Category: Property Conversions

Property Conversions Unlock New Potential in Real Estate

Posted on by Abigail Grenadier

Property conversions are emerging as a critical tool to revive underutilized assets and address market demands. By transforming outdated office spaces into housing and mixed-use developments, the industry is seizing an opportunity to adapt and thrive.

Industry Voices Capture Momentum

  • These strategies offer a blueprint for addressing nationwide housing shortages, while revitalizing communities and modernizing infrastructure.
  • Former RER Chair Dan Neidich (CEO, Dune Real Estate Partners) likens the opportunities in office-to-residential conversions to a “fire hose,” emphasizing the urgency and scale of adapting underperforming spaces. (CNBC, Dec. 10)
  • RER Board Member Scott Rechler (Chairman & CEO, RXR) highlights that in New York, “70% of the vacancy is in 30% of the buildings,” indicating a concentration of underutilized office space prime for conversion. (CNBC Squawk Box, Nov. 22)
  • According to a recent CBRE report, 73 U.S. conversion projects have been completed this year, a slight increase from last year.
  • Looking forward, another 309 projects are planned or underway, with about 75% categorized as office-to-residential, placing the total count of units in the works at 38,000. (Wall Street Journal, Nov. 26)

Community Success Stories

  • New York City recently approved the “City of Yes” plan to create 80,000 new homes through adaptive reuse. NYC real estate leaders have supported this effort to streamline zoning and enable housing development, including RER Board Member Scott Rechler, who spoke in favor of the proposal on an NYU panel. (New York Times, Dec. 5 | Bisnow, Dec. 6)
  • In cities such as Columbus, St. Louis, and Pittsburgh across the Midwest, developers are converting outdated office spaces into vibrant residential communities and mixed-use developments, fostering neighborhood and downtown revitalization. (Business Journal, Dec. 3)
  • 2024 CommercialEdge research outlines New York City, San Francisco, Chicago, and Los Angeles as top cities with conversion feasible office space. The analysis shows that conversion in the top “30 central business districts and surrounding urban segments alone could mean turning roughly 167 million square feet of aging office space into modern residential and mixed-use properties.” (CommercialCafe, Dec. 10)

Navigating Challenges

  • Financing gaps, structural challenges, and community concerns remain significant hurdles for conversion projects. Regulatory obstacles such as outdated building codes, minimum unit sizes, and natural light requirements continue to increase costs of development. (Governing, Dec. 3)
  • Recognizing the need for change, cities are taking steps to encourage property conversions. Methods include reductions in approval times, exemptions from affordable housing rules, changes in building code requirements, and tax incentives or subsidies to developers. (Governing, Dec. 3)

The Roundtable urges federal policymakers to adopt incentives that support and promote these transformative local projects. These measures are vital to expanding access to affordable housing and meeting the nation’s growing demand.

The Push for Office-to-Residential Conversions

Posted on by Abigail Grenadier

Cities across the U.S. are increasingly embracing office-to-residential conversions as part of the solution to address persistent housing shortages and high office vacancy rates driven by remote work policies. Many local governments in key metro areas have accelerated incentive programs and made major progress, bringing thousands of new homes into the development pipeline with more to come.

