Why a White House Plan to Fund Office-to-Housing Conversions Isn't Working
bloomberg.com
bloomberg.com
Who designs these programs? Yeah, what bank in their right mind would sit around for up to 2 years (aka, until the next administration) to close on a loan? That's insanity!
The only orgs getting funding out of these programs are people who already have tons of cash on hand. So only existing real estate barons need apply.
And that part might come before, during, or even after securing the property.
People need to think less "buying a house" and more "redeveloping an area".
I've never heard of deals taking longer than a year - how does a multi-year transaction with federal funding even work?
You've just described handling e.g. a dry cleaners or dealing with a single elderly owner.
When you finally shake hands with the elderly owner of the dry cleaners to buy their property, we're talking about another two years after that before they get their money.
Interns and entry level executive branch employees design these programs, and then some consultants and lobbyists from the stakeholder industries haggle over hourly payments and retainers until they're happy with the text of the order.
Another question you might ask is, who decides to prioritize this program in the first place? How does the WH administration decide to add a program to its agenda?
Not really.
GS-13 and above are fairly competent, but the issue is it's government and you will get some pushback from Political Appointees.
The long tail was probably added in order to prevent headlines of abuse like what happened with the PPP program.
The lossage would be minimal, but the headlines would be a massive headache, so they were most likely forced to add rigorous validation.
> who decides to prioritize this program in the first place? How does the WH administration decide to add a program to its agenda
Recommendations from advisors, staffers, career civil servants, and industry partners.
Out of curiosity, how many "GS-13" employees actually write the technical documentation and legalese themselves, vs. asking their subordinates to produce the initial drafts and then fixing details but missing larger gaps?
You're in cybersecurity/IT which is sadly a massive shitshow in most agencies outside of the DoD and DoE.
All I can say is the grass ain't greener in similarly sized private sector organizations.
Edit: I actually upvoted you. That said, Cyber/IT is treated differently and the GS scheme is different.
Relatively junior Economists, Accountants, and Statisticians won't be given a GS-13 position out the door, but it's more likely for Cyber/IT roles due to the salary constraints.
I went through the interview, was accepted as a candidate, and then ... nothing. So I:
* graduated
* started working on the field
* moved 1/2 way across the country
* worked for 2 more years
And, a total of 3+ years later, was called and told that "Congratulations, your name is now at the top of the list, and we have an opening. You're hired!"
I was completely baffled, and told them I had another job... naturally! (this confused person on the other end of the phone?!). And yet after asking around.. this was normal.
Governments do have a different role, being part of the public trust. But still, a very strange world.
The problem here is that they tacked this onto a program designed for rail infrastructure financing instead of creating a new program. The rules and restrictions were designed for rail infrastructure projects and probably make sense in that context, but make no sense when applied to building projects.
This is the problem - too often people from industry don't get consulted OR people from industry with deep wallets who want things done a certain way are the only people who get consulted so that they have free reign to create a moat.
> Big cities like New York have two real estate problems. Housing is scarce and office buildings are empty (or at least under-utilized.) So there would seem to be an obvious solution: turn the offices into homes. And indeed there has been a lot of talk lately about "office-to-resi" conversions. But it's very hard, for a wide variety of reasons. Zoning, financing, and then, of course, the operational aspects of the construction all need to be in place. So what does it take? On this episode, we speak with Joey Chilelli, managing director at the Vanbarton Group, a firm that's been involved with these projects for a decade and long before the pandemic upended both real estate markets. We discuss the challenges involved in actually pulling off these complex projects.
* https://omny.fm/shows/odd-lots/what-it-really-takes-to-conve...
The biggest ones (from a $ perspective) are window access in the interior of the building, and water (clean and waste). To add windows to one building in NYC (I forget which one), they had to knock out the center. IIRC that wasn't cheap.
The theoretical arguments against office conversion are overblown and too fixated on what the "perfect" or currently regulated apartment setup is... both of which are flexible. An apartment or condo doesn't have to be "ideal" to be viable.
But it is true that many don't know how or want to invest into figuring out how to do the conversions. Each project is unique and requires careful thought. Building multi-family on an empty lot is far simpler, and government can hand office lots to developers as if they were an empty lot.
