Office Conversion Feasibility Study

Every major office conversion incentive now in force either sizes its subsidy on a financial feasibility showing or ties its benefit to deadlines and affordability covenants that a lender has to underwrite. Washington's Housing in Downtown abatement is awarded competitively on financial need. Boston reviews project feasibility and requires financial detail once an application is filed. Chicago sized its LaSalle Street TIF awards to the gaps the developers showed. HUD 221(d)(4) and LIHTC require a market study by rule. A lender-grade feasibility study is therefore the document that connects the subsidy to the debt, and a conversion study from MMCG Invest is built to do exactly that: screen the building, size the subsidy, and show whether the project services its debt at stabilization under the program's covenants.

CoStar's Office National Report dated October 4, 2026 reports that buildings at least 25 percent vacant hold 80 percent of all vacant office space, that demolitions have averaged more than 9 million square feet per quarter for eleven quarters and exceeded deliveries over the past year, and that inventory could contract by as much as 1 percent by the end of the decade. Market price for 1 and 2 Star office is $193.54 per square foot at a 9.4 percent market cap rate. The report's distress example is 101 Mission Street in San Francisco, which traded for $82 million, or $384 per square foot, at just above 50 percent occupancy and about half its 2018 value. That is the acquisition basis a conversion starts from.

RentCafe, using Yardi Matrix data, counted 90,300 office-to-apartment units in the pipeline at the start of 2026, up 28 percent from 70,600 a year earlier, with office now 47 percent of all planned adaptive reuse. New York, Washington and Chicago lead. The pipeline is not the completion count. Boston had approved 15 projects by the time of Bisnow's 2025 reporting, with six under construction and one opened; the city reported 22 applications for 1,517 homes across 27 buildings when it extended the program in December 2025. Attrition between approval and construction is the first thing a lender wants explained.

Program rules are cited to the statute, ordinance or agency page. Affordability terms in several programs changed between legislative stages, so earlier reporting is often wrong.

Two reporting errors circulate widely. The 2023 New York Senate bill proposed 20 percent affordable at a 70 percent AMI weighted average; the enacted statute requires 25 percent at 80 percent. Early Washington coverage cited 15 percent at 60 percent AMI; the current code requires 10 percent at 60 percent MFI or 18 percent at 80 percent MFI.

HUD 221(d)(4). Office-to-residential conversions are processed as substantial rehabilitation under the MAP Guide. Chapter 7 requires the lender's appraiser or market analyst to prepare a market study that meets Sections 7.5 to 7.7 and follows the Appendix 7A format, with form HUD-92273 for the estimate of market rent by comparison. Appendix 7A requires the unit mix, shelter and gross rents, amenities, a location analysis and a supply and demand forecast.

LIHTC. IRC Section 42(m)(1)(A)(iii) requires a comprehensive market study by a disinterested party. Most state housing finance agencies adopt the National Council of Housing Market Analysts model content standards. North Carolina's 2024 QAP Appendix A requires the study to state construction type including adaptive reuse, to give capture rates, and to estimate absorption to stabilized occupancy of 93 percent. Ohio's housing finance agency applies a 15 percent contingency to adaptive reuse against 10 percent for rehabilitation. Where a conversion includes affordable units under 467-m, Housing in Downtown or Boston's inclusionary policy, the study runs capture-rate analysis on those income bands even without LIHTC, because the rent restriction limits underwritten income.

Construction lenders. No bank or life company publishes a conversion policy, so the study presents the test structure rather than invented thresholds: stabilized DSCR at the lender's covenant, calculated on restricted and market rents separately, with a sensitivity for lease-up slippage; a lease-up schedule built from absorption evidence rather than the sponsor's pro forma; an interest reserve sized to the lease-up period with a check that subsidy timing matches the debt, because 467-m pays nothing until after completion, Housing in Downtown requires the certificate of occupancy within 24 months of the reservation letter and Boston requires a construction start by December 31, 2027; a contingency appropriate to adaptive reuse; and completion risk from hazardous materials, envelope and structural findings, with the historic credit's Part 2 approval sequenced before construction.