Challenges and Incentives

  • Property conversions can be a cost-effective means to re-purpose certain CRE assets to provide new, affordable housing supply, revive struggling city centers and small businesses, restore local revenue sources, and reduce energy consumption. While costs can vary depending on the building and other project factors, at least one recent property conversion is estimated to cost 40% less than a wholly new apartment building. (Morning Brew, Sept. 24)
  • Office-to-residential conversions present a path to revitalizing downtown areas, but regulatory and financial hurdles must be addressed to unlock their full potential. (ULI, Sept. 27)
  • Various cities are actively pursuing policies to incentivize these conversions through zoning changes and tax incentives:
  • New York City proposed a $400 million initiative to support the conversion of older office buildings into residential units. The “City of Yes for Housing Opportunity” plan aims to create 500,000 new homes over the next decade by legalizing zoning conversions for buildings constructed before 1990 in areas where residential use is allowed, and expands the types of housing commercial buildings can be converted into.
  • Washington, D.C. has implemented the Housing in Downtown program, designed to catalyze new residential development through a 20-year tax abatement for commercial-to-residential conversions, with expectations to deliver 6.7 million square feet of residential use. (BisNow, Sept. 19)
  • Minneapolis took steps last week to simplify its office-to-residential conversion process by passing an ordinance that streamlines the review process, reduces project timelines, and pauses certain affordability requirements for five years. (CBS, Sept. 24)
  • San Francisco has seen limited success despite efforts to incentivize conversions. Only two projects totaling 165 units are underway, prompting Mayor London Breed and Supervisor Matt Dorsey to propose eliminating impact fees and affordable housing requirements for downtown conversions in key areas. (GlobeSt., Oct. 1)
  • California faced a setback this week when Governor Gavin Newsom vetoed a bill aimed at expediting the conversion of vacant office buildings into residential or mixed-use spaces. The legislation would have mandated by-right approval for adaptive reuse projects, streamlining the review process by bypassing environmental reviews and local zoning approvals. (GlobeSt., Oct. 1)
  • This week on the Walker Webcast, Dr. Peter Linneman (Leading Economist, Professor Emeritus, The Wharton School of Business) predicted there will be a push for back-to-office policies after the November elections, regardless who gains control of the White House. (Walker Webcast, Oct. 2)

Climate Risks and Opportunities

Workers on sustainable energy project on rooftop of building
  • Office-to-residential conversions are recognized universally as having positive climate impacts because they reduce “embodied” emissions in concrete, glass, and other construction materials relative to new projects built from the ground up. (Arup, Dec. 2023; Urban Green, Dec. 2023; NAIOP (April 2023)).
  • Expanding the use of clean energy tax credits, as proposed in the IRA, could further incentivize conversion projects, helping to reduce long-term operating costs and improve building resilience.
  • With tax policy debates at the forefront in Washington, The Roundtable submitted recommendations to Congressional tax leaders this week (see Tax story above), urging enhancements to the Inflation Reduction Act’s clean energy tax provisions in any future legislation. (Letter, Oct. 2)
  • The recommendations included expanding energy-efficient tax credits to cover low-emissions building equipment and allowing developers to transfer the 45L and 179D credits, which would help reduce housing costs and boost energy efficiency.
  • The Roundtable has also encouraged federal agencies to make key improvements to their existing low-interest loan programs to better support property conversions that support high-density, transit-oriented housing. (Roundtable Weekly, April 19)
  • A recent Morningstar report highlighted the growing importance of ESG considerations in real estate investment, with 67% of global asset owners acknowledging that ESG factors have become more material over the past five years. (CREFC, Oct. 1)

The Roundtable will continue to advocate for support at the federal level, such as the bipartisan Revitalizing Downtowns and Main Streets Act (H.R.9002) introduced in July, to create market-based tax incentives for office-to-residential conversions. These projects offer a promising but complex solution to both the commercial real estate market’s transformation and the housing shortage. With proper support, they could reshape and rebuild cities across the country.

Property Conversions Legislation Introduced

Posted on by Abigail Grenadier

On Thursday, House Ways and Means Committee Members Mike Carey (R-OH) and Jimmy Gomez (D-CA) introduced the bipartisan Revitalizing Downtowns and Main Streets Act (H.R.9002), which would create a market-based tax incentive for converting older commercial buildings to residential use.

