Unlocking urban potential: U.S. government incentives spark development in former office spaces

The COVID-19 pandemic might have ushered in a remote workplace trend, but that doesn't mean urban landscapes are poised for tumbleweed.

Rather, opportunities abound for residential development as the U.S. government incentivizes transitions for high-vacancy office buildings.

The White House recently announced details for its Housing Supply and Action Plan, designed to provide funding and lessen red tape for projects that convert former office space to residential buildings in primarily urban areas. That includes opportunity to access funding through sources such as the Community Development Block Grant, with $3 billion used each year to support community housing for low- and moderate-income families, and an additional $860,000 in annual grant funds from The Department of Housing and Urban Development (HUD) for office-to-residential conversions. At the same time, the Department of Transportation will make such projects easier to finance with $35 billion in lending.

Properties that qualify for these incentives are primarily in city centers and urban downtowns but also can include fading main street districts in rural communities. Key criteria for consideration, however, are proximity to transit and a building's ability to be converted to an energy-efficient property.

Under the new action, developers can expect municipalities to adjust building codes and fee structures to encourage office space conversion. Likewise, tax incentives look to boost transit-oriented or affordable housing conversions. 

The goal? To maintain commercial vibrancy in city centers, even without the nine-to-five crowd. By adapting these buildings into affordable, multifamily housing, legislators hope to preserve the lifespan of downtown structures while reducing their environmental footprint.

There are additional benefits. This gives housing opportunities to families living in land-locked cities, who otherwise might not have access to prime real estate that's near transit. Likewise, building conversions have the potential to be more streamlined and cost-efficient than new homes, while saving on raw materials.

Such building conversions might have significant upsides with the ongoing incentives, but there are challenges in the mix.

To start, any building under consideration for conversion must have the right structure. For example, a developer might want to add environmentally friendly solar panels to the roof, but the steel structure must be strong enough to withstand the weight. Other issues to consider that perhaps can't be overcome are window placement, access to outdoor spaces and layout.

Environmental issues, such as asbestos-containing building materials, lead-based paint, underground storage tanks for petroleum or other hazardous material storage, are also likely issues for older building conversions.

Next, zoning regulations should be considered. Are you limited to a certain number of floors for conversion, while the rest of the building needs to remain commercial? It can be timely and expensive to secure rezoning on a property.

Finally, what is the financial outlook of this property? It's crucial to understand the surrounding community and housing demands.

With all of these considerations, from funding to structure, Fehr Graham experts are available to provide the support you need to determine whether taking advantage of an office-to-residential conversion is the best choice.

When collaborating with clients, we maximize every relevant program detail to match projects with the most up-to-date funding opportunities and tax incentives at local, state and federal levels. We also offer structural engineering assessments and consultation, environmental assessments, remediation, mitigation and more.

Fehr Graham can represent your project in regulatory negotiations, with permits and building code regulations and engineering site design. We can even tackle some of the issues, such as noise studies, landscape architecture, brownfield redevelopment and transportation design, that you might not have considered.

There's little doubt that the new U.S. incentives set the stage for big opportunities among residential developers in city centers. Forethought into planning and evaluating each project will help identify the buildings with the most potential so your conversion will be a success story for years to come.