The phenomenon that goes by the chilling name “zombie buildings” invaded office space and other sectors of commercial real estate during and after the COVID-19 pandemic. These are buildings that have fallen victim to the work-from-home (WFH) and hybrid-work phenomena. (Boston Consulting Group defines a zombie as a building with 50% or lower occupancy.) Turns out, the glut of these benighted properties shows little signs of receding.
The eventual solution to the issue, whenever it comes, will likely involve changes to zoning regulations, favorable tax treatment and other thorny, elemental changes. It’s not going to be a quick or easy fix.
One company that believes it has a solution is The Gettys Group Companies, which was founded in Chicago 35 years ago and now has offices as well in Manila and Jeddah. It develops and oversees projects around the globe as brand builders, interior designers, developers and purchasers, including FF&E procurement, freight management and installation oversight for hotels at every segment.
Recently, they’ve taken on these “undead” buildings, seeking to transform them into bottom-line-friendly successes. “There is a tremendous number of office buildings, comprising a staggering number of square feet, that are losing their viability,” said Roger Hill, CEO and co-founder of The Gettys Group Companies. “Buildings, particularly, but not exclusively, Class B and Class C, are at risk of irrelevance now, because people are downsizing and reducing their demand for office space.”
Reviving a zombie building presents a unique time of opportunity and a civic good, argued Hill. “Repurposing office and retail buildings is of enormous importance to cities and towns of all sizes,” he said. “Successful repurposing isn’t as straightforward as many imagine,” however. “It requires cooperation politically, financially and civically, and not all buildings are good candidates. You need to look at a lot of buildings before you can find one that makes economic sense. It takes creativity and experience to recognize the opportunities and challenges, invest appropriately, and renovate strategically.
“Even if you’re given a building for free or have a lot of space that you don’t need within an existing building, there are still costs and logistical challenges associated with renovating, and making that space occupiable and functional,” Hill continued. “It’s important, as you study potential office building conversions, to look for buildings whose original shape is efficient in order to make them financially viable.” (Typically, the best is a shallow, rectangular building.)
Hill pointed to one recent project, the Hotel Verdant, in Racine, Wisc., that involved converting a historic retail building—the long-vacant Zahn Department Store—into a boutique, sustainably built hotel designed, as Hill put it, to be “the living room of Racine,” with ample of areas for visitors and locals to rest, meet and dine.
This project was, and remains, extraordinarily close to Hill’s heart. “I remember being a little boy playing in the store when my mom was shopping, Hill, a native of Racine, said. “Zahn’s had a floor completely dedicated to women’s fashion, and when I was very little, I would play hide-and-seek in there, under the dress racks, during the time my mom was in the dressing room, after which she would come and find me—no doubt exaggerating the difficulty of doing so, to increase my delight. All these years later, it’s heartening to be involved in ushering the building into the next chapter of its life.”
Hill said that there exist both state and federal tax credits to reward developers for preserving an historic building that is being converted. The kicker, though, is that to take advantage of those tax credits, “You’re going to need to preserve that beautiful terrazzo marble or the beautiful facade, moldings, et cetera,” Hill said. “Hopefully, you wanted to do this already, even without the governmental incentive.”
Farther west, in Omaha, Neb., Gettys converted an office building into what Hill described as a “thriving mixed-use hub for the neighborhood,” with a boutique hotel and restaurant at the center.
An interesting fact about the Hotel Farnam is that the building went from being 100% office use to being both an office building and a hotel, “one of the top-performing hotels in Omaha,” according to Hill. This hybrid approach is proving to be a more effective use of the space than pushing against market forces to keep the building 100% occupied by offices. “Plus, now, you’ve created more value for the remaining office space and its occupants, because the hotel can be used both as a place for outside visitors to stay and for the neighboring office occupants to meet, eat and more,” he said.
One of Gettys’ most celebrated projects, and one close to Hill’s heart, is the conversion of Chicago’s iconic Tribune Tower, the former home of The Chicago Tribune. The trademark gothic lettering was retained, but this unmistakable mark of the Chicago skyline has now been converted to ultra-luxury residences. “In essence, we designed 161 unique homes, all within the Tribune Tower, sharing nearly 60,000 square feet of amenity space that is essentially hotel-like,” Hill said.
The Gettys Group was responsible for all interior design, branding and procurement involved in this conversion. “Obviously, you don’t get a chance every day to be involved in preserving a building so integral to a great city’s skyline and its civic identity. It’s one of the projects we’re most proud of.”
Story contributed by Micah Solomon.