Only 3,575 apartment units were converted from office space last year. The already fraught process now faces even more challenges.The Wall Street Journal explains why in its report Turning Empty Offices Into Apartments Is Getting Even Harder

Cities hoping to convert emptying office buildings into apartments are running into financing issues, stagnating rental markets and other challenges that are bottling up their efforts.

Developers last year created just 3,575 apartment units in the U.S. through office conversions, according to an analysis by rental listing site RentCafe. That amounts to less than 1% of all apartments built that year through new construction. 

Federal and local governments are also trying to give conversions a boost. The White House said last month that it was updating guidance for existing grants and spending programs to make billions in federal dollars available for these projects. It also said it would seek the conversion of more government-owned properties into housing.

Some cities, such as Washington, D.C., New York and San Francisco, are also taking steps to encourage more conversions. Tax incentives and faster approvals are “rocket fuel” for these projects, said Sheila Botting, a principal at commercial property brokerage Avison Young.

Even so, the process has always been fraught with difficulty and few office buildings are natural candidates. Conversions are easiest in older, lower-quality and mostly empty buildings with small floors. But less than 1% of office space in the biggest U.S. cities ticks those boxes, according to Avison Young.

In significant ways, the conversion process is getting even harder now. Slowing rent growth might make apartment conversions less attractive to investors, if the trend persists into next year. Asking rents for apartments have fallen 1.2% nationally over the past 12 months, according to rentals website Apartment List.

Projects Not EconomicalWithout massive subsidies these projects are not economically feasible. Many aren’t even with massive subsidies.

In downtown Dallas, developer Wolfe Investments seeks to convert an 18-story, 1950s office tower into residential apartments, but has recently been fighting off foreclosure from its lender, Thistle Creek Partners, court records show. 

Developers of One Camelback, a 200,000-square-foot office building in central Phoenix, are trying to convert it into what would be one of the city’s most expensive rental-apartment properties. A website advertises $8,000-a-month apartments, with floor-to-ceiling windows and crystal-clear views of nearby mountains.

But the developers, Sagamore Capital and partners defaulted on a loan of about $70 million. The project’s lender, Delphi Financial Group, has moved to foreclose. An auction of One Camelback is set for later this month, according to documents filed in Maricopa County, Ariz.

Biden Throws $45 Billion in Federal Funds to Convert Offices into Homes
On October 29, I commented Biden Throws $45 Billion in Federal Funds to Convert Offices into Homes

Questions abound. Assume you can convert offices into homes, who wants to live in them? Is a tear down cheaper?

The government has 1,500 office buildings nationally and leases on almost 200 million square feet of additional space that it does not need. Instead of canceling leases and selling the real estate, it’s going to convert them into clean energy spaces.

With enough subsidies, developers will try nearly anything. Then when the projects fail, the developers ask for more money.How is this Being Paid For?Taxpayers of course. But Biden is funneling $45 billion from clean energy incentives in the ridiculously named Inflation Reduction Act (IRA) into housing conversions.You might also be wondering what this has to do with clean energy, and the answer is nothing. The questions keep piling up and I have answers.What’s Really Going On Here?Biden is hoping to spread the IRA dollars around to buy more votes.But to do so, he is taking money away from his other pet projects to fund the idea of the moment. His idea of the moment is to do something about the price of rent.Biden Trails Trump in Five of Six Battleground States
Polls say Biden is in serious trouble and those polls are very believable for reasons I explain.For discussion, please see Five Alarm Bell – Biden Trails Trump in Five of Six Battleground StatesOne of the more amusing stats in the poll is voters under 30 favor Mr. Biden by only a single percentage point. And a majority of voters saying Mr. Biden’s policies have personally hurt them.Housing helps explain that.CPI Rises More Than Expected as Rent Jumps Another 0.6 Percent CPI data from the BLS via the St. Louis Fed, chart by MishI repeat the core key theme for something like two years now. People keep telling me rents are falling, I keep doubting.The doubters have it correct again.On October 12, I noted CPI Rises More Than Expected as Rent Jumps Another 0.6 Percent

Rent of primary residence, the cost that best equates to the rent people pay, jumped 0.6 percent. Rent of primary residence has gone up at least 0.4 percent for 26 consecutive months!

The price of new leases is declining, not existing leases. And the irony is falling prices on new leases makes these conversions increasingly unfeasible without bigger and bigger subsidies.It is not the wealthy who make up the majority of renters. So rent alone is fueling the pain that shows up in the polls. Factor in food.A rising stock market and home prices does not help those with no assets. And the poor have no assets.So Biden is desperate to do something about rent. His funneling of $45 billion from here to there is part of his solution.He may very well be caught in a Red Queen Race where the more he tries the worse he looks.Wake Up Mr. President, Consumers Do Not Want Not EVsOn October 16, I commented Wake Up Mr. President, Consumers Want Hybrids, Not EVsA better title would have been Wake Up Mr. President, Consumers Don’t Want EVsWhile the President harps about how great things are, consumers don’t see it that away and I have been covering all the reasons why.This office to apartment idea is nothing more than throwing money at failed big cities hoping to buy more votes. Since consumers don’t want EV’s Biden’s plan is to quietly shift the spotlight to rent.Unfortunately for Biden, $45 billion does not buy as many votes as it used to.More By This Author:Silly Idea Of The Day: The Price Of Gold In China Is The Accurate Price What’s Driving The Rally In Long-Duration US Treasuries? Will It Last? Under What Conditions Would China Dump US Treasuries Or Dollar Holdings?