For decades, an office tower at Fourth and Main in downtown Winston-Salem was the headquarters for the R.J. Reynolds Tobacco Company. Built in 1929, the art deco beauty was designed by the New York firm of Shreve & Lamb, and served as inspiration for its Empire State Building.
By 2013, Reynolds had moved out. But the building found new life and identity when PMC Property Group and Kimpton Hotels & Restaurants bought it for $7.8 million.
The partners spent another $60 million to convert it, opening the Kimpton Cardinal Hotel in 2015 on the first six floors, with 174 rooms and 36 suites. The next year, The Residences @ the R.J. Reynolds Building debuted with 116 one- and two-bedroom apartments on the seventh through 19th floors. The Katharine Brasserie & Bar opened on the ground floor later that year as well.
Retiree Cathy Howe sold her three-bedroom suburban home four years ago and moved into a one-bedroom apartment on the 15th floor. She’d spent much of her career traveling and staying in hotels for three weeks at a stretch. “I remember saying to myself: ‘I could live in a hotel—this is pretty cool!’” she told The Assembly. “And now I do.”
She moved in not because it was once an office building but because it’s a vintage building, with a lot going on in and around it. The symphony is two blocks away, the library just a little farther, and on a clear day she can see the outline of Grandfather Mountain on the horizon.
Then there’s the architecture itself: the grandeur of the 1920s lobby, its heavy brass revolving door, and an elevator that sometimes holds surprises. “I got in it with [University of North Carolina basketball star] Armando Bacot the other day,” she said. “It was obvious he was a UNC student, but I didn’t know who he was, so I took a selfie with him and sent it to my daughter. She had to tell me who he was.”
The Reynolds Building is just one early North Carolina success story of converting older office space to residences. The trend has accelerated in recent years, as business tenants flock to newer, amenity-rich buildings. That leaves older spaces pining for occupants.
The pandemic exacerbated the shift, as employees began working from home and many never went back. Layoffs in recent months, especially in the technology sector, also add to vacancies.
At the same time, a shortage of housing in North Carolina’s high-growth cities has driven up both rent and home prices.
These trends work in favor of converting offices to residences. But it’s not as easy as it sounds. Apartments and condos typically aren’t as profitable for developers as offices. And many office buildings are difficult to adapt. Some members of Congress have proposed tax credits that would incentivize developers to transform easier-to-convert older office buildings into residential spaces.
Winston-Salem has led the way in North Carolina. It’s growing at the modest but steady clip of one percent a year, and the pace of office conversions is stepping up—especially downtown, with its grid of historic structures.
“It’s definitely being encouraged,” Winston-Salem city planner Steve Smotherman said. “We’re trying to do it particularly in older buildings, with a revised state building code to help convert. A lot have been renovated to meet demand for multi-family apartments downtown.”
The historic Forsyth County Courthouse was converted into 50 apartments. Several former downtown manufacturing buildings also have been turned into apartments.
The city has issued permits for transforming the historic nine-story Wachovia Bank and Trust Company Building at 8 West Third Street into ground-floor retail, topped with 85 apartments.
Rents for one-bedroom apartments in Winston-Salem range from $1,250 to $2,000 a month. They’re in demand, and combined with federal and state historic tax credits, they feed handily into the conversion trend.
“The formula is that if you’ve got a soft market for office space and the cost basis is low, and there’s demand for homes and there are tax credits available, it’s a nice niche for conversion,” said Jason Thiel, president of the Downtown Winston-Salem Partnership.
The demand is real. The population in Forsyth County from 2010 to 2020 grew by 9.3 percent, but housing grew by only 8.5 percent, according to data from the Cato Institute. Converting offices is one way to bridge the gap.
Guilford County, home to Greensboro, has seen a larger gap between the growth in population and lack of housing. From 2010 to 2020, population grew by 11 percent, while housing grew by only 6.5 percent. Average residential rent is now $1,250 for about 900 square feet. In January, Greensboro’s housing supply was among the lowest in the country for a metro area.
As major companies move into the county—in the last three years, Toyota, Boom Supersonic, and a Publix distribution center have arrived—demand for housing has only increased.
“I don’t think we can build residential space fast enough,” said Zack Matheny, president and CEO of Downtown Greensboro. “If there’s a structure we could convert from old office to new residential, that’s something that would be absorbed quickly.”
