$45 Billion in Federal Funds to Developers for Offices to Homes Program
The Biden administration is turning to developers for assistance in alleviating the housing crisis in the United States. On Friday, the White House initiated a collaborative effort involving multiple government agencies to provide financial support to real estate developers, enabling them to transform vacant office buildings in major cities, which were emptied during the pandemic, into affordable housing.
The plan seeks to leverage the existing $35 billion in low-interest loans provided by the Transportation Department to support housing developments located near public transit hubs. This funding will be integrated into the Biden administration's clean energy agenda. Additionally, the initiative introduces various funding sources and tax incentives, offering a comprehensive guidebook detailing 20 different federal programs that developers can access. It also provides technical assistance for the potentially challenging and costly conversion process.
Another component of the program involves the federal government compiling a public list of its own properties that could be made available for sale to support development efforts.
"These downtowns and central business districts that we are taking about today often already designed and orientated around public transit," said Transportation Secretary Pete Buttigieg, in a press briefing. "Our intention is to make the most of this opportunity to add more housing near transit in ways that not only reduces the cost of housing, but also often reduces the cost of transportation."
National office vacancies have reached nearly 25%, in contrast to 8% in Europe, with hard-hit cities like San Francisco experiencing even higher vacancy rates. The property market has seen values decline, and more owners are defaulting on their mortgage loans. Nathan Berman, a founding principal of Metro Loft, a firm known for office-to-residential conversions in New York City, pointed out that the primary challenge is the lack of financing. "It's really interest rates that are killing everything." Berman tells Marketwatch.
The Federal Reserve's rate hikes to combat inflation have led to increased borrowing costs, causing a credit crunch for building owners with impending debt obligations. Furthermore, companies remain uncertain about their space requirements and what they are willing to pay for it.
In Washington, D.C., where the federal government has a significant office presence, the shift to remote work has raised concerns in the industry. Government efforts to revitalize obsolete buildings by converting them into rental properties present a unique redevelopment opportunity. The federal government owns approximately 1,500 office buildings across the country and leases nearly 200 million square feet of additional space. Much of this office space is underutilized, as indicated by Barclays analysts in a recent report.
In addition to the funding from the Department of Transportation, the White House's new initiative will provide developers with access to $10 billion in funds allocated to the U.S. Department of Housing and Urban Development's community development block grant program. "With a shortage of millions of homes nationwide, we need to utilize every resource at our disposal to increase housing supply, which in turn, given the high demand, will help with rent levels and purchase costs," said Adrianne Todman, HUD deputy secretary, during the press briefing.
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