Oregon and Washington are not alone in their desperate need for 550,0001 and 1,100,000 new housing units2 within the next 20 years, respectively. The entire nation continues to struggle with a lack of housing supply.3
Meanwhile, many states—including Washington and Oregon—have hundreds of thousands of square feet of empty office space. Perhaps the solution is to convert empty post-COVID office space to residential flats. The Washington State Legislature, and various other states, including New Jersey and New York, seem to think so.
In 2023, the Washington State Legislature passed several bills to increase housing density and streamline permitting, including a bill that allows underutilized commercial office space to be converted to residential units, regardless of zoning classifications and land use and permitting barriers.4 Even cities are getting into the action. Seattle City Council unanimously passed legislation earlier this year that exempts conversions from design development standards and the city’s Mandatory Housing Affordability requirements.5
These state and local laws and incentives pair nicely with recent federal legislation that establishes and revises grant and preferential loan programs to help fund such office-to-residential conversions. This article will discuss those federal grant and loan programs that are open to nonprofit and private entities, analyze the need for change, and consider whether the proposed changes will be sufficient to provide the housing these communities so desperately need.
In October 2023, the White House released a guidebook of available federal resources for commercial-to-residential conversions.6 The guidebook identifies 19 federal programs from the Department of Energy (DOE), the Department of the Interior, the Department of Transportation (USDOT), the Environmental Protection Agency (EPA), Housing and Urban Development (HUD), the Department of Agriculture, and the Department of the Treasury (Treasury). These programs are divided into two groups: (i) those that increase project affordability; and (ii) those that assist with the creation of zero-emissions buildings. This article focuses on the former. New federal opportunities to increase project affordability are as follows:
Grants to cover pre-development, acquisition, construction, and other costs (HUD’s Community Development Block Program);
Below-market loans for office-to-residential conversions near transportation (USDOT’s Transportation Infrastructure Finance and Innovation Act (TIFIA) and Railroad Rehabilitation and Improvement Financing (RRIF));
Land dispositions that can reduce development costs (USDOT regulations that allow transit agencies to transfer surplus property to local governments, nonprofit, and for-profit developers of affordable housing);
Tax incentives that fund conversions of historic buildings (Rehabilitation Tax Credit); and
Tax incentives that fund energy-efficiency improvements (Section 45L New Energy Efficient Home Credit).
HUD Programs
The HUD office administers the Community Development Block Grants (CDBG) program. CDBG provides funds to state and local governments who distribute money to CDBG applicants as either loans or grants. The money can be used to acquire, rehab, reconstruct, and convert commercial properties to residential and mixed-use properties. CDBG funds are not restricted to any particular locality. However, they are allocated to local or state governments who apply for the funds and distribute them using HUD’s formulas to developers, nonprofits, or smaller units of government. To be eligible for this program, states or metropolitan cities must have populations of at least 50,000. Qualified urban counties with populations of at least 200,000 may also apply. CDBG funds are expended to further the national objective of the project: to provide low-to-moderate-income benefits, to eliminate slums and blight, or to respond to a qualified urgent need. CDBG funds include an affordability requirement. If the grantees are creating rental units, they must provide affordable rates.
Similarly, if a unit is sold for purchase, the purchase price must represent a reasonable cost for low-to-moderate income households. Funding requires that the government entity that receives the funding comply with the National Environmental Policy Act (NEPA), the Davis-Bacon Act, the Build America, Buy America Act, and the Uniform Relocation Assistance and Real Property Acquisition Policy Act (Uniform Act).7 Most states have received CDGB grants. A list of CDBG grantees can be found on the HUD Exchange website.8
The USDOT administers two location-restricted programs. Both programs are designed to encourage residential development—including office-to-residential conversions if the resulting residential units are close to public transportation. Restricting or incentivizing residential development near public transportation is called Transit-Oriented Development (TOD).
