The FWD #197 • 1,044 Words
New executive actions aim to increase office-to-residential conversions. Can they help the difficult math pencil out?
Last week, the Biden-Harris administration released a fact sheet about action steps they are taking to encourage commercial-to-residential building conversions. This type of conversion, a form of adaptive reuse, offers unique opportunities to simultaneously add to the housing inventory of cities while reducing costly vacant commercial space.
As new research shows workers go to the office only about 3.5 days a week post-pandemic, it’s clear that commercial leases aren’t rebounding anytime soon, and new approaches are needed. This week, we examine why this announcement matters for adaptive reuse and affordable housing goals.
What exactly is “Adaptive Reuse”?
Adaptive reuse in architecture and planning refers to the process of giving an old building a new lease on life, preserving some or all of the structure while renovating the interior for a different use instead of tearing it down. It involves creatively transforming old industrial facilities, offices, schools, or other disused buildings into residences, cultural venues, or any other use that adds value to both the built environment and the community.
The idea started with the historic preservation movement of the 20th Century when people wanted to save architecturally unique buildings and landmarks. Now, it’s regaining interest for its eco-friendly and cost-saving benefits. As the saying goes, the greenest and least-expensive building is the one that’s already there. Instead of knocking down that old office building, why not turn it into apartments with a cool ground-floor art gallery? It’s a win-win—the city gets to keep its historic structures and it gets energetic new spaces to benefit the community.
Unique benefits of commercial to residential conversions
Economic revitalization: Both local governments, which depend on property taxes to pay for city services that make downtown neighborhoods desirable places to live and work, and commercial landlords who are losing revenue with increasing vacancies can benefit monetarily from office conversions.
Resource optimization: Conversions utilize existing structures, reducing the need for new construction materials (and the associate costs). This same benefit also helps potentially lower the overall carbon footprint of a development compared to new construction.
Existing infrastructure: The layout of commercial buildings can lend itself well to mixed-use and recreational spaces within residential conversions, and office buildings in particular are often located downtown in areas with access to public transportation.
Why isn’t it happening everywhere?
Unfortunately, conversions are often complicated and expensive because of zoning regulations, structural issues, and preservation requirements.
Common issues developers face in this type of conversion include:
- Post-war office buildings typically have large floor plates, which means fewer windows per square foot of space, making it difficult for natural light to reach interiors.
- These types of office buildings also have centralized utilities, making dividing them up into apartments more difficult and costly.
- Most of the time, office buildings are only partially vacant, preventing any large-scale renovations.
- New residents may find these conversions unappealing if they are not well situated amidst other essential residential needs and neighborhood amenities.
- In most cases, residential buildings are not permitted in many areas zoned for commercial office buildings. Rezoning a building and obtaining a variance can be an arduous process that opens up room for community debate, further lengthening development timelines.
If you fancy listening to more information on a walk this week, 99% invisible covered this issue over the summer, including interesting first-person accounts from developers doing office conversions in New York.
As a result, office to apartment conversions are currently a limited and imperfect answer to the housing crisis. That doesn’t mean that they aren’t helpful or aren’t worth doing—hence the White House’s recent plans to ease barriers!
Building from the 2022 Housing Supply Action Plan and reports investigating the issue of office vacancies and commercial-to-residential conversions, the White House released a new federal guidebook on office conversions. The guide outlines new resources for enhancing affordability and emission reduction in conversions, showcases case studies of federal resources in action, and offers comprehensive overviews and detailed descriptions of federal programs that support such conversions.
Why does this matter for affordable housing developers?
This announcement reveals significant federal support for the conversion of commercial buildings with high vacancy rates to residential use. This includes selling off surplus federal properties, establishing new funding channels, and offering technical advice in an effort to meet climate goals and increase the supply of reasonably priced, energy-efficient housing close to job hubs and transit. By providing developers with a variety of options for obtaining funding and support for conversion projects, these initiatives expand on current plans to reduce housing costs, increase housing supply, and make creating affordable housing projects more feasible.
New Federal funding and initiatives
- Under the new guidance, transit agencies may transfer properties to local governments, non-profit, and for-profit developers of affordable housing at no cost. The new policy has the potential to turn property no longer needed for transit into affordable housing development particularly when combined with loans from TIFIA or RRIF programs (together have over $35 billion in lending capacity available for transit-oriented development projects at below market interest rates).
- States and localities can now access low-cost loan guarantees up to five times their annual CDBG allocation to finance projects like mixed-use development or the conversion of properties to housing. Furthermore, HUD will provide funding through a Notice of Funding Opportunity pertaining to research, which can be utilized to create case studies that could function as guides for other communities considering conversions.
Expanded existing resources
- The White House has announced training workshops this fall for owners, builders, developers, and local and state governments on how to use federal programs for commercial to residential conversions, to go along with the newly released guidebook.
- The Department of Energy released a new toolkit highlighting how the Inflation Reduction Act can bring more capital to conversions through the DOE Loan Program Office and existing guarantee programs or tax incentives.
- The American Planning Association is extending its work with the planning directors of the thirty largest U.S. cities to include new programs on commercial to residential conversions; the first meeting took place in October. The organization is collaborating with the Lincoln Institute of Land Policy and Harvard University Graduate School of Design on this initiative.