A day after structural damage imperiled the largest-ever planned office-to-residential conversion in the U.S., investors and lenders say they are reconsidering future commitments to these complex real-estate projects.

Developer Michael Pestronk in Philadelphia had just finished pitching investors on a slate of new real-estate conversion projects on Tuesday, when he noticed five missed calls.

The high-profile conversion project at the former Pfizer headquarters in Midtown Manhattan was at risk of partial collapse, he learned. Pestronk, whose firm Post Brothers is leading the nation's second-largest of this kind of conversion in Washington, D.C., cursed to himself as he absorbed the news.

"An incident like this can certainly cut off investors and lenders from conversions," he said.

The past half-decade has been a boom time for office-to-residential conversions. At the start of this year, about 90,300 units from office-to-apartment conversions were in the pipeline across the U.S., up 28% from a year earlier, according to apartment search website RentCafe.

New York City leads the way with 16,358 office-to-apartments in various stages of development, nearly double compared with the year before.

Private developers see conversions as a potential way to cut down on the ballooning costs of building from scratch. Public officials like the win-win: It addresses both their housing shortages and the overhang of empty office space plaguing downtowns.

Now, some lenders are starting to rethink that calculus.

"It's going to make everyone a little bit more conservative," said Paul Rahimian, chief executive of Parkview Financial, a real-estate lender that has financed both office-to-residential and hotel-to-residential projects. "Maybe we do the easy ones, but let's not do the super complex ones."

The Manhattan building is now stable and hasn't shown any new movement, city officials said on Wednesday. The contractor and the city are discussing long-term solutions for the building.

Still, future conversion projects could expect to face more extensive engineering and safety reviews, more expensive builders' insurance, stricter government incentives and less available debt, said Neil Osnato, founder of Persistence Analytics Group, an infrastructure and risk analytics firm.

"The Pfizer building incident should force developers, investors, lenders, insurers, and public officials to reprice office-to-residential conversion risk," he said . "The economics of conversion may change."

These extra layers of scrutiny and added costs could delay the timeline for new conversion projects by months, some real-estate executives say.

New York City Mayor Zohran Mamdani said that the city is going to make sure all its conversion projects are following necessary regulations and safety precautions. The plans and the site at the Midtown high-rise will have to be fully compliant with all codes "before any nonemergency work moves forward," he said at a Wednesday press conference.

Mamdani said he remains committed to continuing conversions in the city, but he added, "I also consider that we have to do so safely and in a way that is fully accountable."

Office-to-residential conversion projects can be more complicated than standard ground-up construction, in part because developers are trying to make a building perform a function it was never intended to do.

Sunlight and air need to be brought to pockets of a building that, as an office tower, relied on artificial light. More bathrooms and kitchens need to be added and weight loads need to be adjusted.

The Pfizer office conversion to 1,600 new residences, along with a rooftop pool, fitness center and ground-floor shops, is especially ambitious. MetroLoft, the lead developer, planned to add new floors to the building and make other expansions to the property. Some of that extra weight was what caused the steel beams to buckle, Nathan Berman, managing principal and founder of MetroLoft, told The Wall Street Journal on Tuesday.

Almost everyone in the industry is expecting increased regulatory scrutiny on conversion projects. Attorney Mark Jackson, who specializes in conversion development, is already anticipating a "short-term Pfizer premium" on future builders-insurance contracts.

Asher Luzzatto, a developer converting three Denver office buildings into about 1,100 apartments, says developers should keep conversions simple rather than try to significantly change the framework.

"If the existing architecture doesn't want to be substantially larger, don't force it," Luzzatto said.

Still, some aren't concerned. Ran Eliasaf, the managing partner of Northwind Group, which lent $135 million for the purchase of the old Pfizer property, said his firm will remain "very bullish" on financing office-to-residential conversions. He expects the same of other investors too.

Turning old commercial property into housing has been going on for decades, especially in New York. Last year, the Financial District welcomed more than 1,300 apartments from the largest completed office-to-residential conversion in U.S. history.

The Pfizer episode has sparked scrutiny over just how big and complex such projects should be.

"People will be more cautious," said Peter Lehrer, a strategic adviser on projects including office-to-residential conversions. "This is a wake-up call."

Write to Rebecca Picciotto at Rebecca.Picciotto@wsj.com and Lily Belle Poling at Lily.Poling@wsj.com

(END) Dow Jones Newswires

July 08, 2026 20:00 ET (00:00 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.