Gensler's published screening criteria weight site context, building form, floor plate, envelope and servicing, with the heaviest weight on building form and floor plate. Core-to-window depth of about 35 feet is the target; 160 Water Street in New York, at about 65 feet, needed light shafts cut through the plate. Office floor-to-floor of 11 feet with ductwork yields about 8 feet clear, while a strong San Francisco candidate had almost 13 feet. Envelope scoring turns on whether windows open and whether the facade must be replaced. Servicing covers elevator count, parking and core configuration. Gensler reports that only about 25 percent of the more than 1,300 buildings it has scored are suitable candidates. Of 13 state-owned sites screened in the California Department of General Services' January 2024 adaptive reuse study, eight were unsuitable. For hotel use, Gensler's June 2025 analysis puts structural bays of 28 to 30 feet at two rooms or one suite, and at 650 gross square feet per key a 100,000 square foot building yields about 150 keys.

A conversion study from MMCG screens the subject on each of these criteria before any pro forma, and states the screen's result. Plumbing riser capacity, egress and seismic and envelope upgrades are assessed qualitatively from the property condition report, because no published numeric benchmark exists for them.

Public conversion costs move between approval stages. The table reports each stage with its date. Per-unit figures are derived by dividing reported total cost by reported units, include any non-residential component unless stated, and are not audited final costs.

Chicago's Department of Planning and Development reported that City Council had approved more than $315 million in TIF for six LaSalle Street projects representing 1,765 units and more than $900 million of total investment as of January 2026. TIF covers between about a fifth and nearly half of total cost in the rows above. HR&A's Downtown San Francisco Office Conversion Study (February 2023, published by SPUR) modeled six building typologies and found feasibility gaps of $75,000 per unit for high-rises with plates up to 12,000 square feet to $135,000 per unit for low- and mid-rises with 6,000 to 20,000 square foot plates, concluding that conversion was not generally financially viable for any underperforming office typology under then-current conditions. Brookings Metro's community guide tested 18 buildings across six markets and found that in five of the six no conversion was economically viable without public intervention. San Francisco's Controller put the benefit of the 2024 Proposition C transfer tax exemption at about $33,360 per apartment unit and concluded it was too small to close the gap; in May 2025 the city had one office-to-residential conversion in its pipeline.

A hotel is an operating business, so an office-to-hotel conversion can be financed under SBA 7(a) or 504 where the hotel operator occupies the building and the project passes the hotel tests in the SOP. USDA B&I finances hotels under 7 CFR 5001.105(b)(8). The study for a hotel conversion runs the Gensler bay and key screen, a hotel market study with the competitive set and penetration analysis, and a DSCR on RevPAR rather than rent. About 3 million square feet of office converted to hotel in New York's Financial District between 2010 and 2020 (NYC Department of City Planning, Office Reuse Task Force appendix). Chicago's 19 S. LaSalle conversion, fully approved in July 2026, pairs 175 apartments with 32 hotel rooms, and 111 W. Monroe pairs residential with a hotel; neither is SBA-financed.

The SBA eligibility and underwriting tests applied in MMCG's studies are those of SBA SOP 50 10 8.1.

The second SBA path is an owner-user buying an obsolete office building and converting it for its own operating business. Under 13 CFR 120.131(b), for the acquisition, renovation or reconstruction of an existing building the borrower may permanently lease up to 49 percent of the rentable property if it permanently occupies and uses no less than 51 percent. The 1 and 2 Star basis of $193.54 per square foot and the 9.4 percent market cap rate from CoStar set the acquisition price range. The study shows that the owner-user's occupancy plus the leased share covers debt service on a DSCR basis, with the leased portion underwritten at market vacancy for obsolete office rather than at the building's historical occupancy. For a medical conversion the medical office page covers the physician demand, Stark fair market value rent and specialized buildout that the study adds. Apartments remain ineligible as passive real estate, so a mixed office-to-residential project can be SBA-financed only where the operating business is the occupant of the SBA-financed space.

