Proptech Firms See Opportunity in Federal Sweeteners for Conversions

The government’s hope is that through new financing, technical assistance and the sale of federal properties, its proposals will spur affordable, energy-efficient housing conversions near transit and jobs, while reducing greenhouse gas emissions, nearly 30 percent of which come from the building sector.

While some proptech founders are eagerly looking forward to the development opportunities and accompanying work such funding could produce, they admit the roadmap to get there is complicated and uncertain.

“One thing I noticed very quickly was, this is really confusing,” Steve Shpilsky, founder and CEO of Stay Open, a Venice Beach, Calif.-based pod hotel company that converts commercial spaces into hospitality venues, said after reading the administration’s 54-page plans. “It’s like, where do I start? Who do I even talk to?”

The issue for developers wanting to tap into the funding is, “Where would one even go to say, ‘I’ve got a building and I want to convert it, and I want to see everything from what types of cost-effective, federally-backed loans exist all the way through to what are the various energy efficiency subsidies or financing pools out there?’ ” said Shpilsky.

Shpilsky would like clarity from a proptech perspective, too. A developer looking to convert a commercial property should simply be able to input what they have and be provided with the program’s best financing options.

“As it is right now, the document has several programs and there’s dozens of links,” Shpilsky said. “You just follow each one, and then it’s like you get lost. I think it’s great that the tools are out there, but now we need private industry to come up with an efficient way of matching the programs and capital to the actual projects so that things actually get done, and this money, like so many times with the government, doesn’t just end up sitting there. Utilizing these resources could be very powerful for affordable and sustainable adaptive reuse.”

William Sankey, CEO of Northspyre, a cloud-based software company for developers, also sees potentially great opportunities in the government funding options.

“I definitely think across our industry everyone is pretty excited, because developers are having a harder time getting financing on projects,” said Sankey, who prior to starting Brooklyn-based northspyre worked in New York City commercial development at Madison Realty Capital. “So that $35 billion around transit-oriented developments, along with the HUD grants of about $10 billion, and the series of other programs — at least when that money starts flowing — definitely will help.

“It’s a bit of a win-win,” Sankey added. “They’re not necessarily saying you have to go put these in a location that doesn’t have market demand. They’re saying, ‘Hey, put these in pretty prime locations where there’s interest already.’ I think a lot of developers are pretty eager for that. I can’t say there’s an impact yet, but I do think, as we look into the year, I expect some positive things.”

Potential greater demand for Northspyre’s technology stemming from increased funding for housing conversions can be found in the work of one of the company’s clients. Velocity Property Management (VPM) in Washington, D.C., is converting two vacant office buildings into condos at 2626 Pennsylvania Avenue NW, a 31-unit condo project replacing a former Salvation Army headquarters, and at 720 North Saint Asaph Street, a conversion project in nearby Alexandria, Va. VPM is using Northspyre to track project costs and to generate real-time reports for financial stakeholders.

Stay Open’s Shpilsky sees a possible nexus between the government’s inducements and his startup’s nascent interest in addressing the widespread student housing crisis. While a significant amount of student housing is being built around the country, it’s by no means affordable, said Shpilsky.

“Student housing is more hospitality-like than traditional residential or multifamily residential, because you have a student turnover every 10 months or so,” he noted. “But you have to keep things going on in the building, so it’s a little closer to the hospitality side of management. It’s more management-intensive than your typical multifamily residential projects. And, there’s empty buildings around these campuses, empty office buildings, and one of our initiatives this year is to see if we can make some of these buildings into student housing.

“There is one project by UCLA that we’re looking at that’s an office building to student housing conversion,” Shpilsky said. “It’s a hybrid between what we do with Stay Open as a pod hotel and student housing. I thought that may be something that qualifies for some of these programs.”

In addition, Shpilsky has noticed that a number of foreign students have come into Los Angeles colleges and universities for medium-term stays while they’re attending language school. Housing for such short stays is often not an option. 

“There are kids that sleep in their cars who are attending these major universities all over the United States,” he said. “The more urban a school is, the more challenging housing is, especially for underserved communities or first-generation college students. So, while you may get an academic scholarship to attend USC or UCLA, housing is still cost prohibitive. You end up sleeping in your car in a parking lot and using the school’s fitness facilities [to clean up].”

Philip Russo can be reached at prusso@commercialobserver.com.