Revitalizing Downtowns and Main Streets Act

  • The bill is a positive step forward in the effort to modernize U.S. real estate, create new and affordable housing, and strengthen cities and neighborhoods that continue to suffer from the aftereffects of the pandemic and changing business needs. 
  • “Between high housing costs and the rise of remote work, formerly prosperous neighborhoods across the country are struggling,” said Rep. Carey (R-OH). “The solution is right in front of us. But even though vacant commercial and office space is sitting unused, converting these properties into housing is so expensive it is often uneconomical. This bill will allow communities to meet their residents’ need for affordable, abundant housing and allow American downtowns and main streets to thrive.” (Rep. Carey Press Release)
  • The bill would create a new and temporary 20% tax credit for qualified property conversion expenditures, modeled after the historic rehabilitation credit. (RER’S One-Page Summary)
  • The total credit authority would be limited to $15 billion, allocated by state housing finance agencies based on feasibility and impact.
  • Larger credits would be available for projects in rural areas, low-income census tracts, and economically distressed areas.
  • The credit could be stacked with other federal tax benefits, including LIHTC, the rehabilitation credit, and Opportunity Zone benefits. 

Roundtable Advocacy

  • The Real Estate Roundtable has supported similar versions of conversion legislation, such as the Revitalizing Downtowns Act (S. 2511, H.R. 4759), introduced by Sen. Debbie Stabenow (D-MI) and Rep. Jimmy Gomez (D-CA). The Roundtable has also worked closely with the White House on administrative actions designed to provide low-cost financing for conversion projects. (Roundtable Weekly, April 19)
  • “The Revitalizing Downtowns and Main Streets Act is a proactive, market-based policy measure that aims to breathe new life into underutilized commercial properties, create jobs, generate local property tax revenue, and help reinvigorate our nation’s cities and suburbs,” said Jeffrey D. DeBoer, President and CEO of The Real Estate Roundtable. “We commend the leadership of the bill sponsors for their vision and urge support for this critical bipartisan legislation.”
  • The bill addresses and incorporates most of the recommendations a Roundtable-led coalition had collectively made to the Revitalizing Downtowns Act in comment letters submitted in October 2022 and June 2024.  
  • Since then, many states and localities have taken bold action to support property conversion efforts.
  • Both letters are the product of a property conversions working group created by The Roundtable’s Tax Policy Advisory Committee (TPAC). The working group has reviewed and considered the challenges and impediments confronting potential property conversion activities. (Roundtable Weekly, June 28)

The Roundtable’s Tax Policy Advisory Committee will continue working with policymakers to advance tax policies that encourage and facilitate property conversion efforts.

Real Estate Coalition Urges House Members to Support Bipartisan CRE Conversions Bill

Posted on by Abigail Grenadier

A Roundtable-led coalition of 17 national real estate organizations wrote to members of the House of Representatives voicing their support for the introduction of the Revitalizing Downtowns and Main Streets Act, which would create a market-based tax incentive for converting older commercial buildings to residential use.  (Coalition letter)

 Revitalizing Downtowns and Main Streets Act

  • The House Ways and Means Committee Members Mike Carey (R-OH) and Jimmy Gomez (D-CA) will introduce the Revitalizing Downtowns and Main Streets Act in the coming weeks.
  • If enacted, the bill would be a step forward in the effort to modernize U.S. real estate, create new and affordable housing, and strengthen cities and neighborhoods that continue to suffer from the aftereffects of the pandemic and changing business needs. 
  • Currently, only 2% of vacant offices are undergoing the conversion process (CBRE). However, 15% of office buildings are suitable for residential conversion. (White House, Oct. 2023)
  • The bill would create a new and temporary 20% tax credit for qualified property conversion expenditures, modeled after the historic rehabilitation credit.
  • The total credit authority would be limited to $15 billion, allocated by state housing finance agencies based on feasibility and impact.
  • Larger credits would be available for projects in rural areas, low-income census tracts, and economically distressed areas.

