Wipfli logo
Insights - Articles, Blogs and on-demand webcasts

Articles & E-Books


Government funding hopes to boost office-to-residential conversions

Nov 30, 2023

Approximately 1 billion square feet of office space currently sits vacant across the U.S. — the result of shifting workplace demands as remote and hybrid careers have become more prevalent. Office vacancy rates now hover at just under 20%, a 30-year high.

At the same time, families are finding it increasingly difficult to buy homes, especially affordable ones, in the face of extreme housing shortages plaguing U.S. cities both large and small.

To combat these dual problems in a single proposed solution, the Biden administration recently announced billions of dollars in federal funding to encourage the conversion of empty office buildings into multifamily housing units.

How does the program work?

As detailed in a comprehensive guidebook and summarized in the White House’s abbreviated fact sheet, the initiative promotes office-to-residential conversions with a particular focus on projects that could create affordable, energy-efficient housing in urban centers.

Available through a series of 20-plus federal funding lines across six federal agencies, the proposed financial assistance includes a mix of low-cost loans, loan guarantees, grants and tax incentives. Together, these supports could potentially offset the cost of pricey commercial conversions to a level that is in line with, or even falls below, the cost of new construction. 

Specific financial supports include:

  • $35 billion in available lending capacity from the Department of Transportation for projects that create housing within easy access to public transportation.
  • Open lines of funding from HUD’s Community Development Block Grant to aid in acquisition, rehabilitation and conversion of commercial properties.
  • Tax incentives from the Department of the Treasury meant to lower the cost of energy-efficiency upgrades within multifamily housing developments.

Potential challenges  

Urban developers and real estate investors understand the challenges facing the U.S. commercial property market are complex. So, few expect a singular White House initiative to solve the issue entirely.

However, many agree the recently proposed loans, grants and tax incentives could be enough to move the needle in encouraging developers who had been on the fence about office-to-residential conversions to consider making the leap.

Even still, a major challenge remains: Only a small percentage of empty office buildings are likely to be deemed structurally or logistically suited for residential conversion. Some estimates put the number as low as 2%.

For those buildings eligible for conversion, matching certain priority criteria — say, dramatically reducing a building’s carbon footprint or creating housing near key public transportation hubs, for example — will be key to unlocking the full suite of financial supports outlined by the Biden administration’s plan.

Capacity for a big win — with the right projects

As developers look at the potential for commercial-to-residential conversion, many are discovering that very modern office spaces can be extremely costly to convert to residential footprints, as a result of their typically wide-open floor plans.

While older, more departmentalized office buildings may lend themselves more quickly to conversion, their age and condition can add additional challenges and costs to their overall transition expense.

In either scenario, developers will want to look at the potential to layer available incentives to help effectively offset conversion costs. This might include combining the newly outlined White House funding supports with longstanding federal, state and local incentives, such as:

  • Historic tax credits
  • Low-income housing tax credits
  • Energy tax credits
  • Tax increment financing

In Detroit, for example, developers were able to fund the $75 million conversion of the historic United Artists Building into 148 apartments — a project dubbed the Residences @ 150 Bagley — for just $4.1 million in cash out equity. The remaining project funding came in the form of $22 million in state and city grants, $42 million in mortgage funding and $12 million in historic tax credits.

Along the same lines, the hypothetical example below illustrates how total tax available credits — including a proposed tax credit of 20% for qualified conversion costs currently being proposed in Congress — could make the cost of converting a Class C office space to residential apartments lower than the cost for a residential new build.



Conversion to

Class C office

Price per square foot

$ 325

$ 130

Cost to convert

$ 230


$ 325

$ 360

Tax credit (assuming 60% qualified expenditures)

$ 41

Total cost per square foot

$ 325

$ 319


The key takeaway is clear: For the right projects, these incentives could result in a significant win for real estate developers, for downtown districts seeking revitalization and for residents in need of affordable housing.

To properly capitalize on the Biden administration’s new lines of funding support, though, developers should actively search for opportunities to pair them with other grant, loan and tax credit programs already on the market.

How Wipfli can help

Navigating applicable tax credits and loan and grant incentives for a new development or conversion project can be complex. Experienced Wipfli advisors can help developers identify and appropriately leverage available financial supports to lower the out-of-pocket costs of their real estate investments. Learn more about our tax service assistance for the real estate and construction industries.

Sign up to receive additional real estate content and information in your inbox or continue reading on:


Cory Bultinck, CPA, MBT
View Profile
Dannielle Lewis, CPA
View Profile