I have toured a few converted buildings in NYC. You end up with weird apartment layouts for reasons you mentioned. For example, a lot of the layouts were really long and narrow to satisfy the window requirement since office buildings are generally just giant square floors where you can have desks without direct window access. I think the other issues are running plumbing and electrical to each unit where an office building just needs a central room with plumbing for a common bathroom area.

Overall the economics seem to work in NYC since rents are so expensive, but I would imagine converting an office tower in a MCOL or LCOL city would be harder to make profitable.

Anecdotal evidence:

In the early 2000's when the dot com bubble burst, a well known commercial real estate developer here had the same idea because many of the large corporate buildings went empty or went into foreclosure or had various other financial issues.

He bought one and I was told by several contractors who worked for him that he would brag about the sweetheart deal the city gave him and how little he would have to pay to convert the buildings into town homes. Because of the dot com bust, he also got a bottom floor deal on the price of the building.

It took several years to convert, but that's kind of when the wheels started to fall off. 9 people (at last count) were charged with mortgage fraud in a kick back scheme. They tried to buy up a bunch of the condos and then planned to resell them at higher prices. They were using ghost buyers to get financing.

Ironically the developer was never charged, but several real estate agents and their brokers plead guilty to fraud. The developer had also bought several other buildings with the intention of doing the same. None of them ever came to fruition and by the time the 2008 housing crash rolled around, he had lost two of the other three buildings to foreclosure and I'm not sure what happened to the other one.

The developer just got lucky. Right time to buy low and sell high, but then once he was straddled with market cost of the building and no sweetheart deals on labor and tax breaks from the city? It quickly became apparent unless you have very, very deep pockets, a conversion like this is very expensive and takes a long time for you to see any return on your investment.

On the bright side if you google the name "Cloud 9 Sky Flats Hopkins MN" you'll see the building they used. There are several local real estate companies who still sell the flats and they are amazing with incredible views of the city.

Here's some articles about the Cloud 9 Flats fraud:

8th Guilty Plea Entered in $14M Cloud 9 Mortgage Fraud https://tcbmag.com/8th-guilty-plea-entered-in-14m-cloud-9-mo...

Developer Jerry Trooien unlikely to be charged in condo fraud case, attorneys say https://www.twincities.com/2013/02/12/developer-jerry-trooie...

I think this is more a function of “development is hard and there are a lot of fraudsters” vs conversions specifically. Conversions are harder than an average development but there are hundreds of similar stories for normal ground up.

It's very expensive. But $5 billion in tax incentives helps:

"the report warns that the city’s new 467-m tax break may be overly generous, potentially costing $5.1 billion in lost property tax revenue over 37 years".

That's just too speculative. My viewpoint has always been no tax breaks on stadiums, headquarters, etc, but you just can't know what'll happen. At least if you give the break you have somewhat of idea that they'll be more incentivized

Not just regulations. Basic issues like - office floor plates are wide, but all bedrooms need windows so you end up with weird sliver rectangular floor plans bc you can’t have an all interior apartment. Or - the plumbing in office runs up the core so you are constrained where your bathrooms and kitchens sit.

Also most office buildings aren’t totally vacant and leases can be 10+ years. If you have 48 floors empty but an office tenant on the second floor and one on the 44th floor, and they both have 8 years left on the lease, you can’t just evict them for no cause. It compounds since most of these candidates are eg 30% occupied with a ton of small tenants. Most successful conversions are single tenant buildings where you just do a deal with that one tenant (JPM was tenant in one NYC building).

Regs are an issue but not the main one.