California’s $400 Million Office-To-Housing Conversion Fund: Grants for Financial Feasibility

As the demand for housing continues to rise and urban landscapes evolve in the state of California, the potential of repurposing office buildings into residential spaces has become a subject of intense investigation. 

Rapid urbanization and population growth have created a significant shortage of affordable housing. Converting office buildings can help alleviate this crisis by transforming underutilized spaces into residential units.

In a previous blog post, we discussed office-to-housing conversion and examined the feasibility of converting Class C office buildings into multi-family buildings. This particular building type presents advantages such as smaller floorplates, which facilitate abundant natural light, high ceilings and operable windows. These attributes contribute to much simpler residential conversions, lower logistical complexities and burdens and create apartments that align with preferences and desires of prospective modern residents.

The hesitancy among developers to undertake office-to-housing conversion projects is attributed primarily to the substantial costs involved and the complex bureaucratic process required to obtain approvals for changing a property’s use from commercial to residential. These factors often deter developers from pursuing office-to-housing conversions, highlighting the need for streamlined procedures and financial incentives to encourage more widespread adoption of these transformative endeavors.

This year, notable state legislative bills have emerged, demonstrating a commitment to address housing challenges and promote adaptive reuse of existing structures. Assembly Bill 1532 proposes an expedited process for office-to-housing conversions with the inclusion of affordable units. In a similar vein, Assembly Bill 529 seeks to streamline the conversion of office and retail buildings into housing by modernizing state building codes. These bills reflect a proactive approach towards fostering more efficient and accessible pathways for transforming underutilized spaces into vibrant residential communities. The City of San Francisco’s Board of Supervisors also recently passed legislation that makes it easier to convert downtown commercial buildings to residential use. 

In addition to legislative changes, the state of California recently launched a new program to provide funding to developers to encourage the conversion of commercial space into housing, signaling a positive development for the nascent initiative aimed at addressing the critical shortage of residential units. The Infill Infrastructure Grant Program – Catalytic Qualifying Infill Area reflects the state’s commitment to fostering the transformation of underutilized commercial properties into much-needed housing, offering a promising step forward in the ongoing efforts to tackle the housing shortage.

In 2022, California’s budget, signed into law by Governor Gavin Newsom on June 30, allocated $400 million as a financial incentive to developers for the conversion of commercial and office buildings into affordable housing. This budget allocation, spanning the years 2022-23 and 2023-24, is part of the state’s proactive approach in incentivizing the transformation of underutilized spaces into much-needed affordable housing options.

So far approximately 55 applications have been submitted, seeking grants worth approximately $105 million to support the conversion of offices, commercial spaces or business parks into both affordable and market-rate housing. The objective of these grants is twofold: to alleviate the financial burden associated with these costly adaptive reuse projects and to expedite their execution. By providing financial assistance, these grants aim to make office-to-housing conversion process more financially feasible and encourage the timely implementation of these projects. The California Department of Housing and Community Development is anticipated to release funding for the grants in July. 

The Office of Economic and Workforce Development (OEWD) and the San Francisco Planning Department recently published a Request for Interest (RFI), extending an invitation to downtown building owners and project sponsors who are considering the transformation of underutilized commercial spaces into housing or other new uses. The primary objective of this RFI is to identify projects where the City can offer assistance in expediting or enhancing building conversions. This assistance may come in the form of zoning or regulatory changes, financial incentives or other means. 

If you have any questions about these types of adaptive reuse projects or if you are contemplating a specific project and would like to explore the feasibility of a conversion, please don’t hesitate to reach out to us today at info@openscopestudio.com.