As stated above, the USDOT administers funds available under TIFIA. TIFIA provides preferential loans and loan guarantees for TOD projects that: (i) improve or construct public infrastructure within walking distance (i.e., 0.5 miles) of, and accessible to, a fixed guideway transit, intercity or passenger rail, intercity bus station, or intermodal facility; (ii) projects for economic development, including residential housing, that are physically or functionally related to a passenger rail or multimodal station which includes rail service, and that improves or adds public infrastructure; and (iii) TOD projects that qualify as joint development projects between a public transit agency and a non-transit private developer in the form of residential, commercial, and mixed-use projects.9
Project Types 1 and 2 must incorporate private investment, be shovel-ready, and generate revenue that exceeds costs for the related transit station or service. Project Type 3 requires that the development: (i) create an economic benefit; (ii) create a transit benefit; (iii) provide a fair share of the revenue for transit; (iv) entail occupants who pay a fair share of the costs to operate/maintain; and (v) include collection of fees by the sponsor for use of ZEV fueling equipment, if installed.
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The minimum project cost for this program is $10 million; there is no maximum loan size or project cost. A TIFIA loan can finance up to 49 percent of project costs (if eligible). Eligible project costs include development phase activities; construction, reconstruction, rehab, replacement, and acquisition of real property; and capitalized interest needed to meet market requirements, reasonably required reserve funds, capital issuance expenses, and other carrying costs during construction. The rate on the TIFIA loan is fixed and roughly equal to the yield on US Treasury securities with comparable maturity. TIFIA funds come with requirements to comply with the following federal laws: NEPA; Build America, Buy America; the Davis-Bacon Act; and the Uniform Act. TIFIA funds may be lent directly to a private entity with a public sponsor. The average time from application to financial closing is 12 months. Loans can have up to a 35-year repayment period. TIFIA currently has more than $70 billion in lending capacity.
The USDOT also administers the RRIF program, which provides below-market direct loans and loan guarantees for commercial and residential development near commuter rail or intercity rail stations.10 These funds are slightly more restricted than TIFIA money. The costs that are eligible for RRIF loan financing must: (i) incorporate more than 20 percent private investment in total project costs; and (ii) be physically connected to or inside one-half mile of a fixed guideway transit station, an intercity bus station, a passenger rail station, or multimodal station—provided the station includes service by a railroad.11
The applicant must demonstrate an ability to begin contracting within 90 days of RRIF funds becoming obligated and must demonstrate the project will generate new revenue for the relevant passenger rail station. Loans can have up to a 35-year repayment period. Unlike TIFIA, there is no maximum or minimum project cost, and up to 75 percent of eligible costs can be financed by an RRIF loan. The average time from application to financial closing is 12 to 18 months. RRIF currently has more than $30 billion it can lend.
As of April 18, 2024, both the TIFIA and RRIF programs had a 3.48 percent interest rate. These federal funds are encouraging and may allow a project to be financially feasible (or to “pencil”).
CLICK HERE to read the full article, which was originally published in ALI CLE’s The Practical Real Estate Lawyer.
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John Tierney, The New York Times. Magazine, (August 17 2011).
The short answer for lawyers and judges is: Yes. This occurs when you are working a block of time without sufficient breaks practicing a core function of lawyers—making choices what to say or do next. Preparing for hearings, drafting documents, and participating in remote video proceedings is the daily life of the legal profession. Decision making occurs not only by individuals working alone, but also in groups, such as committees, client counseling, and administrative or judicial panels issuing findings and determinations.
In 2011, two professors studied outcomes in over 1,100 cases decided by a panel of judges on two Israeli parole boards, which consisted of a judge, social worker, and a criminologist. What was surprising is that the grant or denial of parole was correlated with the time of day of the decision! The process of hearing and deciding cases in a serial manner resulted in “decision fatigue,” (coined by journalist, John Tierney), with the board being more likely to deny parole later in the day. The researchers concluded denying parole was simpler than using the energy to make a tougher or more complex decision; keeping the status quo left risk-free options to eliminate the potential that former prisoners might harm others.
