Converted Office Parks Try to Lure Millennials With Cheaper Rents

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Developer National Resources has for several years been studying different office, retail and residential schemes for an underused corporate campus designed in the 1960s for International Business Machines Corp. in East Fishkill, N.Y.

But now, as National Resources moves to close on a deal to buy a 300-acre site, the Greenwich, Conn.-based developer is recognizing that housing has got to be a central component of the plan. Firm principals Lynne Ward and Joseph Cotter recognize low rents are the best way to lure millennials and others away from New York City, about a 90-minute drive away.

National Resources is paying an undisclosed price for the land from California-based semiconductor company Globalfoundries, which purchased IBM’s semiconductor business in 2015 and still runs a slimmed down operation at the East Fishkill site that employs around 1,700 workers.

Over the next five years National Resources plans to introduce efficiently sized apartments currently not available in that part of New York state, according to Ms. Ward. They would rent for as low as $1,200 per month, “which is less than half of [rents in] New York City,” she said.

Other developers hoping to redevelop dead and dying corporate office parks are coming to similar realizations as the shortage of affordable housing spreads throughout the country.

Many of these developers also are looking at ways they can create downtown-style districts with a mix of office and retail. But these can be tougher sells as employers flock from these types of office campuses to downtowns and suburban shopping centers get clobbered by online retail.

Some of these master-planned developments have also been criticized for having an ersatz quality similar to the faux city in the 1998 movie “The Truman Show.” Even the best ones can’t match the vibrancy of a thriving downtown.

But suburban developments have popular downtowns licked when it comes to affordable housing, something that is in scarce supply in New York, Boston, San Francisco and other cities. The housing crisis in cities has become “suburbia’s opportunity to participate in the new urban movement,” said Jonathan Miller, chief executive of Miller Samuel Inc., a real-estate appraisal firm.

Mr. Miller has tracked “unusually high” residential sales volume in some of New York’s suburbs, which he says is a reaction to prohibitively high real-estate prices in New York City. “We’re seeing consumers take a different look at the suburban market,” Mr. Miller said.

Still, not all residents and elected officials in suburbia welcome the company. Redevelopments of corporate campuses throughout the country have run into resistance from locals who are concerned that higher density housing means more traffic, pressure on school systems, higher crime and other city-style problems.

In any case, a growing number of suburban office campuses—once all the rage in corporate America—have become candidates for redevelopments. Between 14% and 22% of the suburban office inventory was “in some stage of obsolescence” in commercial areas of Colorado, New Jersey, California, Chicago and Washington, D.C., according to a 2016 report by real-estate firm Newmark Grubb Knight Frank.

The report estimated that between 600 million and one billion square feet in the 50 largest metro areas across the U.S. are in some stage of obsolescence. Such languishing properties account for roughly 7.5% of the country’s entire office inventory, according to the report.

Redevelopment projects that have focused heavily on housing have chalked up some successes. A 400-unit rental complex planned for the 110-acre campus that once belonged to pharmaceutical company Sanofi , in Bridgewater, N.J., is 85% leased, according to Craig Eisenhardt, senior vice president of real-estate services firm JLL.

A town center with retail will also be a part of the next phase of the development. “Housing was a very important factor in landing some of our larger tenants in the campus,” Mr. Eisenhardt said.

Some groups like the higher density. For example, Pittsburghers for Public Transit has been pressing for affordable-housing requirements at a proposed redevelopment of Lexington Technology Park, a 16-acre site that housed government agencies on the eastern edge of the city.

“Residents getting pushed to outer-ring suburbs need affordable housing near public transit,” said Laura Wiens, a coordinator with the group.

But developers adding housing to the former Readers Digest headquarters in Chappaqua, N.Y., ran into years of resistance before breaking ground on the redevelopment last year. The project, known as Chappaqua Crossing, will include housing types more commonly found in New York City than this Westchester County suburb: townhouses and rental apartments.

“In the beginning, we had virtually no local support for adaptive reuse of this site,” said Felix Charney, founder of Summit Development, of Southport, Conn., which is now developing the site with its partner Grossman Cos. of Quincy, Mass.

The IBM site in East Fishkill, which once employed thousands of workers, was acquired by Globafoundries in 2015.

Natural Resources has developed mixed-use office projects across New York and Connecticut. “We decided there was more than enough demand within one and a half hours of New York City,” Ms. Ward said.

The firm has been negotiating for three years with both IBM and Globalfoundries before securing 300 acres of the campus, said Ms. Ward. Construction is expected to begin immediately following the closing. “What we’re building is not your grandfather’s office park,” she said.

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