Roundtable Advocacy

The Roundtable’s Tax Policy Advisory Committee Meeting
  • The Real Estate Roundtable has supported similar versions of conversion legislation, such as the Revitalizing Downtowns Act (S. 2511, H.R. 4759), introduced by Sen. Debbie Stabenow (D-MI) and Rep. Jimmy Gomez (D-CA) to encourage the conversion of older buildings into new uses.
  • The new bill addresses and incorporates most of the recommendations the coalition made collectively to the Revitalizing Downtowns Act in the October 2022 letter.  (June 2024 letter  | October 2022 letter)
  • Since then, many states and localities have taken bold action to support property conversion efforts.
  • Both letters are the product of a property conversions working group created by The Roundtable’s Tax Policy Advisory Committee (TPAC). The working group has reviewed and considered the challenges and impediments confronting potential property conversion activities. 

The Roundtable’s Tax Policy Advisory Committee will continue to respond to legislative proposals affecting potential property conversion activities.

Revitalizing Post-Pandemic Cities Through Building Conversions

Posted on by Abigail Grenadier

Recent reports show property conversions are on the rise as commercial real estate and cities continue to undergo significant transformations to adapt to new post-pandemic realities. (Multihousing News, May 20 | (CBRE Report, May 29)

Construction skyline

Report Data

  • Adaptive reuse projects are on the rise, with 17.6% more apartments converted from outdated buildings in 2023 than the prior year, according to a recent RentCafe report.
  • There are currently 151,000 units underway in various stages of conversion projects across the U.S., of which 58,000 are to be redeveloped from office properties. (CRE Daily, May 30)
  • Adaptive reuse projects from former hotels are at an all-time high in the U.S., with a 38.8% increase since the previous year and almost double the volume of 2021. (RentCafe report).
  • CBRE’s “Shaping Tomorrow’s Cities” report identified six key factors that can help cities rebuild and thrive: economic dynamism, demographic potential, lifestyle vibrancy, distinctive identity, responsive governance, and resilient infrastructure.

Rebuilding Strategies

  • Converting underutilized buildings to residential use can be a cost-effective means of developing new housing, creating jobs, and generating critical sources of local property tax revenue while saving energy and reinvigorating communities.
  • However, conversions can be costly, and local governments and developers must work together to bridge the gap and aid in rebuilding cities and communities.
  • For example, Chicago is providing $150 million in public subsidies to property developers to convert four buildings in the business district to more than 1,000 apartments, with the assurance that one-third are set aside as affordable units. (WSJ, May 28)
  • In New York City, Mayor Adams created the Office Conversion Accelerator Program, which brings city agencies together to work collaboratively with developers and aims to streamline converting offices into housing. (CRE Daily, May 30)
  • “Public and private stakeholders have an integral role to play in shaping American cities. By having an all-hands-on-deck approach, the collective impact of experiences and rich data will drive insights and strategies to transform our cities,” the report said. (CBRE Report, May 29)

Roundtable Recommendations

  • The Roundtable has urged policymakers to create a robust tax incentive to help overcome the significant financial, architectural, and engineering hurdles associated with repurposing older commercial buildings as housing.
  • The incentive should complement actions taken by state and local governments to encourage property conversions.
  • The Roundtable is working with the House and Senate sponsors of the Revitalizing Downtowns Act (H.R.419) to update and improve the bill, which would create a 20-30 percent tax credit for qualifying conversion costs.
  • The credit is based on the highly successful historic rehabilitation tax credit and would apply to buildings that set aside 20 percent of their housing units for low- and moderate-income tenants.
  • In April, The Roundtable recommended a series of actions to the Biden administration to support commercial-to-residential property conversions, including leveraging various federal loan programs and tax incentives to provide financial support for CRE conversions. (Roundtable Weekly, April 19)

Property conversions and the Revitalizing Downtowns Act (H.R.419) will be discussed at The Roundtable’s Annual Meeting on June 20-21 in Washington, DC.

