Federal Programs to Assist with Commercial to Residential Conversions
The White House recently released a handbook of available federal resources titled, “Commercial to Residential Conversions.” The guidebook summarizes over 20 available federal programs, loans, grants, guarantees, and tax incentives that are administered by six federal agencies, that can directly finance, or reduce the cost of financing, office-to-multifamily conversions.
“The conversion of [commercial] properties to residential use presents an opportunity to increase housing supply, improve affordability, ultimately create efficient, zero-emissions housing, reduce long term energy costs and volatility, and thereby contribute to local, state, and federal climate goals.”
Some of the opportunities highlighted in the handbook include:
- Grants that can cover pre-development, acquisition, construction, and other costs:
- HUD’s Community Development Block Grant (CDBG) Program provides grant funding that can be used to support acquisition and rehabilitation for the conversion of commercial properties to residential uses. $3.3 billion has been allocated to the CDBG Program. HUD allocates funds through formula grant allocations to the city, county state or insular area. The grantee may then use its formula funds to provide grants, loans, or other financing mechanisms to assist projects. Grantees for the CDBG program can be found here.
- HUD’s Pathways to Removing Obstacles (PRO) to Housing Program provides grants to states, local governments and multijurisdictional entities. The program encourages the development of adaptive reuse strategies and the financing of conversions as eligible activities. Under the Consolidated Appropriations Act, 2023, $85 million was allocated to the PRO to Housing Program. It is important to note that the deadline to submit applications to the PRO to Housing Program was extended to November 6, 2023. Additional information on the program can be found here.
- Below-market loans:
- Department of Transportation’s (DOT) Transportation Infrastructure Finance and Innovation Act (TIFIA) Program provides credit assistance for qualified surface transportation and Transit-Oriented Development (TOD) projects. The program has $70 billion in lending capacity. There are two paths to eligibility for TOD projects, including:
- Projects that improve or construct public infrastructure located within walking distance of, and accessible to, a fixed guideway transit, passenger rail, or intercity bus station, or that is economic development, including commercial and residential development.
- Projects that both qualify as Joint Development (coordinated development of transit facilities with non-transit private development, including residential, commercial, and mixed-use development) and satisfy of certain eligibility criteria.
- The DOT’s Railroad Rehabilitation & Improvement Financing (RRIF) Program provides credit assistance in the form of direct loans and loan guarantees. The program has $35 billion in revolving loan authority. Eligible purposes include developing, improving, or acquiring railroad infrastructure or facilities; establishing or improving intermodal freight transfer facilities; developing landside infrastructure for seaports serviced by rail; and economic development, including commercial and residential development and related infrastructure and activities.
- Further information on both programs is available here.
- Department of Transportation’s (DOT) Transportation Infrastructure Finance and Innovation Act (TIFIA) Program provides credit assistance for qualified surface transportation and Transit-Oriented Development (TOD) projects. The program has $70 billion in lending capacity. There are two paths to eligibility for TOD projects, including:
The guidebook also reminded readers of the 2022 Inflation Reduction Act, which created or modified a suite of climate-focused financial resources that could be considered for commercial to residential conversions:
- There are tax incentives that fund energy efficiency improvements:
- The Section 48 Investment Credit provides an up to a 30% tax credit for investment in renewable energy projects including fuel cells, solar, geothermal, small wind, energy storage, biogas, microgrid controllers, and combined heat and power properties. There is also a bonus credit amount that is available for meeting domestic content or energy community requirements.
- The Department of Energy, in partnership with other federal, state, and local agencies, has tools to address challenges to commercial liftoff and is committed to building the nation’s clean energy infrastructure in a way that meets the country’s climate, economic, and environmental justice imperatives. The Department of Energy’s Loan Programs Office has below-market interest rate loans and guarantees that could support innovative zero emissions buildings that become parts of virtual power plants.
Source: WhiteHouse.gov
- Carey M. Heyman, CPA
- Managing Principal of Industry - Real Estate
- CliftonLarsonAllen LLP
- Century City (Los Angeles)
Carey is the Managing Principal of the Real Estate Industry at CLA. He is a trusted advisor with close to 20 years of experience providing accounting, assurance, tax, and consulting services to real estate industry owners, operators, family offices, developers and syndicators. Carey has a strong track record of helping clients build and retain capital by leveraging tax- and cost-saving strategies and employing tax credits and incentives. He also consults with high net worth individuals, large family groups, and owners of closely-held businesses on all aspects of tax planning, estate planning, and retirement planning.
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