Federal Funding for Commercial Conversion Initiatives

With commercial real estate inventory increasing at precisely the same time that affordable residential housing stocks are dwindling, government leaders are embracing a solution that maximizes the opportunities of this unique market dynamic, Adaptive Reuse, otherwise known as Commercial Conversion.

To support commercial conversion efforts nationwide, the US Federal Government is launching numerous initiatives including new financing grants, technical assistance, and the repurposing of suitable government properties. In conjunction with funding to incentivize transit proximity and net zero energy efficiency, these programs afford state and local governments the tools and resources to immediately kick-start development plans to convert vacant commercial buildings into affordable housing stocks.

Federal Funding and Property Repurposing Initiatives

With over $45 Billion in available funding, primary investment options include the following:

$35 Billion

The Department of Transportation (DOT) has released guidance for utilization of the over $35 billion in available lending available via the Transportation Infrastructure Finance and Innovation Act (TIFIA) and Railroad Rehabilitation & Improvement Financing (RRIF) programs to progress transportation projects with the dual goals of increasing affordable housing supply and decreasing emissions. By encouraging conversions and housing projects near public transportation, this guidance is intended to increase housing supply, while encouraging state and local governments to improve their zoning, land use, and transit-oriented development policies (See the Policy Statement for further details).

In addition to below market rate loans, DOT is making it easier for transit agencies to repurpose properties for transit-oriented development and affordable housing projects, including conversions near transit. Going forward, transit agencies may transfer properties at no cost to local governments, non-profit, and for-profit developers of affordable housing. Combined with loans from TIFIA or RRIF programs, this initiative empowers the conversion of properties no longer needed for transit into affordable housing inventory.

$10 Billion

The U.S. Department of Housing and Urban Development (HUD) has released updated direction on how the Community Development Block Grant fund can be used to boost housing supply including the acquisition, rehabilitation, and conversion of commercial properties to residential uses and mixed-use development. State and local agencies can access up to five times their annual CDBG allocation in low-cost loan guarantees to fund projects such as the conversion of properties to housing or mixed-use development.

Awards are also available via:

  • A Notice of Funding Opportunity to develop case studies that can serve as roadmaps for other agencies pursuing commercial conversions.
  • Applications to the $85 million Pathways to Removing Obstacles to Housing program, including the development of adaptive reuse strategies and financing of conversions.


Sale of Surplus Federal Properties

The General Services Administration (GSA) will work with the Office of Management and Budget (OMB) to expand on the Good Neighbor Program. This effort will identify current and upcoming sale opportunities and maintain a public list of current opportunities, to promote the sale of surplus federal properties that buyers could potentially redevelop for residential use.

Resources to Leverage Federal Funding

In addition to funding and property repurposing initiatives, the Federal Government is offering guidance, technical assistance, and tax incentives in the following areas:

  • The White House has released a Commercial to Residential Federal Resources Guidebook including over 20 federal programs across six federal agencies. Resources include low-interest loans, loan guarantees, grants, and tax incentives, which, subject to the requirements of each program, can be used together to increase the economic viability of commercial conversion projects. Accompanying training workshops will be available in the fall to assist government leaders, real estate developers, owners, builders, and lenders, to fully leverage these resources in their city, state, or county.
  • The Department of Transportation (DOT) will be announcing new technical assistance to support municipalities and developers wanting to use DOT tools to finance commercial conversion projects.
  • Through the Better Buildings Initiative, the US Department of Energy (DOE) has launched a commercial to zero emissions housing toolkit including technical and financial guidance specific to residential conversions. This toolkit also spotlights how the Inflation Reduction Act can bring more capital to conversions through the DOE Loan Program Office’s loans and guarantee programs and tax incentives, including:
    • The new energy efficient home tax credit (45L)
    • The energy efficient commercial buildings tax deduction (179D)
    • The clean energy investment tax credit (48).
  • Finally, to facilitate net zero efficiency standards in conjunction with commercial conversions, several tax incentives are available to eligible builders through the Inflation Reduction Act.


Federal Funding Examples for Successful Conversions

To illustrate the full extent to which federal funding and tax credits have previously been leveraged in the financing of such projects, below are the funding breakdowns from successful office-to-residential conversions in Kansas City and Baltimore (Source).

Kansas City Professional Building Lofts Project

Funding Breakdown:

  • Federal low-income housing tax credit equity – $5,700,000
  • State low-income housing tax credit equity – $1,800,000
  • Federal historic tax credit equity – $4,390,000
  • State historic tax credit equity – $2,900,000
  • Industrial Development Authority tax-exempt bonds – $4,900,000
  • HOME Investment Partnerships Program financing – $535,000
  • Deferred developer fee – $815,000
  • Total – $21,040,000

Costing more than $21 million (approximately $32 million in 2023 dollars), nearly one-third of the Professional Building Lofts project was financed through federal and state low-income housing tax credits. A similar amount came from federal and state historic tax credits requiring The Alexander Company (TAC), a Wisconsin-based developer, to preserve the building’s façade.

Baltimore 22 Light Apartments Project

Funding Breakdown:

  • Federal LIHTC equity – $14,250,000
  • Baltimore City Department of Housing and Community Development loan – $1,000,000
  • Maryland Department of Housing and Community Development loan – $2,000,000
  • Private bank loan – $3,000,000
  • Total – $20,250,000

Two-thirds of the $21 million development cost came from low-income housing tax credit (LIHTC) equity, with the State and City also providing loans, the latter of which was from the HOME Investment Partnerships Program.

With even more federal monies coming onstream now, the above funding breakdowns demonstrate the viability of a robust financing model to stimulate commercial conversion projects.


Taking Action

The ability to seamlessly align numerous policy infrastructure changes (such as new ordinances, zoning code provisions, conditional permits, code exceptions for historic buildings, discretionary approval processes, bylaw incentives, density bonuses, etc.) with the efficient workflows required to expedite the resultant planning, permitting, and code enforcement processes is the balancing act required to turn a smart commercial conversion strategy into practical application on the ground. Key to maintaining this balance is the effective deployment of an enterprise capable permitting and licensing solution.

With your jurisdiction’s unique zoning, building code, and permitting requirements ‘baked’ into your POSSE PLS configuration and civic permitting portal, a firm foundation is established to quickly transform the strategic aims of a commercial conversion initiative into the powerful automation assisted workflows required to turn paper policies into concrete results.

Interested in finding out more, including how POSSE PLS can support your community’s strategic goals?

Contact us today for a no-obligation Discovery Demo.