Roundtable Recommends Agency Actions to Accelerate Property Conversions

Posted on by Abigail Grenadier
Jared Bernstein, chair of the White House Council of Economic Advisors, right, and Roundtable President and CEO Jeffrey DeBoer

The Real Estate Roundtable urged the Biden administration to take a series of actions to support commercial-to-residential property conversions in an April 15 letter to Jared Bernstein, chair of the White House Council of Economic Advisors. (see Meeting story above)

Improving Agency Resources

  • The Roundtable’s letter aims to harness various federal loan programs and tax incentives to provide financial support for CRE conversions.
  • These programs, enhanced by President Biden’s Bipartisan Infrastructure Law and Inflation Reduction Act, can ideally be tailored to accelerate projects that transform underutilized assets into housing. 
  • RER’s letter states, “The Federal Guidebook’s featured programs have not lived up to their promise—yet.” The Roundtable’s suggestions to improve these U.S. agency resources support goals to increase housing supply, revitalize urban downtowns, and cut carbon emissions.

Roundtable Recommendations

Real Estate Roundtable letter on property conversions April 15, 2024
  • The April 15 letter urges agency actions to streamline environmental reviews, hasten the federal loan underwriting process, and layer various agency loan platforms to help finance housing conversions.
  • The letter recommends specific improvements to the Department of Transportation’s loan programs for transit-oriented development, which can also resonate for resources offered by HUD, DOE and EPA.
  • The Roundtable letter also details changes to the tax code and exisiting incentives that can increase energy efficiency and renewable energy investments in commercial-to-residential building conversions.

The Roundtable will continue to coordinate with White House staff and encourage modifications to federal regulations and laws that can improve CRE conversion projects.

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White House Holds Property Conversions Briefing for Roundtable Members

Posted on by Abigail Grenadier

Last week, the White House hosted a virtual briefing for Roundtable members to discuss federal loan and guarantee programs at the federal departments of Energy, Housing, Transportation and the General Services Administration that may assist with financing commercial-to-residential conversion projects.

Property Conversions Briefing

  • In October, the administration announced a suite of federal resources—including low-interest loans—across various agencies to assist conversion projects aimed at increasing the housing supply, revitalizing urban downtowns, and cutting climate pollution. (Roundtable Weekly, Oct. 27; White House Commercial to Residential Conversions Guidebook)
  • The briefing last week provided members with a high-level overview of the administration’s conversion work and focused on the Transportation Department’s Transportation Infrastructure Finance and Innovation (TIFIA) and Railroad Rehabilitation and Improvement (RRIF) financing programs. (See FAQs)
  • White House staff also announced upcoming workshops with the Department of Transportation’s Build America Bureau to learn more about how TIFIA and RRIF financing can be used for transit-oriented development (“TOD”) that takes the form of adaptive reuse.

Upcoming Workshops – Federal Resources to Support Commercial-to-Residential Conversions

IRA Tax Incentives – 179D

  • White House staff on the property conversions briefing mentioned that green tax incentives enacted by the Inflation Reduction Act (IRA) may be layered with other federal loan, guarantee, and grant programs to support a project.  (See RER fact sheet, “Clean Energy Tax Incentives Relevant to U.S Real Estate)
  • Roundtable Senior Vice President & Counsel Duane Desiderio was quoted this week in Tax Notes on the deduction in section 179D for energy-efficient commercial buildings.
  • “The IRA’s changes to section 179D are good policy, but more changes need to be made for the deduction to reach its full potential,” said Desiderio.” (Tax Notes, Nov. 28). He explained that Congress should make 179D “transferable” by REITs and other private sector owners.

The Roundtable’s Property Conversions Working Group will continue to serve as a conduit between our members and the administration to help design impactful policies that can assist with office-to-residential conversions. Please contact Roundtable SVPs Duane Desiderio (ddesiderio@rer.org) or Ryan McCormick (rmccormick@rer.org) for more information.

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Biden Administration Announces Support for Financing Commercial to Residential Property Conversions

Posted on by Abigail Grenadier

The Biden administration today revealed a suite of federal resources—including low-interest loans—to assist commercial to residential conversions that increase housing supply, revitalize urban downtowns, and cut climate pollution. (White House fact sheet; Bloomberg, Oct. 27).