When we're talking about some glass-box office building though, then by all means, just replace it.
But I understand the counter -- why should the government fund private market screwups? And the terrible answer is -- because we suffer the consequences regardless.
There is a third question though which is: with the collapse of both retail, mutli-family, and office CRE, what in the world is the future of cities?
- converting existing buildings is more expensive then create new residential areas from scratch, city density and original totally different design simply makes such conversions a crazy idea;
- even if some buildings get converted who might want to live in them? Before the masses have tasted and so learned the WFH model downtown was a place to be to have interesting jobs, now they start to be a place to stuff poor people in social housing setups. Let's say those who have no choice accept, what they do to live? There are not much factories of tertiary sector jobs in the modern city, only city-services related jobs, and there are more "service consumers" than "service operators", so there is a growing slice of people unable to find a job.
my sense is that office-to-residential just rarely makes sense. but could one change building codes so that, when new office buildings are constructed, they have to be designed to make a future residential conversion relatively cheaper and more feasible?
how much extra cost would this impose in the construction process? is it something that's relatively cheap/not that much downside, if only you plan ahead?
this solves no problems now but I am still curious about it.
1. The lease span (i.e., the distance from the core of the building to the windows) is typically much larger in an office building vs. a residential building (40ft vs 30ft).
2. The plumbing/mechanical services need to be increased/modified for a residential building.
Enforcing the first would essentially mean asking the developer to design a different building. It's possible that you could make an office building work without following conventional office layouts and leasing patterns (who knows, maybe there's more of an appetite for something different post-COVID), but it would involve a significant re-thinking on the part of the developer about how they will make money from a project.
The HVAC/plumbing issue could probably be something you could ask the builder to make accommodations for without needing to totally re-conceptualize the project.
Modern offices are designed to be big open warehouses, trying to maximize the number of desks you can fit into a space. Big square footprint with central core for restrooms, stairs and elevators has been the dominant paradigm here because it maximizes the number of desks you can fit into a given lot. But apartments want perimeter, everyone wants windows and massively more plumbing necessary to give every apartment its own bathroom. So big square footprint isn't how you want your apartment building to be- that floorspace in the middle isn't worth much.
The developer they interviewed had actually ripped the center out of a building to create a big open glassed-in courtyard in one of their buildings, to give them an outer and inner ring of apartments which all had some light. But that requires a lot of work and a lot of staring at structural blueprints to make sure that it won't fall apart.
So that's your answer on the lower end.
https://www.boston25news.com/news/local/residents-bostons-fo...
Checking the rates per square foot for residential versus commercial (office) space in my area, residential is going about $2/sqft but commercial is $20/sqft. So in addition to the cost of conversion, the rents would have to be cut by an order of magnitude.
Since the banks are on both sides of this equation (they probably hold loans against the buildings people are looking to convert, and they'd be making new loans to finance the conversion) I'm sure there will be some foot-dragging because of increased risk and higher loan values and longer loan repayment terms.
A growing trend is banning gas in new builds, so that's one way to lessen the impact. But agreed with the larger point that it's a much huger lift than people tend to think.
But it's likely they don't really want to shake things up. High housing cost is primarily a problem in Blue districts, and Democrats hate losing asset value as much as anyone else.
Not sure if you noticed, but the home builder have been able to borrow near infinte quantities of cash at ~0% for the last decade.
It did not expand housing or lower the housing cost.
1. Land where people want to live.
2. Appropriate/different zoning.
3. Efficient/timely acquisition of relevant permits.
0. People who can buy the finished home
Supply is still much, much lower than demand, and my friends in real estate are grousing about it.
Unless we're losing 1.4 million dwelling units a year, housing is expanding: https://www.census.gov/construction/nrc/current/index.html
Maybe not as fast as we need/want, but it is expanding.
There's a reason for that. Home equity is one of the crucial pieces of being able to comfortably retire, and the largest component of most middle-class people's net worth.
When the British Empire wanted to reduce the value of an important asset, in that case by criminalizing it -- I'm talking about slavery -- they paid reparations to the "owners", basically to bribe them into accepting the change to society. We may likewise need to bribe homeowners to ram through the necessary changes.