But there’s not a lot to choose from. Much of the existing downtown office space has already been transformed to residential units, starting with the 17-story Wachovia Tower in 2006. It’s now known as Center Pointe.
The nine-story Southeastern Building at 100 N. Elm Street was adapted in 2015 to a mixed use of 51 apartments, plus retail, office, and a restaurant. The century-old building was Greensboro’s tallest when it was built to house the American Exchange National Bank in 1920.
And in 2018, local developer Seth Coker converted a six-story structure at 127 N. Greene Street into 20 apartments.
“They peeled off the 1960s façade and discovered a cathedral-like arched window at the top,” said Sue Schwartz, Greensboro’s planning director. “It was 100 percent leased before it opened.”
Yet to be converted is the five-story Kress Building at 212 S. Elm Street. A 1930 art deco gem, it offers about 38,000 square feet of office space, with the possibility of apartments on the second through fifth floors.
Mecklenburg County’s population grew by 21.6 percent from 2010 to 2020, while the number of housing units grew by 20.2 percent. Every day, 80 to 120 new people arrive in Charlotte.
“Out-of-town groups are interested in putting their footprints here and are looking for talent,” said John Gaulden, an architect and principal at Gensler Charlotte. “And people hear about that, and come here and don’t even have jobs.”
In the future, office-heavy Charlotte will likely have a greater mix of residential, retail, and office. “We think it will shift,” Gaulden said. “People will demand a 24-hour city or an 18-hour city to engage in a maximum number of hours—and an office-centric city closes down at 6 p.m.”
According to James LaBar, senior vice president of economic development at the nonprofit Charlotte Center City Partners, office vacancy rates for the region in the fourth quarter of 2022 were at 11.7 percent. By comparison, just before the pandemic in the fourth quarter of 2019, that rate was 7.3 percent.
A major office-to-residence conversion is about to begin at the former Duke Energy headquarters at 526 S. Church Street. It’s a 13-story building comprising 800,000 square feet of office space with architecture that’s conducive to conversion. Its first phase will have 450 residential units and 55,000 square feet of retail.
Not every office building is a good match for residences. Floor-to-ceiling heights in an office might be 14 feet, while a residence doesn’t need that much. Offices designed for cubicle farms don’t include much natural light, which is highly desirable in an apartment. Windows need to open for fresh air in an apartment, while office windows are often sealed.
Apartments and condos need plumbing throughout, while offices tend to stack restrooms one above the other. Existing sprinkler systems are a plus, because retrofitting them is expensive.
One of Gaulden’s Gensler associates in Toronto has developed a dashboard with algorithms that analyze existing office buildings to address their potential for conversion. So far, his team has looked at 300 buildings in 25 cities across North America and found that only 30 percent are suitable for residences.
The Gensler dashboard could be particularly useful in Raleigh, which has lagged behind other cities in office-to-residential conversion. Prior to the pandemic, office buildings in Raleigh had very low vacancy rates, according to Patrick Young, Raleigh’s director of planning and development.
Now, as office space has become available, Young is enthusiastic. “It’s a really exciting idea and we fully support it as a city; there are a lot of underutilized spaces and housing demand,” he said. “We can’t do it in all the buildings here, but we do want residential anywhere we can put it.”
Raleigh was recently named the hottest housing market in the country by U.S. News & World Report. From 2010 to 2020, Wake County’s population grew at a rate of 25.9 percent, while housing was up 24.4 percent. And with average rent for 950 square feet at $1,630, demand for housing in almost any form is growing.
Chad Parker, principal in Gensler’s Raleigh office, said that the city can help by supporting and expediting rezoning. Young’s on board with that, too: “Raleigh is rezoned already—the existing building code is only a few years old,” he said.
That zoning code was changed in 2013 to allow mixed-use development—residential and commercial within the same development—in more places. “Some traditional strip malls would still need to be rezoned, but almost everywhere there are office buildings, residential is allowed if the building code can be met,” Young said.
While none of Raleigh’s taller office buildings has been converted, one five-story structure from the 1960s was turned five years ago into one-, two-, and three-bedroom condos. It’s at the corner of St. Mary’s Street and Wade Avenue in Hayes Barton, one of the most in-demand neighborhoods inside Raleigh’s Beltline.