Holistic Federal Strategy

  • Roundtable President and CEO, Jeffrey D. DeBoer said, “The pandemic’s indelible impact on where Americans live and work continues to reverberate through the real estate industry, which is at the center of this societal transition. The Roundtable supports innovative policy that reimagines the adaptive reuse of CRE, rejuvenates affordable housing and urban downtowns, and addresses the climate crisis. The guidance released by the White House today checks all these boxes—and bolsters our agenda to improve the health of our cities, local tax bases, and small businesses.”   
  • Among the actions announced today, conversion projects located near mass transit hubs would be eligible for low-interest financing under U.S. Department of Transportation programs. “TIFIA” and “RRIF” loans are pegged to US Treasuries at 5.03 percent interest (today’s rates).
  • Transit-oriented projects supported by TIFIA and RRIF financing do not require affordable housing units—although they can be “stacked” with projects supported by low-income housing tax credits and local laws may have independent inclusionary zoning mandates. (FAQs on project eligibility)
  • The White House announcement also directs the General Services Administration (GSA) to identify “surplus” federal properties that private developers may help to convert to housing.
  • A fact sheet summarizing the administration’s actions indicates that training workshops will be held this fall for real estate owners, developers, and lenders on how to use federal programs included in the White House’s new “Commercial to Residential Conversions” guidebook, which describes how 20 programs across six federal agencies can be used to support adaptive re-use projects.
  • The Administration’s guidebook also explains how mortgage insurance and grants from the Department of Housing and Urban Development (HUD) can leverage state, local, and private sector capital as layers in the capital stack to support adaptive reuse.

Adaptive Reuse a “Win-Win”

  • Real estate market conditions with high office vacancies “present[ ] an area of opportunity to increase housing supply while revitalizing Main Streets,” said National Economic Council Director Lael Brainerd. “It’s a win-win.” (POLITICOPro, Oct. 27) (WH Council of Economic Advisors blog post)
  • White House efforts to assist property conversions lands as national office vacancy stands at nearly 18 percent—with some major metro areas experiencing vacancies higher than one-fifth of their entire inventory—according to a report from  analytics firm Yardi Matrix released on Thursday. (Commercial Observer, Oct. 26)
  • Architectural firm Gensler released a report on Monday that estimates 25% of under-performing U.S. office properties are suitable candidates for conversion projects.

The initiative builds on the Biden Administration’s announcement last July to boost the nation’s housing supply. (Roundtable Weekly, July 28).  The Roundtable will continue to serve as a conduit between our members and the Biden Administration to help design impactful policies that can assist with office to residential conversions.

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Educational Institutions Increase Office Acquisitions; CRE Adaptive Reuse Rises

Posted on by Abigail Grenadier
CBRE chart on CRE conversions

Recent CRE research shows an increasing number of colleges and universities are acquiring office buildings for adaptive reuse. Meanwhile, an overall surge in U.S. office-conversion projects scheduled for completion this year represents more than double the average annual pace. Federal, state and local conversion-incentive programs could play an important role going forward. (New York Times, Oct. 3 and CBRE, Rise in Office Conversions May Help to Reinvigorate Cities, Sept. 27)

Conversion Trends

  • Data from JLL cited in this week’s New York Times article shows dozens of U.S. institutions of higher education have bought office buildings since 2018—including 49 four-year private schools and 16 four-year public institutions—often for conversion to academic use.
  • Separately, CBRE research published Sept. 27 shows that a surge in office-conversion projects in major U.S. cities this year (nearly half of them in the multifamily sector) may help urban economies recover after the pandemic-induced shift to hybrid working. (Commercial Property Executive, Oct. 2 and GlobeSt, Sept. 29)
  • The CBRE report shows that 60 million square feet of office conversions are planned or in progress in 40 U.S. markets, which represents 1.4 percent of the nation’s office inventory. The report also notes that, despite a variety of government incentive programs, adaptive reuse is not a panacea for problems facing the U.S. office market, especially in a high interest rate environment.

