Banking Crisis Could Limit Office-to-Residential Conversion Loans


The current banking crisis could make the tricky task of turning office buildings into housing even tougher since lenders could be wary about issuing loans for residential conversions amid more scrutiny from regulators, according to a panel of experts convened Thursday by the nonprofit Volcker Alliance and the University of Pennsylvania

Since the government takeover of New York regional lender Signature Bank, federal regulators have cracked down on other banks’ lending, which could herald a slowdown in their willingness to finance the pricey conversion of office properties into housing, said Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia University.

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“I think [banks] are going to face increased regulatory pressure and supervision, even if nothing else goes wrong in the financial markets from here on out,” Nieuwerburgh said. “They are going to be very prudent and they are going to tighten the screws on credit to commercial real estate.”

Signature — one of the largest lenders of commercial real estate loans in the city — was shuttered in early March by regulators who worried it could destabilize the economy earlier. While Signature’s collapse was mainly fueled by its exposure to cryptocurrency and the demise of the tech-focused Silicon Valley Bank (SIVBQ), the Federal Reserve previously warned banks about their exposure to commercial real estate debt given the sector’s downturn, Crain’s New York Business reported. 

That increased scrutiny over commercial real estate lending comes as high interest rates have already made it more difficult to fund conversion projects, Nieuwerburgh said. But office-to-residential transformations were already on shaky ground.

Not every office property can easily be turned into housing, and some experts estimated that fewer than 10 percent of vacant offices in major markets will be in locations suitable for conversions.

The city stepped in to offer a tax break to developers in the early 1990s to spur office-to-residential conversions. Experts at the panel said the government would need to reimplement subsidies given the current economic environment.

“Facilitating innovation, creativity and, yes, deals between the private sector and existing landowners is critical,” Amy Cotter, the director of climate strategies for the nonprofit Lincoln Institute of Land Policy, said. 

Maria Torres-Springer, New York City’s deputy mayor for economic and workforce development, said at the panel that the city is committed to easing regulations for conversions with the hope of creating up to 20,000 new homes over the next decade. 

“That’s tens of thousands of New Yorkers who would have access to new homes if we facilitated this type of conversion,” Torres-Springer said. “This is a model for what public-private partnership needs to look like, and it’s what’s needed given the crises that we are seeing in this city.”

Mayor Eric Adams proposed a rezoning of Midtown to allow for more developers to turn offices into apartments, and the state budget could include a property tax break to help fund them. Swapping out offices for homes could bring more tax revenue into city coffers because office property values will likely fall even further while residential properties will maintain their value, Nieuwerburgh said.

“This is a win-win for the public and the private sector,” Nieuwerburgh said. “We turn the corner and start building much-needed housing. At the same time, the government will generate a lot more tax revenue from this because the tax revenue is going to be falling dramatically on these old office buildings that are losing value.”

Celia Young can be reached at