MMCG has not located an SBA-published office-to-hotel or office-to-medical conversion loan. The page presents the eligibility analysis and does not claim precedent.

USDA B&I bars apartments and other residential housing where the primary purpose is independent housing, 7 CFR 5001.118(a), but authorizes mixed-use properties where not less than 50 percent of the business's projected revenue will be generated from business use, 5001.105(b)(13). A rural downtown building with ground-floor business use and upper-floor apartments therefore qualifies only if business revenue is projected at 50 percent or more of the total. The split is a revenue test, not a square footage test, so the feasibility study's revenue projection decides eligibility. MMCG has not located a documented B&I-financed upper-floor conversion.

Community Facilities has financed office-to-clinic conversions. USDA's November 2018 health care chart lists a $4,066,000 CF direct loan to the Cass County Community Mental Health Authority in Cassopolis, Michigan, to purchase and renovate a utility cooperative's headquarters as a 17,000 square foot behavioral health facility. Where the new use is an essential community facility owned by a nonprofit or public body, the CF rules on the medical office page apply, including the independent study requirement for guaranteed loans above $1,000,000 to a new entity or new activity under 7 CFR 5001.304(a)(4)(i).

A signed report with the exhibit workbook: the physical screen with the result stated; the program analysis with each requirement cited; the acquisition basis against comparable distressed trades; the development budget with a contingency appropriate to adaptive reuse; the market study to the HUD or NCHMA standard where required; the pro forma with restricted and market rents separated; DSCR by year at stabilization with and without each subsidy layer; break-even occupancy; the interest reserve against the lease-up schedule and the subsidy timing; sensitivities; and conditions. Studies start at $4,900, fixed fee, delivered in 9 to 16 business days with rush from 5.

The method is set out in full in MMCG's feasibility study methodology.

Michal Mohelsky, J.D., FMVA, Practicing Affiliate of the Appraisal Institute, Principal in charge. MMCG Invest, LLC, 27 Maiden Lane, Suite 625, San Francisco, CA 94108. (628) 225-1110. michal@mmcginvest.com.

Sources: CoStar Office National Report, October 4, 2026; RentCafe and Yardi Matrix, March 2026; NYC HPD 467-m program page and RPTL 467-m; D.C. Code 47-860.01 to 47-860.04 and DMPED Housing in Downtown deck, October 2025; City of Chicago Department of Planning and Development, LaSalle Corridor, and City of Chicago press releases, May 2023; City of Boston program announcements and BPDA application; mass.gov Commercial Conversion Tax Credit Initiative NOFA; LA City Planning, Adaptive Reuse; National Park Service, Historic Preservation Tax Incentives application process; HUD MAP Guide (2021 revision), Chapter 7 and Appendix 7A; IRC 42(m)(1)(A)(iii); North Carolina Housing Finance Agency 2024 QAP Appendix A; Ohio Housing Finance Agency LIHTC underwriting guidelines; Gensler, office-to-residential and office-to-hotel analyses and ULI Urban Land reporting; California DGS Adaptive Reuse Study, January 2024; HR&A and SPUR, Downtown San Francisco Office Conversion Study, 2023; Brookings Metro, A community guide to office-to-residential conversion, Part 1; Bisnow reporting on Boston, 2025; Chicago YIMBY and Block Club Chicago reporting on LaSalle projects, 2024 to 2026; NYC Department of City Planning, Office Reuse Task Force appendix, November 2022; 13 CFR 120.131; 7 CFR 5001.105, 5001.118 and 5001.304; USDA Rural Development CF health care chart, November 15, 2018.