Wikipedia states that decision fatigue “refers to the deteriorating quality of decisions made by an individual after a long session of decision making” because of low mental energy or the volume of decisions in the assembly line. Decision fatigue may stem from having to make additional choices tires the brain in such a way that each subsequent choice becomes increasingly taxing. The brain creates shortcuts to conserve energy. When it is depleted, fast and careless choices may occur without much reflective analysis. The brain becomes lazier, impatient, or impulsive. It is easier to do nothing by avoiding change. This is commonly referred to as decision paralysis. There are other variants, including delegating the decision to others or being passive while others decide and going along with those choices.
A related, but not identical concept, was developed by Professor Roy F. Baumeister, a social psychologist at Florida State University in Tallahassee, Fla., called “ego depletion.” The theory derived from many experiments contends that there is a finite store of mental energy for exerting self-control and that the brain is like any muscle which become fatigued with use. It may arise from low glucose levels. Decision fatigue has been hypothesized to be a symptom, or a result of ego depletion.
Prof. Carol S. Dweck of Stanford University, on the other hand, challenges ego depletion theory based upon research from a 2010 study suggesting that “a person’s mindset and personal beliefs about willpower determine how long and how well they’ll be able to work on a tough mental task.”
Decision fatigue may derive from unconscious, psychobiological processes, in the context of a persistent cognitive, emotional and decisional loads. It is not a trait or character deficiency or immutable. It comes and goes dependent on the decision making paradigm.
The more decisions made at one “session” reduces the ability to concentrate and critical thinking. Making multiple decisions in a continuous manner is stressful. It can be exhausting and cause people to mentally shut down. The responsive phrase “whatever” comes to mind when people do not want to engage, dialogue, and debate a point—just move on. This is commonly referred to as “defaulting” to a standard option or choices made by others.
My own, and anecdotal, experience is that the shift from paper documents to computer screens is more physically and mentally taxing. There is little opportunity to daydream or pretend to be engaged when you face is plastered on multiple screens without any idea of what participants are looking into your eyes. Staying motionless and stoic are Zoom-skills being learned in a continuous, and likely, mindless, manner. Screens emit lights across a broad spectrum; paper is bland in comparison. I can participate in a full calendar day mediation process or arbitration hearing with the fraction of the energy expended in video conferencing, regardless of the number of screen-breaks. In person, we are able to move more, fidget, turn out heads about, and recover quickly when our minds wander to far-off places or across time. Of course, if you can just blank the screen and mute yourself while superficially engaging, personal energy is conserved. If you are the advocate, or neutral running the meeting, zoning-out while zooming-in is highly problematic.
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Environmental Law 2025, co-sponsored by the Environmental Law Institute, will feature integrated panels of experienced practitioners, regulators, leading academics, and environmental advocates that will share their insights on current and future challenges and opportunities, helping you be the best advocate for your clients.
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For over 40 years, ALI CLE has been bringing eminent domain practitioners together to examine the latest issues, engage in healthy debate, and get the information they need to stay current in their practice. This year, Eminent Domain and Land Valuation Litigation 2025 is taking place in San Diego, California, on January 30-February 1, 2025, in person or via live webcast.
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Property Rights at the Supreme Court: Devillier and Sheetz and What’s Next
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Eminent Domain National Law Update
Leveraging Expertise in Eminent Domain Litigation: Working with Land Planners, Engineers, and Other Predicate Expert Witnesses
Slow Take: Possession, Rent, Relocation, and Offset
Guiding the Trolley: Perspectives on Professional Ethics in Eminent Domain for Lawyers, Appraisers, and Right of Way Agents
B-25s and Psycho Chickens: The Story of United States v. Causby and How Physical Invasions Overtook the Right of Use
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Join us in San Diego, CA, in 2025 for ALI CLE’s upcoming program, Eminent Domain and Land Valuation Litigation 2025. Attend in-person or live via webcast on January 30-February 1, 2025. To learn more about this program and to register for the in-person course or live webcast, click here.
To find our more about ALI CLE’s in-person courses or webcasts, or to check out on-demand CLE, click here.
