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Know the Problem Before You Pay! 💰🏠
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Why 95%+ office buildings can’t be converted into apartments👇🏽
- First, it would involve significant capital to reconfigure the mechanical layout of the building (HVAC, plumbing, fire suppression, electrical). This investment is so significant, it can often be the equivalent of building from the ground-up, and rent you can achieve is often lower than ground up.
- Second, the physical layout of the building central elevator core, one bathroom per floor, etc. results in a generally unlivable building. Weird floorplans, tons of unit mixes, resulting in extremely expensive architecture plans.
- Three, if low income housing is required (like it often is in new development), revenue from low income housing is unlikely to cover the significant operating costs of the property on an ongoing basis - real estate taxes and insurance being two of the largest expenses.
Best ways to make an office to residential conversion work?
- Have a narrow floor-plate building. These often have more functional floor-plans which result in easier leasing/ comfortable living.
- Buy the existing structure for pennies on the dollar. General rule of thumb is you need to purchase an existing building for sub $55/ sqft. in order to make the numbers work due to rising cost of construction. That is VERY cheap, especially in well sought after areas. Also, working with the city on either tax abatements or TIF could help bridge this gap.
One way to bridge the gap when it comes to these types of projects is utilizing historic tax credits. By utilizing these credits (if the building is on the National Register), it can make up a significant portion of the capital stack, often 25%+.
HTC deals are extremely complicated and cause a lot of brain damage for developers, but for the right project & building, this can be the saving grace as it pertains to converting these old office buildings.
*Pictured is the former Federal Reserve building in KC, vacant since 2009*
American homebuyers can now expect to pay 41% of their gross income on mortgage costs.
This is the highest rate of mortgage burden since the early 1980s when rates were 18%.
No historical precedent for this lack of affordability lasting.
Note that in mid-2000s bubble the mortgage burden peaked at 39%. Less than it is today. Before collapsing.
What this suggests is that today's historical lack of affordability won't last. Something will eventually give. Lower prices, lower rates, and/or higher incomes.
Machining a threaded clamp part from stainless steel for our Sawbones client. We're making 1,000 of these units which end up in bone clamps. $DDDX #MadeInTheUSA#manufacturers#medical#3dprinting