HUD grant focuses on commercial building conversions

The push to renovate empty or underused commercial properties for residential and mixed-purpose uses is gaining momentum as authorities step in to make that process easier for developers, property owners and facilities managers.

Talking heads believe that the U.S. Department of Housing and Urban Development’s research grant for commercial-to-residential conversions could trigger more employment opportunities for facilities managers. It could also alleviate burden for operators on the ground, boost productivity and give them a seat at the table.

The HUD’s notice of funding opportunity (NOFO), announced last week, will provide up to $860,000 to assemble case studies of conversion projects that have taken place since the start of COVID-19. The initiative aims to garner insights into what policy measures, subsidies and incentives can bolster the economic feasibility of such conversions.

The housing development authority has expressed its intent to create a resource guide for local agencies and development practitioners. Solomon Greene, principal deputy assistant secretary for policy development and research at HUD, expects the funding to provide examples of how to best overcome structural and financial barriers to conversion projects. This is intended to help property managers and facilities leaders understand what steps city officials have taken, since the start of the pandemic, to support such projects.

“It will provide practical guidance and insights that they can use in their cities. We hope that the research will be used to accelerate progress in meeting our nation’s growing housing supply shortage, by learning from innovation and creative problem solving on the ground in reusing buildings and assets that already exist in our communities,” Greene told Facilities Dive in an email.

Zoning hurdles and outdated permitting processes have curtailed adaptive reuse efforts in states like California, despite high demand for Class A facilities and new construction. But that hasn't derailed the building industry's evolution toward an adaptive reuse model as it attempts to stray away from demolitions and full restructurings.

“Adaptive reuse is going to be a lot faster to achieve than new building construction or even renovation projects. So, these buildings can come online a lot more quickly than new projects, and that means potential employment opportunities for facilities managers,” William Leddy, founding principal at Leddy Maytum Stacy Architects in San Francisco, said.

Leddy is also vice president of climate action at AIA California, which pushed for a change in the state’s existing building code. He believes that the HUD initiative could halve the turnaround for adaptive reuse projects.

“If you’re talking about the time required for permitting the design of a new building, demolishing an old one or even reconstruction, you’re looking at around six years in total. But, if you’re looking at an existing building and retrofitting for adaptive reuse, your approval time could be as short as three years,” he pointed out.

Alex Stettinski, CEO of the San Jose Downtown Association and a board member at the International Downtown Association, agreed that the resource guides resulting from the grant program could shorten the turnaround.

“If you have catalogs, there are mistakes that can be avoided and opportunities that can be replicated in other projects. It could therefore potentially expedite the completion of a project because you have case studies and guidelines — a template you can go by. That’s assuming that the case studies that will come in are comprehensive and useful,” he said.

But facilities managers, despite a wealth of insights at their disposal, may not have it easy without sufficient training and education. Leddy believes the emergence of sophisticated building management systems in modern and remodeled buildings has left facilities managers perplexed, as they have traditionally been more concerned about repairing, replacing or upgrading aged or broken equipment and systems than automation and energy efficiency.

“This is a huge opportunity to educate facilities managers about new building management technologies, instilling a sense of urgency about why the status quo is obsolete, and preparing them for the future of high-performing low-carbon adaptive reuse projects,” he said of the grant. “We can no longer afford to leave the lights on. We have to start thinking more intelligently about resource reuse.”

The HUD-funded grant research is also expected to be a launching pad for future studies on office-to-housing conversions. In its grants notice, the HUD said research proposal submissions must emphasize how the knowledge and insight generated by that proposed project will enhance understanding of federal, state or local policies and programs targeting commercial-to-residential conversions.

Stettinski expects fewer than 100 applicants, mostly architects who, he said, are generally more hands-on with the design elements that factor into a conversion project and the research supporting their decisions.

“I think facilities managers are trying to find solutions immediately. They don’t have time to sit down and do a study of that magnitude. Architects would though. That is their bread and butter. If architects can find ways to make a conversion happen, they’re providing a service to facilities managers by way of sharing best practices and insights with them,” Stettinski said. “Architects could utilize that money to put guides together and go to property owners and facilities managers and tell them, ‘We’ve done our research and here’s what we can offer.’”

“And then there could be partnerships between architects, property owners, facilities leaders and cities”, he added, noting that these alliances could provide a clearer picture of how to best implement adaptive reuse projects

Although turnaround times may be quicker, streamlining the process to reduce waiting periods for project approvals could impact the economic feasibility of an adaptive reuse model, according to Kate Collignon, partner at HR&A Advisors. “Even a building that’s 30% vacant right now would take the owner a significant amount of time to wait until other leases expire before the remainder of that building can be cleared out, so you’re assuming two to three years for conversion and lease buildup,” she said.

On the flip side, she noted a property owner could reduce rents slightly, pursue a different tenant profile to reflect market changes, or invest more in office space if the resulting value generates more cash flows than what a residential unit may provide once that space is converted.

“So, the economics don’t pencil correctly right now,” she said, referring to San Francisco’s move to invite proposals for reusing underutilized downtown commercial space.

Collignon and Stettinski both point to the need for direct incentives from federal, state or local bodies to make conversion projects a reality.

The HUD’s new NOFO builds on the Biden administration’s vision of promoting commercial-to-residential conversions. The White House recently announced the HUD’s decision to confer grants of up to $10 million to jurisdictions contending with steep demand for affordable housing. Last month, the U.S. Environmental Protection Agency also said it would roll out a $27 billion Greenhouse Gas Reduction Fund to mobilize capital and finance commercial-to-residential conversions and cost-saving building retrofits, as part of a larger push for zero emission targets.