Commercial-to-residential conversions are a hot topic right now. However, actually undergoing one is a whole other issue for real estate investors and owners.
Everyone knows there are barriers to unlocking a property conversion’s full potential. Fortunately, there are actionable ways you can offset these hurdles. Read below to uncover how you can better control the logistics and finances of a hotel or office-to-multifamily conversion.
Solving Potential Logistical Challenges
A commercial-to-residential conversion comes with numerous challenges. These can seem overwhelming at first glance. However, our property management services in North Virginia have strategies you can use to address the bumps you encounter.
The Need for Rezoning
Your office or hotel-to-apartment conversion may need to be rezoned if it’s not intended for multifamily use. To rezone the property, you would need to have a hearing with your local government. Furthermore, you may need to amend the site plan.
The Solution
You should be in talks with city government staff from the start of the process. This way, you can learn more deeply about the approval process, as well as how long it will take to earn it.
Parking Requirements
Generally, multifamily homes have higher parking requirements than hotel or office requirements. So, many commercial buildings don’t have the necessary parking to meet these bigger requirements. This is because multifamily parking is based on each unit’s number and size, while hotel or office parking is often based on square footage or number of rooms.
The Solution
Creativity is the solution here. This is the time to brainstorm if there are any additional nooks and crannies already on the property you could convert into parking. This way, you could meet the requirements with little fuss.
Structural Differences
Apartment units are structured differently than commercial ones. In other words, apartment units each need bedrooms, bathrooms, and kitchens. This means you must ensure that your building’s structure can accommodate these changes in a hotel or office-to-multifamily conversion.
In addition, with a commercial-to-residential conversion, you must account for applicable building code requirements. For example, you must consider fire sprinklers, fire walls, and emergency access. Also, you might need to add utility meters.
The Solution
Before planning anything concrete, you should contact the city government to see how they would feel about a commercial-to-residential conversion. After all, you will need their support to see this project through. They can make discretionary decisions in the office or hotel-to-apartment conversion approval process. So, if you’re not on the same page as them, they could make it harder to undergo the project.
Outside of politics, local government staff can also be your guide in this process. They can give you a sense of what exactly the city requires for hotel or office-to-multifamily conversion approval. In turn, this can inform you whether it is a financial fit for your unique situation.
Government Cooperation
To explain, some cities may want to keep your building the way it is because its current purpose could be of use to the area in the future. Some may not. Also, the government receives less taxes from multifamily units than commercial units. This could impede a commercial-to-residential conversion.
The Solution
Luckily, the government may want taxes, but it also wants more affordable housing. We all know that there is a dire housing crisis in the US. Housing can be a huge selling point for government officials.
Making Commercial-to-Residential Conversions More Affordable
There are many federal programs available that can make your office or hotel-to-apartment conversion more viable. Best of all, these programs can directly finance or discount funding your conversion. Then, you can provide your apartment units at a more affordable price. Options available to you consist of:
Grants to Cover Pre-development, Acquisition, Construction, and Other Costs
The below grants can cover your most fundamental conversion-related costs. They could save you tens of thousands.
HUD’s Community Development Block Grant Program
You can use the program’s funding to finance acquisition and rehabilitation costs you may encounter with a hotel or office-to-multifamily conversion.
As for states and localities, they can use up to five times their yearly CDBG allocation in low-cost loan guarantees for project funding. This way, they can get funds for a commercial-to-residential conversion.
HUD’s Pathways to Removing Obstacles to Housing Program
This program grants states, local governments, and multi-jurisdictional entities to promote the creation of affordable housing. Most importantly, these funds can specifically cover office or hotel-to-apartment conversion costs.
Below-Market Loans for Funding
When you opt into these federal programs, you can access exclusive, bargain-priced loans that you can’t find anywhere else.
Department of Transportation’s (DOT) Transportation Infrastructure Finance and Innovation Act (TIFIA) and Railroad Rehabilitation & Improvement Financing (RRIF) Programs
These programs grant more than $35 billion in large-scale, below-market loans. Then, you can use these loans towards a hotel or office-to-multifamily conversion near public transportation.
Land Dispositions for Cutting Development Expenses and Funding Others
The Department of Transportation has carved out room for real estate investors like you to get properties…for free!
DOT Transferal Permissions
The DOT allows transit agencies to transfer their properties to affordable housing developers for free. Some of these properties may have built-in commercial uses that you can apply to create affordable housing.
Energy-Efficiency Incentives
Office or hotel buildings getting a commercial-to-residential conversion commonly require new plumbing, heating, and cooling systems. Also, they may need new windows, walls, and doors. These replacements also could implement energy efficiency improvements.
In turn, energy efficiency improvements are funded by the government. Here are some ways you can save money from energy-efficient installations:
Tax Incentives for Financing Energy-Efficiency Upgrades:
Section 45L New Energy Efficient Home Credit
This credit gives you up to $2,500 when your hotel or office-to-multifamily conversion is EPA’s Energy Star Multifamily New Construction Program-certified.
Also, if your office or hotel-to-apartment conversion units are certified to certain DOE Zero Energy Ready Homes programs, they can earn $5,000 for those units.
Section 179D Energy Efficient Commercial Buildings Deduction
This deduction gives you up to $5 a square foot when you add energy efficiency upgrades to commercial or multifamily buildings with more than three stories.
Tax Credits for Funding Clean Energy Use and Creation for and by Buildings
You can save on your tax return by using clean energy in your commercial-to-residential conversion. Look below to find out how:
Section 48 Investment Credit
With this credit, you could get up to a 30% tax credit for investing in renewable energy projects. These projects can include fuel cells, solar, geothermal, small wind, energy storage, biogas, microgrid controllers, and combined heat and power properties. As a bonus, extra credit amounts may be available in certain circumstances.
Below-Market Loans and Guarantees that Make Funding Easier
There are special, affordable loans you can access for your conversion project if you prioritize energy conservation. See how it pays to be eco-friendly.
Department of Energy’s Loan Programs Office Loans and Guarantees
This department offers attractive below-market interest rate loans and guarantees. In turn, this could fund your zero-emissions commercial-to-residential conversion if it’s connected to virtual power plants.
Manage Your Office or Hotel-to-Apartment Conversion with BMG
When it comes to your commercial-to-residential conversion, the federal government has many incentives that can make your investment easier. What’s more, you can avoid logistical snags through clear communication with the government and careful strategizing. By following the above steps, your conversion process can go significantly more smoothly and effectively.
Another impossible obstacle in real estate investing is time management. You can’t channel your full energy into the business side of things if you’re forced to endure the menial aspects all the time. Annoyances like calling contractors or ensuring your property is up-to-code just bog down your busy day.
Luckily, there’s a win-win solution to this problem: professional property management. Property managers can handle the home maintenance, tenant-related issues, and other daily nuisances of owning a property so you don’t have to. Call us today to enhance your time efficiency.