Why Prefabrication Could Be The Solution CRE Needs To Survive The Zombie Building Apocalypse

Like many people mid-career, Doug Hayden was looking to make a change. After more than 20 years in residential and commercial real estate, Hayden found his new calling in the battle against a scourge of the office asset class: zombies.

Zombie buildings, that is. 

According to a Boston Consulting Group study titled Countering the Curse of the Zombie Buildings, 1.5B SF of office space in the United States is at risk of becoming obsolete and vacant this decade. BCG cited factors such as plummeting occupancy and utilization, expensive debt and a so-called flight to quality that threatens to leave many Class-B and C buildings behind. The study also highlighted that conversion to residential use is one option for underused office space.

“That study framed the challenge really well,” Hayden said. “These zombie buildings are basically half-empty, and their owners don't necessarily have the money to upgrade the property to attract new tenants. But what if they still have a really good office tenant and want to convert only half of the building to residential? Conventional construction may not be a good solution for that.”

Repurposing unused office space could also help address a projected shortage of 4.6 million apartments in the U.S. by 2030. Standard office-to-residential conversions can be a difficult undertaking, but Hayden said there is a way to make them easier, faster and more convenient, particularly for office owners who want to make the changeover a few floors at a time.

Arthrotó, the new company Hayden co-founded and is president of, applies prefabrication methodologies to convert ​​unused office spaces to residential and mixed uses. Arthrotó’s use of factory-manufactured, custom-built components has numerous advantages over conventional construction methods, he said. Fewer workers need to be on-site, for example, and the process is less disruptive. 

“We can build the whole floor plate — the panels, the bathrooms, everything — off-site and then assemble it all inside the building,” Hayden said. “The nice thing is that you don't need cranes because the modules can be brought directly to the floor via the building's freight elevator. Tenants on other floors might not even be aware that the conversion is taking place. We call this ‘construction without disruption.’”

Arthrotó co-founder and Chief Operating Officer Spencer Marks, whose background is in technology startups, said he doesn’t even think of the company’s process as construction.

“On the surface, Arthrotó looks like a construction company,” Marks said. “But under the hood, we think of it as a technology platform that integrates the technologies of the solutions providers who are our partners.”

Those partners include DIRTT, a pioneer in what the Calgary, Alberta-based company calls “industrialized construction.” DIRTT has been providing modular solutions for workplace, healthcare and education clients for nearly 20 years, and CEO Benjamin Urban said he sees great potential in applying modular techniques to office-to-residential conversions.

“Modular is not a new concept, but Doug and Spencer’s vision is novel and it’s something that no one else has been able to accomplish,” Urban said. “The traditional approach to construction is not a sustainable solution to the housing shortage and problem of vacant offices. It may chip away at the edges, but it’s not suited for the amount of demand that needs to be satisfied.”

“Arthrotó” is a Greek word that can mean “modular” or “to join,” and Hayden said his new company is actively seeking strategic partners like DIRTT to join its campaign against zombie buildings. Together, they will provide integrated building solutions for conversion projects.

Being headquartered in Calgary offers a strategic advantage for Arthrotó. Nearly a decade before the coronavirus essentially shut down many downtowns, the western Canadian city’s central business district experienced a similar hollowing out when the price of crude oil plunged in 2014. 

In actions that might be the envy of office building owners in most other cities, Calgary offered $75-per-SF incentives and sped up the permit process to encourage the conversion of empty office spaces to residential or other uses. The city has since diversified, become less dependent on the petroleum industry and bounced back. 

Among the companies that contributed to Calgary’s CRE rebirth is developer and builder Astra Group, whose Peoplefirst Developments startup is focused on office-to-residential conversions. Maxim Olshevsky, who heads both companies, said Arthrotó’s modular approach offers clear advantages to construction and development, which he said are disciplines that haven’t changed much in the past century.

“We are still applying plaster to walls, and that's absolutely crazy when you think of how much other technologies like phones have transformed in the last 15 years,” Olshevsky said. “And yet real estate is a dinosaur industry that lacks major innovation. Your biggest liabilities are still on-site labor and time delays, and if you could mitigate some of those, it would certainly be beneficial.”

Olshevsky, who has been in conversations with Hayden about Arthrotó’s approach, said he is intrigued by the potential to shave time off the construction schedule and lower labor and other costs. 

“If there's anything I've learned about construction, it’s that nothing is on time and on budget,” Olshevsky said. “Even if the prefabricated system costs more upfront, that’s fine as long as it doesn't cost more than what it saves in terms of time and labor on-site.”

Hayden said he is excited about prefabrication’s potential to fix zombie buildings and bring life back to urban centers. He added that he expects Arthrotó to announce a project in early 2024.

“We see these buildings not as empty shells but as opportunities for sustainable development and affordable housing,” he said. “This is not just about repurposing buildings. It's about breathing new life into our cities.”

This article was produced in collaboration between Arthrotó and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.