As dense urban areas grapple with an abundance of unused workspace and housing shortages, office-to-residential conversions have emerged as a creative means of killing two birds with one stone.
More than 3,000 housing units in Dallas were created by conversions between 2021 and 2024, making the city one of the nationwide leaders in adaptive reuse. Houston is also on the cutting edge of this trend, with nearly half of office conversions in 2023 earmarked for multifamily complexes.
Despite the inherent value of removing defunct office space from the market, conversions remain a small part of the overall market. Projects tend to be incredibly costly from a regulatory and technical perspective, with even the best structural candidates often thwarted by steep financial hurdles, narrowing the pool of buildings that can be realistically converted.
Commercial Property Assessed Clean Energy financing is a solution that helps developers turn underperforming office buildings into thriving communities. C-PACE alleviates the cost burden of conversions by offering low-rate, longer-term financing, enabling developers to optimize their budgets and bridge funding gaps with capital that is cost effective and more flexible than alternative forms of debt.
More cities are beginning to offer subsidies and policy incentives for conversion projects, further strengthening the value of C-PACE. Dallas offers a historic tax credit that can be used to turn old offices into multifamily buildings, while Houston has kicked around the idea of a tax break to incentivize Downtown-area conversions. Pairing incentives with C-PACE allows developers to enhance project ROIs and can help to further minimize cost hurdles.
More than 1.2 billion square feet of office space is suitable for multifamily use, but many viable candidates ultimately won’t pencil out. The mainstream adoption of C-PACE could move the needle by helping remove some of the financial burden associated with conversion projects. Developers can use C-PACE to fund many of the capital expenses that will be required in a conversion – such as more efficient HVAC, windows and plumbing – at no upfront cost.
For more information on leveraging C-PACE for your conversion project, schedule a meeting with Lone Star PACE today.