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Urban developers have struggled to pull off office-to-residential conversion projects in the face of steep costs for reworking existing buildings.

Sturgeon Development Partners had one advantage: Flatworks, a proposed 120,000-square-foot office building, existed only in architectural drawings.

Vanessa Sturgeon, CEO of the Portland-based company, has yielded to an unforgiving market for office space and redesigned plans for its proposed eight-story development in the Central Eastside. Instead, the building at 234 S.E. Grand Ave. will hold 143 apartments, all of which will be rent-restricted affordable units.

As it turns out, renderings and schematics are cheaper to change than wood, steel and concrete.

鈥淒uring COVID, it became clear the demand for office space was changing and we needed to find a way to pivot the project to serve the market, and we started exploring options,鈥� Sturgeon said. 鈥淭hat neighborhood is really popular for residential, and on top of that it鈥檚 also very transit-heavy, so it makes a lot of sense for residential.鈥�

The Portland area had approximately 16.7 million square feet of vacant office space at the end of 2024, with a vacancy rate of 24.4 percent, according to Colliers. Meanwhile, state and local leaders are clamoring for more housing, and rents have held steady and are widely expected to grow.

鈥淚t鈥檚 great anytime a vacant lot is developed into dense housing,鈥� said Jonathan Malsin, principal of Beam Development, an experienced Central Eastside developer. 鈥淭he entire city needs more affordable housing, so she鈥檚 filling a need. I think it鈥檚 great for the district.鈥�

Sturgeon鈥檚 course correction required her to go back to her investors to explain the change in plans. The project is backed by an opportunity zone fund, which purchased the property via a limited liability company, Grand Opportunity LLC, for $3.55 million in September 2019.

鈥淭hat was a very easy conversation because everybody understands where the office market is at this point, and it鈥檚 a very necessary pivot,鈥� Sturgeon said. 鈥淚t鈥檚 certainly not a good idea to go building any more brand-new office (space) right now.鈥�

Sturgeon also had to redirect the project鈥檚 design team at TVA Architects. Windows were added to the rear of the building to give future residents more natural light. Otherwise, the building envelope was left largely unchanged, Sturgeon said.

Flatworks previously received historic resource review approval but will need a return trip through the city鈥檚 design review process because of the changes.

Architects 鈥渄id very little to the outside because it was, again, in that historic district,鈥� Sturgeon said. 鈥淚t鈥檚 gone through a process, and it鈥檚 important to keep it very similar.鈥�

However, Flatworks鈥� exterior will be brick rather than the cross-laminated timber that was planned for the office project. In its earlier iteration, Flatworks was planned as one of the tallest CLT buildings in North America.

鈥淐ross-laminated timber at that height requires some extreme measures for fireproofing,鈥� Sturgeon said. 鈥淎nd it just doesn鈥檛 make sense in an affordable housing project. It鈥檚 far too expensive.鈥�

The designed building鈥檚 height remains 83 feet, below the property鈥檚 zoned 100-foot limit.

The interior schematics had to be more substantially reworked. Plans now call for 130 one-bedroom units averaging 566 square feet, and 13 two-bedroom units averaging 950 square feet.

The ground floor will have community rooms, bicycle storage, a lobby, a management office and structured parking with 22 stalls.

LMC Construction is on board as general contractor.

A surface parking lot currently covers the 18,000-square-foot lot. A building that once hosted a nightclub was demolished.

Developers have built little market-rate multifamily housing in Portland in recent years as nearly $1 billion in affordable housing funding poured into the market, construction costs grew, and financing became difficult to obtain.

Sturgeon placed much of the blame for Portland鈥檚 slow multifamily development pace on the city鈥檚 inclusionary housing policy. Building permits took a nosedive after the policy took effect in 2017.

鈥淓conomic studies are showing very clearly that it鈥檚 at the root of the problem and it virtually stopped all multifamily housing in Portland,鈥� Sturgeon said. 鈥淪o affordable housing is all people can afford to do at this time.鈥�

Portland and state leaders have called for more construction of housing, and particularly affordable housing.

鈥淢ore housing is the long-term solution to our homelessness crisis,鈥� Gov. Tina Kotek said in a March news release after a multifamily housing meeting.

鈥淐reating more multifamily housing is essential to addressing the pressing needs of Portlanders and ensuring our city’s growth benefits all residents,鈥� Mayor Keith Wilson added.