While lenders are closely watching the investigation into the crumbling columns and fallen floor of Pfizer’s former headquarters in New York City, insurers are focusing on what any findings may mean for the broader market.
Whatever engineer Thornton Tomasetti and the city and state agencies investigating the incident determine could determine whether office-to-residential conversions become harder to secure in New York and elsewhere.
“It depends on what part of the insurance business you sit in that you can really dive into this as a case study, especially for all of us in the construction insurance space,” says Richard Hartman, senior vice president, construction professional liability brokerage leader at NFP, an AON company.
“These office-to-residential conversions are very popular here in New York City and the demand is only growing…I think something is going to have to happen,” he adds. “There’s a lot of speculation and I think we’re going to find out a lot over the next, you know, 6-12, 18 months about exactly where this is going to go from a regulatory perspective.”
Office-to-residential conversions have become staples as they often involve faster turnarounds and lower costs than new builds. They also offer a way to revitalize downtown business districts struggling to find new office tenants.
But these conversions are more than just a fresh coat of paint. Floor plates must be reconfigured for residential apartments, and the structural load requirements of the structure may also change. The project’s structural engineer has already publicly claimed that prescribed structural reinforcements were not installed, the first of many claims by project team members about who was at fault.
Andy O’Brien
“Claims are going to happen where the liability lies and that’s going to take a process to determine that,” Hartman says. “They’re two very different things. Everybody thinks you know a claim. ‘I’m going to have to pay millions of dollars.’ That may or may not be true, depending on the process and the results of that process, the determination of who is truly responsible. I think the first part of that determination will be the results of the investigation by the regulatory agencies. Whether it’s the New York City Department of Buildings, whether it’s the New York City Department of Investigation.”
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Hartman said there will likely be business interruption claims and other ancillary insurance claims from surrounding businesses as a result of having to close and evacuate those buildings and similar claims from entities not directly involved in the construction project.
“It’s going to be interesting to see how this plays out because both sides are already defending themselves a little bit. You hear the engineers, in an article, saying that maybe the plans weren’t followed, that the contractor went astray.” says Andy O’Brien, partner and construction leader at The Baldwin Group, the No. 3 financial risk advisory and insurance firm in the US.
Tax breaks encourage office conversions
235 GC LLC is a single-purpose entity created by developer and contractor Metro Loft for this project to convert the former Pfizer headquarters into 1,600 apartments, and it qualified for related tax breaks. One of the current advantages of doing office-to-residential projects in New York City is a generous tax abatement program, which exempts these developments from property taxes for up to three years during construction and 25 to 35 years after completion. The program, implemented in 2025, was intended to boost the redevelopment of the city’s office spaces, which experienced a decline in occupancy rates during the COVID-19 pandemic. Given the incentives, there is pressure on developers to quickly complete conversion projects to bring tax-reduced residential units to market.
O’Brien agrees that investigations into the project’s problems will be a lengthy process, but it remains to be seen whether there will be changes to existing incentives for office-to-residential conversions.
“New York has really been seen as kind of a pioneer city in the US in terms of how to take these existing office assets and repurpose them and start to solve some of the housing crisis. New York is way ahead, a decade ahead of Boston and a lot of other cities,” says O’Brien. “And there’s been a lot of success in doing that, but I wonder if that’s going to hit the pause button a little bit and bring in more regulation.”
O’Brien stresses that contractors, engineers, and other members of the construction team must go into conversions with their eyes wide open and understand that existing conditions may not be what they initially believed.
“I’ve been involved in several of these types of conversions throughout my career and the ones that have been most successful have been the ones that are really, really diligent on the cutting edge of understanding these projects,” he says. “You have, a lot of times, very old buildings that you’re going into and you don’t really know what you’re working with until you start tearing down the walls and peeling back the onion and assessing the current condition of the building.”
O’Brien says she was Baldwin’s lead underwriter on an office-to-hotel conversion that started as a $70 million project and “as they went through and tore down walls and started to expose the structural elements of the building, they discovered latent flaws that they didn’t know about. Very quickly, the $70 million project turned into a $120 million project to strengthen them.”
Exploratory construction surgery can also provide good news. While the team behind the 79 W. Monroe office to residential conversion in Chicago found asbestos, lead pipes and conditions that required repair, they also found a wall of slurry under the project that made the job of maintaining the street and the project above possible.
