many out there that are not as well positioned.”

UPDATE, MARCH 4, 2:30 P.M. ET: A previous version of this story misstated the date of MSD Partners and BDT & Co.'s merger. This story has been updated.