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That's the biggest issue once you get to conversion. Before conversion? The two biggest obstacles are: * Commercial mortgages make it nearly impossible to cha

That's the biggest issue once you get to conversion. Before conversion? The two biggest obstacles are: * Commercial mortgages make it nearly impossible to change a property in this manner, so you're usually limited to buildings owned free and clear. * In most cities, zoning/planning would push back on this; I suspect the most interesting part of the Texas story is how they routed around that.

simfree 4y ago
Zoning generally can be modified either by the local planning department, or by ballot measure.
- dan-robertson 4y ago
  In practice it seems very hard to make such changes happen in US cities. I think Texas doesn’t really do zoning the same way so there’s not so much of an issue.
chii 4y ago
> Commercial mortgages make it nearly impossible to change a property in this manner that's a contractual issue, rather than an engineering issue. This can be fixed with a stroke of the pen.
- gwbrooks 4y ago
  They can - but that requires both parties to the contract to agree on modification. If I'm a bank holding a commercial mortgage, it's very finely honed to minimize my risk; as part of that, I contractually limit what can be done with the building. Why would I, as a lending institution, throw that security away for something much riskier? If the emptying out of commercial buildings that we saw during the pandemic accelerated, that might have provided the incentive. But it seems like that trend line isn't going to continue in force. I think converting high density commercial properties to residential is a great idea in a lot of cities. But ultimately it's going to be done almost exclusively in buildings that are mortgage free.
  - ThrustVectoring 4y ago
    Far more likely than a mortgage modification is a straightforward sale of the property to new ownership (who then goes on to refurbish as residential and sell or lease the units). The banks have a specific dollar amount that pays off their obligation in full, at which point it's the buyer's problem (and their financing).
  - positr0n 4y ago
    Instead if changing the terms, couldn't the owner of the building refinance with a new bank that does residential property mortgages?
  - conductr 4y ago
    > ultimately it's going to be done almost exclusively in buildings that are mortgage free. Not at all. Your commercial mortgage lender will always help you increase the productivity of your asset. Phone call. Excel docs. Talk terms. Lawyers. Done. If you don't know this, nobody loaned you $#,#00M and you'll never need this advice
    - chubs 4y ago
      Thank you! Good to see a bit of that can-do attitude here :) Lots of things are possible if you assume the other guy wants to help, and ask!
bobthepanda 4y ago
The other issue is that a 20-30% vacancy rate still means you need the other 70% of tenants to leave, and commercial leases are multiyear affairs.
tialaramex 4y ago
In the UK the change in need has for years (ie even before COVID) driven planning changes so that it's easy to get an OK to convert say an office building into residential. The results definitely vary, between "This is legal but nobody should have to live like this" (e.g. far too much light from floor to ceiling windows in some rooms while others are dark, not enough bathrooms, poor heat and noise insulation) to actually rather nice places to live. Most tend to be rental units for young people, rather than family homes, but it all helps. Where bureaucrats actually get to just make the decisions at a high level, rather than everything being second guessed by NIMBYs it's just really obvious what you have versus what you need. If you know your city has an inventory of empty mid-size office buildings sat on the market for months, yet apartments within walking distance of the city centre go for crazy money, it's a no brainer to authorise conversions. Whereas if the last office building was snapped up an hour after going on the market, while residential sales are crawling, a conversion from office to residential is nonsense, tell them to go away.
- gnfargbl 4y ago
  There are a few conversions like this where I live (also in the UK) and I agree that the results definitely do vary. Where the conversion is in the heart of the city, it seems to work pretty well -- sometimes even better than knocking down and rebuilding, because the existing offices usually have stand-off space around the building that would be lost in a high density redevelopment. And from an environmental perspective, keeping all of that 1950s/1960s poured concrete in place has got to be a good thing. What really doesn't work is the partial conversion of offices on industrial/commercial parks out of town. It seems to lead to completely incongruous buildings, dumped essentially in the middle of parking lots, without basic amenities such as verges and pavements. Those buildings tend to be flimsy, and it's hard to see the environmental argument for keeping them. I would rather see those sites razed and rebuilt as better quality housing.
- LightG 4y ago
  I've seen many situations where: 1) Office building and space is in demand but the market rate is much lower than the residential rate. 2) The owner of the office building will 'pretend' there is no interest in the property (sometimes for more than a year), so they can plead to the planners that they want to convert th building to residential. The planners authorise the conversion and the owners make a tonne of dough. There is no free market in real estate.
fuzzfactor 4y ago
In the "old" part of Houston there is no zoning. 2016 Main was converted from a hi-rise motel into condos years ago, they are pretty nice but there is always the feeling that it's not a complete domestic environment. At least the plumbing was there. There's a couple more of these nearby that were left over from the oil crash of the 1980's, which were eventually abandoned after years of reduced energy travel. Looks like one of them has been gutted recently and might be under conversion now.

