HUD Grant Focuses on Converting Commercial Buildings to Residential Use

The push to convert vacant or underutilized commercial properties into residential or mixed-use spaces is gaining momentum, with government agencies stepping in to streamline processes for developers, owners, and facility managers.

Industry insiders believe that a U.S. Department of Housing and Urban Development (HUD) research grant for commercial-to-residential conversions could create more job opportunities for facility managers while easing the burden on frontline operations staff, boosting productivity, and giving them a voice in decision-making.

HUD grant details

The Notice of Funding Opportunity (NOFO) announced by HUD last week will provide up to $860,000 to compile case studies of conversion projects completed since the start of the COVID-19 pandemic. The program aims to gain insight into which policy measures, subsidies, and incentives can enhance the economic viability of such conversions.

HUD stated that its goal is to produce a resource guide for use by local agencies and development practitioners. Solomon Greene, Principal Deputy Assistant Secretary for the Office of Policy Development and Research at HUD, expects the funding to provide examples of how to best overcome structural and financial obstacles in conversion projects, helping property managers and facility leaders understand the measures city officials have taken since the pandemic to support such projects.

"This will provide practical guidance and insights for cities to use. We hope this research can accelerate solutions to the nation's growing housing supply shortage by drawing on innovative and creative problem-solving approaches to the reuse of existing buildings and assets in communities," Greene said in an email to Facilities Dive.

Opportunities and challenges of adaptive reuse

Despite high demand for Class A facilities and new construction in California, zoning barriers and outdated permitting processes limit the state's adaptive reuse efforts. However, this has not stopped the construction industry from evolving toward an adaptive reuse model that seeks to avoid demolition and full-scale rebuilding.

"Adaptive reuse will be completed faster than new construction or even renovation projects. Therefore, these buildings can be put into use sooner than new projects, which means facility managers may gain job opportunities," said William Leddy, founding principal of San Francisco-based Leddy Maytum Stacy Architects.

Leddy, who is also vice president of climate action at AIA California, which pushed for modifications to the state's existing building code, believes HUD's initiative could cut the turnaround time for adaptive reuse projects in half.

"If you consider the time needed for permitting new building designs, demolishing old buildings, or even rebuilding, it takes about six years in total. But if you're doing adaptive reuse of an existing building, approval times could be as short as three years," he noted.

Alex Stettinski, CEO of the San Jose Downtown Association and board member of the International Downtown Association, agrees that the resource guide produced by the grant program could shorten turnaround times.

"If there's a catalog, you can avoid mistakes and replicate opportunities in other projects. So, it could speed up project completion because you have case studies and guidelines—a template to follow. Provided the submitted case studies are comprehensive and useful," he said.

Skill challenges for facility managers

However, despite the wealth of insights facility managers possess, they may not find it easy without adequate training and education. Leddy believes the emergence of complex building management systems in modern and renovated buildings is confusing facility managers, as they have traditionally focused more on repairing, replacing, or upgrading old or damaged equipment rather than automation and energy efficiency.

"This is a huge opportunity to educate facility managers about new building management technologies, helping them recognize that the status quo is outdated and prepare for the future of high-performance, low-carbon adaptive reuse projects," he said of the grant. "We can't just keep the lights on anymore. We have to think smarter about resource reuse."

Future research and application information

The HUD-funded research is also expected to serve as a springboard for future office-to-residential conversion studies. In the grant notice, HUD stated that research proposals must emphasize how the knowledge and insights generated by the proposed project will enhance understanding of federal, state, or local policies for commercial-to-residential conversions.

Stettinski expects fewer than 100 applicants, primarily architects, noting that architects typically have a deeper understanding of design elements in conversion projects and the research supporting their decisions.

"I think facility managers are looking for immediate solutions. They don't have time to sit down and conduct research on this scale. But architects do. That's their specialty. If architects can find ways to achieve conversions, they're serving facility managers by sharing best practices and insights," Stettinski said. "Architects could use this funding to compile a guide, then go to owners and facility managers and say, 'We've done the research, and here's what we can offer.'"

"Then partnerships can form between architects, owners, facility leaders, and cities," he added, noting that these alliances could more clearly demonstrate how to best implement adaptive reuse projects.

Although turnaround times may be faster, according to Kate Collignon, a partner at HR&A Advisors, streamlining processes to reduce wait times for project approvals could impact the economic viability of the adaptive reuse model. "Even if a building currently has a 30% vacancy rate, owners have to wait a long time until other leases expire to clear out the remaining space, so you assume conversions and lease-up take two to three years," she said.

On the other hand, she noted, owners could slightly lower rents, seek different tenant types to reflect market changes, or invest more in office space if it generates more value than the potential cash flow from converted residential units.

"So, the economics don't work right now," she said, referring to San Francisco's request for proposals to repurpose underutilized downtown commercial space.

Both Collignon and Stettinski pointed out that direct incentives from federal, state, or local agencies are needed to make conversion projects a reality.

HUD's new NOFO builds on the Biden administration's vision of promoting commercial-to-residential conversions. The White House recently announced HUD's decision to provide up to $10 million in grants to jurisdictions facing high demand for affordable housing. Last month, the U.S. Environmental Protection Agency also said it would launch a $27 billion greenhouse gas reduction fund to mobilize capital and finance commercial-to-residential conversions and cost-saving building retrofits as part of broader zero-emission goals.

Proposals for the NOFO are due October 12. Interested parties can apply for the grant through the U.S. government's portal.