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Office Buildings Repurposed as Affordable Housing

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Fall 2023   

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Office Buildings Repurposed as Affordable Housing

Highlights

      • Historic tax credit and tax abatement programs facilitated the conversion of one of Kansas City’s most problematic vacant office buildings to affordable housing.
      • Reuse of the Lanahan Building in Baltimore involved several interventions, including preserving the historic front façade and designing floorplans that accommodate existing structural elements.
      • These two office conversions are examples of the interplay among building conditions, the regulatory environment, and local incentives that support downtown revitalization.


With the COVID-19 pandemic changing longstanding patterns of living and working, several U.S. cities are promoting the conversion of vacant and underutilized office buildings to residential use to boost their housing supply and revitalize their downtowns as mixed-use neighborhoods. Even before the pandemic, however, the adaptive reuse of underused office buildings was prevalent in many downtown markets. Although office-to-residential conversions offer cities several advantages, they can also present challenges depending on the building form, local market conditions, land use regulations, and the availability of public subsidies and incentives. These challenges can be particularly acute for conversions to affordable housing. This article examines office-to-affordable-housing conversions in Kansas City, Missouri, and Baltimore, Maryland, which, as of 2020, were among the 10 U.S. cities with the most adaptive reuse projects resulting in residences. In these two cities, office buildings were most often the buildings being converted.1 In Kansas City, the Professional Building was renovated in 2006 to create 132 units of affordable housing. The six-story Lanahan Building near Baltimore’s Inner Harbor, which was constructed in 1906, was converted to affordable housing during the pandemic.

A tall multistory building with a shorter annex building.
The historic 16-story Professional Building in downtown Kansas City, which was constructed in 1929 as a medical building for doctors and dentists, was repurposed as a 132-unit affordable apartment building. Photo Credit: Manginelli Productions

Office-to-Residential Conversion in Kansas City

Kansas City has undergone several stages of downtown revitalization efforts since the 1950s, and the city has seen $5.2 billion in new development between 2000 and 2010. During this time, adaptive reuse projects became a significant component of these revitalization efforts as Class B and C office buildings were converted to residences.2 In 2006, one vacant downtown building, the Professional Building, was converted to affordable housing by The Alexander Company (TAC), a Wisconsin-based developer that specializes in affordable housing and historic preservation.3

While searching for new business opportunities, officials from TAC scheduled exploratory visits with stakeholders in Missouri’s two most populated cities, Kansas City and St. Louis, to learn which obsolete buildings concerned them the most.4 The 16-story Professional Building, standing vacant and blighted on a principal downtown street, was one of the buildings that Kansas City officials identified as a priority for conversion.5 This building, constructed in 1929, was vacated in 1991 and had fallen into disrepair. The city issued numerous code violations and eventually declared the building dangerous.6

TAC acquired the building in 2004 and began converting it into Professional Building Lofts with apartments and commercial spaces.7 Despite its poor physical condition, TAC saw several advantages in the old office building. The building, which is listed in the National Register of Historic Places, in part because of its architectural significance as one of the first Modernist-style buildings in Kansas City, has two distinguished street façades. Stone piers rising to the crenelated parapet dramatically accentuate the building’s full height. Bas-relief carvings of geometric shapes on the piers and between them under the bands of windows enhance the building’s curb appeal. The windows run the length of the building’s façade, set between the piers in pairs and triplets, flooding the interiors with ample light. 8

According to Kendra Bishop, director of marketing and public relations for TAC, the building was vacant, so financing and construction could begin without waiting for existing tenants’ leases to expire. In addition, the layout of the building was conducive to residential conversions.9 Like most office buildings constructed in the early 20th century, the Professional Building had a relatively small floor plate measuring 96 feet by 118 feet. Unlike modern buildings with larger floor plates, which must supplement exterior wall windows with costly lightwells to meet building code requirements for light and ventilation, older buildings such as the Professional Building can often meet code requirements using existing windows, simplifying their conversion to apartments. Furthermore, because multifamily residences were already allowed by right, TAC did not need to undergo a costly rezoning process.10

Interior of an apartment showing the kitchen with three large windows.
The apartments in Professional Building Lofts, which are affordable to residents who earn less than 60 percent of the area median income, have full kitchens and laundry rooms. Photo Credit: Manginelli Productions