Role of Policy

  • An Oct. 16 discussion during The Roundtable’s Fall Meeting in Washington, DC will address policy initiatives impacting building conversions, and other challenges facing CRE, during The Roundtable’s Fall Meeting in Washington, DC.
  • The Roundtable strongly supports policies that provide incentives for office-to-residential conversions. Last Dec, The Roundtable urged the Biden administration to support “legislation to facilitate the increased conversion of underutilized office and other commercial real estate to much-needed housing.” (RER letter to President Biden, Dec. 12, 2022 and Roundtable Weekly, Aug. 11, 2023)
  • This week, Roundtable Senior Vice President Chip Rodgers joined a group of business groups’ representatives to brief the staff of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, and the Subcommittee on Capital Markets.
  • The Oct. 2 briefing emphasized the need for policymakers to address dislocations in the office market by 1) incentivizing the conversion of outmoded office properties to residential use to help meet the nation’s housing needs; and 2) requiring federal government workers return to their offices.
  • Federal government programs will incentivize local jurisdictions to pursue office-to-residential conversions, according to CBRE. Federal incentives also aim to encourage financing mechanisms to build and preserve more housing, while reducing land-use and zoning restrictions for affordable and zero-emissions housing. (CBRE, Sept. 27)

A Real Estate Roundtable property conversions working group has worked with lawmakers for several months on draft legislation to create a tax credit for converting older commercial buildings to housing.

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CRE “Adaptive Reuse” Report Shows Increase; Industry Coalition Urges Expansion of Conversion Incentive

Posted on by Trey Jackson

RentCafe chart of Top Conversion Building Types

The conversion of former offices to apartments reached an all-time high in the last two years—40% of all existing building repurposing projects—reflecting a rapid increase in “adaptive reuse” throughout the nation, according to a Nov. 7 RentCafe analysis of Yardi Matrix data. (Download pdf or see website)

Conversion Trend

  • Large cities such as Philadelphia, Cleveland, and Pittsburgh have embraced conversion projects to repurpose old buildings and unused office spaces, according to the report. (BusinessInsider, Nov. 8)
  • Offices are the largest share of all building types undergoing conversion, representing 28% of future apartments, followed by hotels (22%) and factories (16 %).
  • Los Angeles ranks first in the nation with the most converted apartments in the first half of 2022. (RentCafe analysis of Yardi Matrix data.)

Conversion Development Obstacles

Conversion difficult prospect

  • As building occupancy levels remain depressed due to lingering remote working arrangements, cities such as New York, Los Angeles and Chicago are proposing plans to relax building rules and create tax incentives for property owners undertake conversions. (Axios, Sept. 28)
  • A Roundtable-led coalition of 16 national real estate organizations on Oct. 12 recommended certain enhancements and expansions to a 20 percent tax credit for qualified property conversion expenditures, which is part of the Revitalizing Downtowns Act (S. 2511, H.R. 4759).  The recommendations include expanding the category of properties eligible for the credit to various types of commercial buildings such as shopping centers and hotels.
  • The coalition letter also emphasized the significant obstacles that the industry continues to face with conversion projects. Obstacles that frequently arise include property acquisition, permitting, development review, toxic contamination, property age and code conformance, and a “not in my backyard” (NIMBY) sentiment. Additionally, the structural elements of an existing structure—columns, beams, floor layouts and size, ceiling height, etc.—often pose hurdles that add cost and extra delays to an otherwise desirable repurposing of a building. (GlobeSt, Oct. 12 and Roundtable Weekly, Oct. 14)

The letter to the bill’s sponsors, Sen. Debbie Stabenow (D-MI) and Rep. Jimmy Gomez (D-CA), offers several recommendations to help ensure the legislation drives additional economic investment and brings down housing costs.

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