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The White House kicked off a multiagency push on Friday to help finance real-estate developers convert more office buildings in big cities emptied by the pandemic into affordable housing, taking aim at the nation’s housing crisis.
The initiative looks to harness an existing $35 billion in low-cost loans already available through the Transportation Department to fund housing developments near transit hubs, folding it into the Biden administration’s clean energy push.
It also opens up additional funding sources and tax incentives, offering a new guidebook to 20 different federal programs that can be tapped by developers and offers technical assistance in what can end up being tricky and expensive conversions.
A third peg of the program will see the federal government draw up a public list of buildings it owns that could be made available for sale to help bolster development.
“These downtowns and central business districts that we are taking about today often already designed and orientated around public transit,” said Transportation Secretary Pete Buttigieg, in a press briefing. “Our intention is to make the most of this opportunity to add more housing near transit in ways that not only reduces the cost of housing, but also often reduces the cost of transportation.”
National office vacancies have neared 25%, versus 8% in Europe, according to Savills, a real-estate firm. Vacancy rates in hard-hit cities like San Francisco have gone even higher, setting fresh records as property values plunge and more owners default on their mortgage loans.
“The only thing that is missing today is a lack of financing,” said Nathan Berman, a founding principal of Metro Loft, a go-to firm for New York City office-to-residential conversions that helped transform lower Manhattan in the past 20 years.
The heart of many cities in the wake of the COVID crisis are littered with sparsely populated office buildings available at bargain basement prices. But Berman told MarketWatch that financing has all but stalled for conversions. “It’s really interest rates that are killing everything.”
Borrowing costs have shot up since the Federal Reserve began raising rates last year to fight inflation, resulting in a credit crunch on building owners with debt coming due. Companies also remain unsure about how much space they need, or what they’re willing to pay for it.
Read: More office zombies? Only 11% of maturing loans repay in September, Moody’s Analytics says
In Washington, D.C., where the federal government has a major office footprint, years of remote federal work have been a key source of industry angst. Government efforts to breath new life into obsolete buildings by turning them into rentals could be a rare redevelopment opportunity, as MarketWatch reported in August.
See: White House wants federal workers back in the office in September
The federal government owns about 1,500 office buildings nationally and had leases on almost 200 million square feet of additional space as of April, according to Barclays analysts, who said in a recent report that much of that office space was underused.
The new White House effort, in addition to DOT funding, will give developers access to $10 billion in funds allocated to the U.S. Department of Housing and Urban Development’s community development block grant program.
“With a shortage of millions of homes nationwide, we need to utilize every resource at our disposal to increase housing supply, which in turn, given the high demand, will help with rent levels and purchase costs,” said Adrianne Todman, HUD deputy secretary, during the press briefing.
Related: San Francisco’s push to turn office buildings into homes hinges on this simple idea
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