simfree 4y ago

Zoning generally can be modified either by the local planning department, or by ballot measure.

dan-robertson 4y ago
In practice it seems very hard to make such changes happen in US cities. I think Texas doesn’t really do zoning the same way so there’s not so much of an issue.

chii 4y ago

> Commercial mortgages make it nearly impossible to change a property in this manner that's a contractual issue, rather than an engineering issue. This can be fixed with a stroke of the pen.

gwbrooks 4y ago
They can - but that requires both parties to the contract to agree on modification. If I'm a bank holding a commercial mortgage, it's very finely honed to minimize my risk; as part of that, I contractually limit what can be done with the building. Why would I, as a lending institution, throw that security away for something much riskier? If the emptying out of commercial buildings that we saw during the pandemic accelerated, that might have provided the incentive. But it seems like that trend line isn't going to continue in force. I think converting high density commercial properties to residential is a great idea in a lot of cities. But ultimately it's going to be done almost exclusively in buildings that are mortgage free.
- ThrustVectoring 4y ago
  Far more likely than a mortgage modification is a straightforward sale of the property to new ownership (who then goes on to refurbish as residential and sell or lease the units). The banks have a specific dollar amount that pays off their obligation in full, at which point it's the buyer's problem (and their financing).
- positr0n 4y ago
  Instead if changing the terms, couldn't the owner of the building refinance with a new bank that does residential property mortgages?
- conductr 4y ago
  > ultimately it's going to be done almost exclusively in buildings that are mortgage free. Not at all. Your commercial mortgage lender will always help you increase the productivity of your asset. Phone call. Excel docs. Talk terms. Lawyers. Done. If you don't know this, nobody loaned you $#,#00M and you'll never need this advice
  - chubs 4y ago
    Thank you! Good to see a bit of that can-do attitude here :) Lots of things are possible if you assume the other guy wants to help, and ask!

bobthepanda 4y ago

The other issue is that a 20-30% vacancy rate still means you need the other 70% of tenants to leave, and commercial leases are multiyear affairs.

tialaramex 4y ago

In the UK the change in need has for years (ie even before COVID) driven planning changes so that it's easy to get an OK to convert say an office building into residential. The results definitely vary, between "This is legal but nobody should have to live like this" (e.g. far too much light from floor to ceiling windows in some rooms while others are dark, not enough bathrooms, poor heat and noise insulation) to actually rather nice places to live. Most tend to be rental units for young people, rather than family homes, but it all helps. Where bureaucrats actually get to just make the decisions at a high level, rather than everything being second guessed by NIMBYs it's just really obvious what you have versus what you need. If you know your city has an inventory of empty mid-size office buildings sat on the market for months, yet apartments within walking distance of the city centre go for crazy money, it's a no brainer to authorise conversions. Whereas if the last office building was snapped up an hour after going on the market, while residential sales are crawling, a conversion from office to residential is nonsense, tell them to go away.

gnfargbl 4y ago
There are a few conversions like this where I live (also in the UK) and I agree that the results definitely do vary. Where the conversion is in the heart of the city, it seems to work pretty well -- sometimes even better than knocking down and rebuilding, because the existing offices usually have stand-off space around the building that would be lost in a high density redevelopment. And from an environmental perspective, keeping all of that 1950s/1960s poured concrete in place has got to be a good thing. What really doesn't work is the partial conversion of offices on industrial/commercial parks out of town. It seems to lead to completely incongruous buildings, dumped essentially in the middle of parking lots, without basic amenities such as verges and pavements. Those buildings tend to be flimsy, and it's hard to see the environmental argument for keeping them. I would rather see those sites razed and rebuilt as better quality housing.
LightG 4y ago
I've seen many situations where: 1) Office building and space is in demand but the market rate is much lower than the residential rate. 2) The owner of the office building will 'pretend' there is no interest in the property (sometimes for more than a year), so they can plead to the planners that they want to convert th building to residential. The planners authorise the conversion and the owners make a tonne of dough. There is no free market in real estate.

fuzzfactor 4y ago

In the "old" part of Houston there is no zoning. 2016 Main was converted from a hi-rise motel into condos years ago, they are pretty nice but there is always the feeling that it's not a complete domestic environment. At least the plumbing was there. There's a couple more of these nearby that were left over from the oil crash of the 1980's, which were eventually abandoned after years of reduced energy travel. Looks like one of them has been gutted recently and might be under conversion now.