“It was Class A in its day, for lawyers and doctors, but when we started, it was tired and worn out,” said developer Roland Gammon, founder of White Oak Properties in Raleigh.
He contacted JDavis Architects in Raleigh. They converted the building’s 43,000 square feet of office space into 39 condos, then added a pool and balconies. “It sold out early on, with a lot of pre-sales,” Gammon said.
Neil Gray, CEO at JDavis, sees potential for a huge upside in conversions for Raleigh, though he agrees that only a small number of buildings can make it work. “It has to be the right size, the right depth, in the right location and have the right floor plan,” he said. “A small number of buildings make that possible, but this one hit all those buttons.”
In Durham County, where the population grew at a 20.4 percent clip between 2010 and 2020, housing units increased by 20.2 percent. Residential rents in the city of Durham range from $1,200 for a one-bedroom apartment considered affordable housing to about $1,800 for space with more amenities.
Office vacancy downtown is fairly low, but demand for residential is high because people want to live downtown. They’re coming from New York, Boston, and California to work for Google and Apple.
“Life sciences are driving the Durham economy too—students are graduating from Duke and taking jobs and want to live downtown,” said Nicole J. Thompson, CEO and president of Downtown Durham, Inc.
Durham has not had a major office-to-residential conversion project. But the city and county are working on a new plan that looks at creative ways to repurpose existing buildings for affordable housing. A draft suggests “reuse of existing structures (such as conversion of hotels, offices, or retail spaces); creation and use of public subsidies; and reduced process or regulatory barriers.”
“We will be exploring what types of barriers exist for conversions to residential and what types of incentives can help spur those types of adaptive reuse projects,” said Sara Young, director of the Durham City-County Planning Department.
The demand for affordable housing in Durham is strong, and the waitlist is long. Durham’s city council wants to include affordable housing in the redevelopment of a former police headquarters at 505 Chapel Hill Street. Sited on a four-acre lot at an entrance to downtown, the building was designed by modernist Milton Small in 1957 for the Home Security Life Insurance Company.
In 1990, the structure was repurposed as the police headquarters by a two-person team from Durham’s Freelon Group, Phil Freelon and Pat Harris. The architects opened up the interior space, taking out partitions and leaving columns intact. This year, the city will seek a developer to convert the five-story building to mixed use, including residential.
Conversion Tax Credits
The office-to-residence trend has its share of proponents in Washington. Last year, Sens. Debbie Stabenow and Gary Peters, both Michigan Democrats, introduced legislation that included a 20 percent tax credit to developers for conversion-related expenses.
That legislation didn’t pass, but the International Downtown Association expects U.S. Rep. Jimmy Gomez, a Democrat who represents downtown Los Angeles, to introduce a similar measure this year.
Modeled after the highly successful federal historic tax credit, the bill’s passage could add another incentive for developers. Only buildings at least 25 years old would qualify.
In any given downtown, 12 to 30 percent of underutilized office buildings will be candidates for residential re-use, said David Downey, CEO of the International Downtown Association. “If we can do those 12 to 30 percent, we’ll be successful at adaptive re-use and begin to revitalize urban centers while addressing our housing crisis.”
Winston-Salem moved beyond converting just offices in 2015, when the former Forsyth County Courthouse found new life as an apartment building called 50 West Fourth. Former high school teacher Chad Everett Harris was among the first to move in.
He liked the 1896 Romanesque Revival interior and the 1926 Beaux-Arts exterior, and its contemporary feel inside. “There’s a fusion of modern design and the historic nature,” said Harris, who recently completed a Ph.D. at UNC Greensboro in cultural foundations. “I have historic marble in my apartment.”
The downtown amenities are appealing, too. Harris is a film aficionado, and a fan of nearby theaters, galleries, and restaurants. “I feel like I’m part of it all, but a block away,” he said. “I wanted to experience that life, and not drive as much.”
Correction: This story initially misstated where Chad Everett Harris completed his doctorate. It has been corrected.
J. Michael Welton is the author of Drawing from Practice: Architects and the Meaning of Freehand (Routledge, 2015). His articles have appeared in The New York Times, The Washington Post, Metropolis, Dwell, and The News & Observer in Raleigh. He is editor and publisher of the digital design magazine www.architectsandartisans.com.