We recently highlighted how some developers are revitalizing urban neighborhoods by turning old and unused properties into modern communities. One of which was Mercantile Place, a new neighborhood in downtown Dallas that was built from vacant office towers, a great example of a dimension in downtown housing that tends to not get much attention—the conversion of older office buildings into apartments and condos.
While not a new concept, in the past several years this trend has spread to a wider group of cities and for a larger range of residential users.
“A 2015 report by CoStar, a Washington, D.C. based commercial real estate market intelligence firm, found that almost half the top office central business district markets in the U.S. were experiencing significant office-to-residential conversions, with the potential to create roughly 11,500 new residential units in those cities.”
Some recent examples include The Century Building, a 12-story former office building in downtown Pittsburgh that now provides 60 affordable apartments for the area and was funded by local public agencies, federal low-income housing tax credits, and several investments from foundations.
In Old Town Alexandria, Virginia, a building that previously held offices for the Sheet Metal Workers International Association is now The Oronoco, a 60-unit waterfront luxury condo building.
But what’s driving this increase of office-to-housing conversions?
First off, innovations in technology and preferences for more flexible and collaborative spaces have significantly decreased demand for older office buildings, leading to a large number of office vacancies.
Not only that, but in the past decade there has been a huge increase in demand for urban living. According to the U.S. Census Bureau, between 2000 and 2010 U.S. metropolitan areas with 5 million or more people experienced double-digit population growth in their downtowns.
Remodeling these older office buildings into residential apartments and condos is an excellent solution to growing demand for downtown living. It helps accommodate new residents, often in a more environmentally sustainable manner, while reducing office vacancies.
However, there are several challenges that developers face when trying to convert these buildings. For example, lower residential density suburban neighborhoods tend to be strongly resistant to these higher density communities. Also, some building designs are simply not economical to try to convert into modern housing and are cheaper to tear down and replace with new construction.
The most pressing challenge is that often times there is a lack of funding. Most of these office-to-residential conversions depend on local tax abatements, state or federal tax credits, and federal low-income housing tax credits. Without the city itself partnering with developers and enacting tax incentives, conversions of these scales are difficult to finance.
If you’re thinking about rehabilitating a property, let Patch of Land be your partner to fund your next project! We are committed to connecting real estate developers with online real estate investors who want to diversify their portfolio via crowdfinancing or P2P Lending. Read our Borrower Handbook for more information on how you can use crowdfunding to help finance your project.
What do you think about these office-to-residential conversions? Comment below and let us know your thoughts.
Read the original Urban Land article here.