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California Bill Would Speed Up Conversions of Office Buildings to Housing Units

California Bill Would Speed Up Conversions of Office Buildings to Housing Units

Pedestrians walk by an empty retail space in San Francisco on May 9, 2023. (Justin Sullivan/Getty Images)

Travis Gillmore
Travis Gillmore

6/11/2024

Updated: 6/12/2024

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Facing a housing crisis and record office space vacancies in some downtown areas, California lawmakers are debating a bill that would expedite the permit process to transform empty commercial buildings into residential units.
Assembly Bill 2910, authored by Assemblyman Miguel Santiago, would allow for a faster review process with a goal of simultaneously addressing residential and commercial real estate issues.
“Adaptive reuse of underutilized commercial buildings has the potential to provide quality, infill residential units, offering a potential solution to meeting both housing supply and environmental sustainability goals,” Mr. Santiago said in legislative analyses.
“AB 2910 would give local governments the flexibility and nuance needed to amend their local building codes to better enable conversion projects, while ensuring the state has the appropriate level of oversight and discretion in the process to protect public health, safety, and welfare.”
The bill would facilitate the renovation of empty offices, malls, and business parks into multifamily housing projects and mixed-use spaces that include areas for residential, retail, and other businesses.
Proponents say repurposing buildings is faster than building new ones and can reduce greenhouse gas emissions by eliminating the need for demolition.
Discussions around repurposing are gaining momentum amid high office vacancy rates resulting from the shift to hybrid or remote work that started during the pandemic.
The bill’s author also highlighted plummeting commercial office building valuations, noting that the drop in price and subsequent decline in property tax revenue is threatening local government budgets.
Supporters of the measure argue the bill can help mitigate such devaluations and give the state’s urban areas a boost.
“Adaptive reuse of underutilized commercial properties has the potential to breathe new life into downtowns across California, reversing declining tax revenues while addressing the state’s housing crisis and furthering our ambitious sustainability goals, among other important public objectives,” Central City Association of Los Angeles, the bill’s sponsor, said in legislative analyses.
The Golden State ranks 49th nationwide in housing units per capita and needs 3.5 million more homes to meet demand, according to global consulting firm McKinsey and Company.
But repurposing office buildings to add housing units has its detractors. Some in the construction industry suggest tax incentives and credits to spur development are a better way.
While conversion is a hot topic, logistically there are significant challenges, and some brokers and developers argue the costs are so high for certain properties that it would be cheaper to build new structures.
“In many instances, infrastructure costs would be more than ripping the building down and starting anew,” Nick Slonek, principal and managing director for Avison Young, told The Epoch Times. “Communal bathrooms don’t work in a condominium footprint.”
By building from scratch, it’s possible to build based on demand, with multi-purpose buildings using retail concepts on the bottom spaces, offices in the middle, and residential on the top floors, he said.
A 2021 report from the University of California Berkeley Terner Center for Housing Innovation also found that transforming commercial buildings to residential units is often more expensive than new construction.
One reason is the plumbing and seismic retrofitting needed to accommodate residential housing, according to the report.
Also, buildings with large floors would have interior units with no windows, a violation of California’s Residential Code, which requires natural light in residential construction.
Air circulation regulations for residences are also different from those for commercial, according to the report.
Nonetheless, more California developers are looking toward repurposing, according to the winter 2024 forecast from Allen Matkins and the University of California, Los Angeles.
“With a significant portion of the office market continuing to underperform, there is increased focus on the conversion of older and obsolete product into more productive uses such as housing or mixed-use facilities,” John Tipton, Allen Matkins partner, said in the report.
“While the financial aspect of adaptive reuse projects remains a key challenge in 2024, we expect to see a growing emphasis on the conversion of office buildings to uses that better support local economies in the coming years, in California and throughout the country.”
Statistics demonstrate that adaptive reuse projects are on the rise nationwide, increasing 18 percent from 2022 to 2023, with hotel conversions leading the way, according to a recent report from online real estate listing firm RentCafe. The report says the architectural footprints of hotels make them cheaper and easier to convert.
After passing the Assembly on a vote of 72-0, AB 2910 is now awaiting a hearing from the Senate’s Rules Committee in the coming weeks.
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Travis Gillmore is an avid reader and journalism connoisseur based in California covering finance, politics, the State Capitol, and breaking news for The Epoch Times.

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