Adaptive Reuse Updates

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Given the nation’s shortage of affordable rental housing, multifamily developers are increasingly considering turning unused and underutilized commercial real estate structures – including offices, hotels, and retail spaces – into housing. Not only would such repurposing help address the nation’s housing supply challenge, but it would also create jobs and boost local property tax revenues. Unfortunately, converting commercial real estate into housing can be extremely challenging and can be more complicated than typical ground-up development.

That’s why NMHC believes a Federal tax incentive to encourage property conversions would be greatly beneficial in helping to overcome these obstacles and spurring additional housing supply. In addition, it would help revitalize distressed commercial property and stabilize the surrounding communities.

Read on for the latest regulatory, legislative and industry updates on this topic.

Apr. 13, 2023

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NMHC Briefs FHFA Director on Adaptive Reuse

NMHC met with FHFA Director Sandra Thompson to brief her on potential adaptive reuse applications within the multifamily housing industry. Notably, NMHC highlighted a newly released NMHC and ULI research paper, Behind the Facade The Feasibility of Converting Commercial Real Estate to Multifamily. NMHC also provided an overview of proposed tax credit legislation to support adaptive reuse.

What This Means: Prior to this meeting, the Director reached out to NMHC and requested a briefing on the new research report. She expressed a desire to gain a deeper understanding of this fledgling market and to analyze if there is a role for the Enterprises or the Federal Home Loan Banks (FHLBs) to play in supporting these conversions into multifamily housing.

Why This Matters: The U.S. needs to build 4.3 million more apartments by 2035 to meet the demand for rental housing. Adaptive reuse of existing buildings holds the potential to chip away at our Nation’s supply shortage—subject to a number of structural, financial, geographic and motivation of local governments.

NMHC's Viewpoint: The Director expressed interest in continuing her analysis and asked for assistance from NMHC. We appreciate the Director’s interest in identifying creative solutions to improve the housing affordability crisis. As such, we look forward to working with FHFA to analyze the potential involvement of the Enterprises and the FHLBs in supporting adaptive reuse.

March 7, 2023

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NMHC and NAA Testify Before Congress on Tax Solutions to Support Housing Affordability—Including Adaptive Reuse

On March 7, NMHC President Sharon Wilson Géno testified before the Senate Committee on Finance regarding tax policy’s potential role in helping to close the supply-demand gap and increase housing affordability. Adaptive reuse was chief among the many solutions NMHC recommended to the Committee.

What This Means: “Given the nation’s shortage of affordable rental housing, many are considering turning unused and underutilized commercial real estate structures, including offices, hotels, and retail spaces into housing,” our testimony read. “Not only would such repurposing help address the nation’s housing supply challenge, but it would also create jobs and boost local property tax revenues.”

Why This Matters: This hearing was a significant step forward in raising awareness for real, actionable solutions to address housing affordability challenges.

NMHC's Viewpoint: While adaptive reuse is just one piece of the puzzle, NMHC was grateful to the committee for the opportunity to highlight a number of tax proposals that could make a difference.

Check out NMHC President Sharon Wilson Geno’s first-hand account of the hearing and its importance to the industry.

Oct. 17, 2022

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Office Conversion Legislation Introduced in the Senate

Senator Debbie Stabenow (D-MI) and Rep. Jimmy Gomez (D-CA) introduced legislation that would provide a 20 percent tax credit for office conversion expenditures.

What This Proposal Means: Under the Revitalizing Downtowns Act, office buildings that are at least 25 years old could be converted into residential, retail or commercial use.

Why This Is Critical for Our Industry: Importantly, office to multifamily housing conversions would be eligible for this credit so long as:

20 percent of units are affordable at 80 percent of area median income; or
the property is subject to an alternative affordable housing arrangement with a state or locality.

NMHC's Viewpoint: NMHC strongly supports adaptive reuse legislation as one solution that could help chip away at the nation’s supply and demand imbalance. NMHC joined a coalition of real estate partners in sending a letter to Congress expressing our support and providing recommendations to improve the current legislation. These include:

allowing the incentive to benefit the conversion of commercial buildings beyond office buildings;
enabling REITs to utilize the incentive; and
further promote the conversion of properties into affordable housing by enabling States to use tax-exempt Private Activity Bonds to reduce financing costs.

What’s Next: With the election only weeks away and time running out to legislate, it is unlikely that this bill will progress this Congress. However, we look forward to working with policymakers on this legislation next Congress.

Read our coalition comment letter to learn more.

Caitlin Sugrue Walter

Matthew Berger mberger@nmhc.org

Full Report: Behind the Facade: The Feasibility of Converting Commercial Real Estate to Multifamily