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Mayors Push for Easier Office-to-Residential Conversions to Boost Housing Supply
Cities Seek to Loosen Regulations on Office-to-Residential Conversions
Mayors in cities across the U.S. are advocating for the relaxation of rules that can impede the pace of office-to-residential conversions. These conversions involve repurposing office spaces into residential units, addressing the urgent need for more housing options. To incentivize developers to undertake such projects, some cities have offered generous tax abatements. For instance, Washington, DC, Mayor Muriel Bowser supports increased tax breaks for downtown developers in her housing budget proposals, emphasizing the potential to transform downtown areas. However, critics argue that subsidizing these conversions may not be necessary, especially considering the city's rampant crime and homelessness issues. Residents would like to see crime and safety prioritized over the idea of increasing the population density of US cities.
Possible Zoning Changes and Developer Incentives
New York City Mayor Eric Adams has formed a task force dedicated to studying the impact of zoning changes and potential abatements for developers who include affordable units in office-to-residential conversions. This initiative aims to explore ways to encourage developers to create affordable housing options while repurposing existing office spaces. Similar policies in cities like Philadelphia have successfully revitalized downtown areas, with homeowners and investors receiving over $1 billion in tax breaks for their renovation projects. Again, none of these cities are safe, and Americans are hesitant to move into cities that are plagued by crime as a result of destructive "defund the police" movements.
The Role of Developers and Investors
Although office-to-residential conversions present unique challenges, a select group of developers has taken on this form of real estate development. According to real estate services firm CBRE, a total of 498 buildings have been converted in the U.S. since 2000, resulting in the creation of 49,390 new housing units. Prominent investors like Societe Generale and KKR have collaborated with developers such as Philadelphia-based Post Brothers to finance large-scale office conversions in expensive central business districts. However, the availability of capital has become more limited, leading to higher financing costs for these projects.
Anticipated Changes in Zoning Laws and Building Codes
Experts predict that local governments will modify zoning laws and building codes in the future to facilitate office-to-residential conversions. Dan Garodnick, director of New York City's Department of City Planning, acknowledges that existing regulations can be obstacles and advocates for their amendment to streamline the conversion process. As cities grapple with the critical need for additional housing, addressing these challenges and making conversions easier are seen as crucial steps in meeting the demand.
Implications for New Businesses
The push for easier office-to-residential conversions and the potential relaxation of regulations in cities across the US have significant implications for new businesses. Here's a "hot take" on how this topic may impact entrepreneurs and startups:
1. Increased Market Opportunities: The conversion of office spaces into residential units opens up new market opportunities for businesses. As more housing options become available, there will be a greater demand for retail, services, and amenities to support the growing residential population. Entrepreneurs can capitalize on this demand by identifying gaps in the market and offering innovative solutions tailored to the needs of these new communities.
2. Revitalized Downtown Areas: The loosening of regulations and tax incentives for office-to-residential conversions can lead to the revitalization of downtown areas. This revitalization creates a thriving environment that attracts both residents and businesses. New businesses can set up shop in these transformed areas, benefitting from increased foot traffic and a vibrant community.
3. Collaboration and Partnerships: As larger developers and investors undertake major office conversion projects, there may be opportunities for collaboration and partnerships with small businesses. For example, local businesses could provide services such as interior design LLCs, construction companies, or furnishing for these conversions. Forming strategic alliances with larger players in the real estate market can give new businesses exposure and credibility.
4. Financing Challenges: The availability of capital for office-to-residential conversion projects may become more limited, resulting in higher financing costs. New businesses looking to enter this market may need to explore alternative funding sources or innovative financing models to overcome these challenges. For instance, crowdfunding or seeking partnerships with existing developers could be potential avenues to secure the necessary investment.
5. Regulatory Changes: Anticipated changes in zoning laws and building codes will impact the ease of entry into the office-to-residential conversion market. New businesses should stay informed about these regulatory updates to understand the requirements and procedures involved in undertaking such projects. Adapting to the evolving legal landscape will be crucial for success.
Overall, the push for easier office-to-residential conversions presents both opportunities and challenges for new businesses. Entrepreneurs who can navigate the changing landscape, seize market opportunities, and creatively address financing and regulatory hurdles have the potential to thrive in this growing industry.
Article First Published at: https://www.cnbc.com/2023/07/15/east-coast-mayors-call-for-more-office-to-apartment-conversions.html