"Probably the worst part of the residential market" — When Shark Tank's Barbara Corcoran explained the limitations of commercial-residential repurposing

Barbara Corcoran, real estate mogul and Shark Tank investor, shared her insights during an interview on Earn Your Leisure dated March 22, 2024. When discussing the challenges in the real estate market, she stated,

"The commercial market is probably the worst part of the residential market right now."

The Shark Tank investor explained that while commercial-to-residential conversions offer a potential solution to the real estate shortage, she underscored the difficulties that remain in implementing these projects.

With significant obstacles in both design and financing, the transition from commercial to residential space is far from simple, and it remains to be seen how this issue will evolve in the coming years.

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The challenges of converting commercial real estate to residential spaces: Insights from Shark Tank's Barbara Corcoran

Commercial real estate struggles

During the interview, Barbara Corcoran addressed the troubles plaguing commercial real estate. She pointed out that many prestigious commercial buildings in major cities are "half empty" and not generating any significant profit for their owners. Despite this, she noted that banks are hesitant to foreclose on these properties.

"The banks don’t want to put clothes on it because they don’t know what to do with the damn things," the Shark Tank investor explained.

The challenge, according to Corcoran, is rooted in the COVID-19 pandemic, which shifted many workers away from traditional office spaces, leading to underutilized commercial properties. The situation is further complicated by the market's hesitance to adapt. Corcoran emphasized the slow response from the real estate sector to fill these spaces.

"There’s so much space available so much space that people are collecting rent on that large corporations aren’t even using," she said.

This vast, underused space, combined with the resistance to repurpose, has created an ongoing issue in the commercial real estate market.

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Challenges of converting commercial spaces to residential

One of the primary strategies discussed was the conversion of commercial spaces into residential units. Corcoran acknowledged that this approach has become increasingly popular, particularly with tall buildings. The Shark Tank investor highlighted a shift away from commercial and luxury condominium developments, saying,

"The tallest buildings now are rental buildings, residential rental buildings."

However, she pointed out several challenges in converting commercial buildings to residential units, particularly in cities like New York. A key issue is the architectural design of many commercial buildings, which often feature "huge floor plates with not enough windows."

According to Corcoran, for a space to be legally considered a room, it must have a window, a requirement that many commercial properties fail to meet.

"Legally, you have to have a window in every room to qualify as a room," Corcoran noted.

This limitation creates substantial barriers to conversion, as even though commercial buildings may be large, their floor plans may not accommodate residential requirements.

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Federal programs and possible solutions

Although the challenges of converting commercial buildings are high, Corcoran stated that there are federal programs that can be used to help convert them. The federal government provides financing to aid in the conversion of such buildings into residential housing, a step aimed at alleviating housing shortages in cities.

While the support from various groups was available, Corcoran had reservations regarding large-scale conversions, citing that design restrictions in most commercial buildings might undermine widespread success.

Corcoran also gave a general overview of what the possible solutions could be, stating that even if the federal government increases its funding for housing projects, it would take years to address the current shortages.

"It would probably take four or five years to even level things out," the Shark Tank investor explained.

While she acknowledged that the trend toward converting commercial properties is growing, she stressed that overcoming these architectural and logistical challenges would require significant time and effort.

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