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The nearly empty office tower at 222 Broadway (between Fulton and Ann Streets) has been sold at a loss of approximately $350 million to a developer who plans to convert the building to apartments. The 31-story structure opened in 1962 as the corporate headquarters of Western Electric, the manufacturing subsidiary of AT&T, diagonally across the intersection of Broadway and Fulton Street from its parent company’s headquarters, at 195 Broadway. Western Electric sold the building two decades later, as the AT&T monopoly was poised to be sundered by federal anti-trust regulators.
In the next 40 years, the building passed through the hands of a succession of financial institutions, most recently Deutsche Bank, which bought 222 Broadway in 2014 for $500 million. But amid ongoing post-pandemic commercial real estate woes (spurred in part by the remote-work trend that has led corporate employers to rethink their need for large suites of workspace), the value of office properties declined precipitously. This enabled real estate developer Jeffrey Gural to purchase the building for $150 million, in a transaction that came to light in March.
Under current zoning regulations, the three-quarters of a million square feet enclosed by the building could be reconfigured to create more than 600 apartments. This is part of a wave of office-to-residential conversions washing over Lower Manhattan, with buildings like 25 Water Street (in which Mr. Gural is also a partner) now being converted to 1,600 apartments, along with 55 Broad Street and 160 Water Street.
A December analysis by the Real Deal, a property industry newsletter, indicates that of almost 6,000 new apartments currently in design or under construction in 60-plus former office buildings throughout the five boroughs, nearly half are concentrated in Lower Manhattan. The administration of Mayor Eric Adams created an Office Conversion Accelerator program to accelerate this process.
In some respects, this dynamic represents a reprise of an earlier wave of conversions in Lower Manhattan, also spurred by concerns about empty office space. In that instance, the vacant corporate headquarters were caused by once-prevalent financial firms moving uptown, or to suburbs. The response by policymakers was an incentive program that came to be known as 421-g, which allocated generous tax benefits to developers who converted office towers (south of a line formed by Murray Street, City Hall, and the Brooklyn Bridge) to residential use, in exchange for conferring affordability protections on the people who moved in.
The program was marked by both success and failure. It unleashed a wave of residential conversions, according to the Citizens Budget Commission, which saw 13 million square feet of office space repurposed as almost 13,000 new apartments. But each of these new homes was subsidized by an average of $92,000 in tax revenue never collected (because of incentives to developers), and many of the affordability protections promised in exchange for this generosity never materialized. It also triggered a wave of gentrification, with the effect of increased local housing costs that forced many longtime middle-class residents out of the community.
Seeking to avoid repeating this dynamic, State Assembly member Deborah Glick is sponsoring a bill that seeks to alter fundamentally the rules under which office buildings can be transformed to apartment towers, prohibiting such conversions in large buildings unless 40 percent of the residential units created are set aside as affordable. Until and unless Ms. Glick’s bill is enacted, however, none of the new apartments currently in the Lower Manhattan conversion pipeline offers any affordability protections.
Matthew Fenton
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