The renovated Professional Building Lofts offers 132 apartments above 11,000 square feet of first-floor commercial space.11 The apartments are reserved for households making up to 60 percent of the area median income (AMI), except for 2 units that serve households earning up to 50 percent of AMI. Seventy-two of the units have one bedroom, and the remainder have two.12 All units have a full kitchen with stainless steel appliances and a laundry room. The building also offers a community room, rooftop terrace, and fitness center. The first-floor commercial space is partially occupied by a restaurant and law firms. Residents are within easy walking distance of jobs, services, and amenities.13 The city’s three high-frequency, bus rapid transit routes and several local bus routes stop in front of the building, and the KC Streetcar is two blocks away.14

The conversion of Professional Building Lofts cost more than $21 million (approximately $32 million in 2023 dollars), nearly one-third of which was financed through federal and state low-income housing tax credits (table 1).15 A similar amount came from federal and state historic tax credits, which required TAC to preserve the building’s façade.16 The federal Historic Rehabilitation Tax Credit program allows developers who rehabilitate certified historic structures to claim a tax credit equivalent to 20 percent of eligible costs if they meet the Secretary of the Interior’s Standards for Rehabilitation.17 Missouri’s Historic Tax Credit program, which was one of the first state-level equivalents to the federal program, gives investors a credit equal to 25 percent of eligible costs.18 Financing for the development also included funds from the HOME Investment Partnerships Program provided through the Kansas City Missouri Homesteading Authority and tax-exempt bonds from the city’s Industrial Development Authority.19 In addition to this permanent financing, the city’s Planned Industrial Expansion Authority granted Professional Building Lofts a property tax abatement. The abatement, authorized by Missouri’s Chapter 353 program to encourage the redevelopment of blighted properties, was granted for 25 years.20


Table 1: Financing for Professional Building Lofts

Federal low-income housing tax credit equity $5,700,000
State low-income housing tax credit equity $1,800,000
Federal historic tax credit equity $4,390,000
State historic tax credit equity $2,900,000
Industrial Development Authority tax-exempt bonds $4,900,000
HOME Investment Partnerships Program financing $535,000
Deferred developer fee $815,000
Total $21,040,000

TAC executives believe reuse projects can help create affordable housing and activate city streets, but they note some difficulties. The company currently has trouble finding office buildings that are fully vacant. Chris Qualle, director of design and construction for TAC, notes challenges in making older buildings accessible or bringing them up to code, such as remodeling older staircases, which often are narrower and steeper than current codes allow.21 Qualle and Dave Vos, a development project manager for TAC, also say that most office buildings constructed since the 1960s have larger floor plates that make conversion to residences more difficult. Furthermore, Vos says that zoning requirements can hinder development, although he has noticed that cities are reducing their parking requirements because automobile use in downtowns is generally lower than in the suburbs. Vos also believes that more cities should offer property tax abatements for historic rehabilitation projects, especially those for affordable housing, and he suggests that local governments expedite the permitting process for adaptive reuse projects.22

A tall multistory building with a parking lot in the foreground and other multistory buildings around it.
Professional Building Lofts is located near jobs, amenities, services, and public transportation options. Photo Credit: Manginelli Productions

Downtown Resurgence

The Professional Building Lofts’ opening in 2006 catalyzed downtown growth, according to Bishop. In subsequent years, downtown Kansas City saw significant investment, including a new stadium and new corporate headquarters for H&R Block.23 Throughout the 2010s, the city’s downtown also saw a significant increase in residents, netting more than 4,000 new households through both new construction and rehabilitated housing. These projects, including conversions of offices to residences, continued to benefit from state historic tax credits, property tax abatements, and favorable downtown zoning regulations.24 The city has also established a housing trust fund and created a department of housing and community development to facilitate affordable housing projects. In addition, the city offers floor area and building height bonuses and requires inclusionary housing in developments that benefit from city financial incentives.25

Repurposing Office Space in Baltimore

High office vacancy rates and increased demand for multifamily housing have made the adaptive reuse of downtown office buildings in Baltimore increasingly common in the 2020s. In 2022, Baltimore added nearly 400 new apartments through office-to-residential conversions, the third-highest number of conversions in the nation.26 One such conversion project is the 1906 Lanahan Building, which originally was the headquarters and distillery for a whiskey company and later served as the Baltimore Oriole Cafeteria.27 In 2018, the building’s owner proposed an off-market sale to Osprey Property Company, a local developer that specializes in constructing new affordable housing.28

Front façade of a six-story brick building with large framed windows.
The conversion of the Lanahan building included preserving the windows and ornamental features of the building’s historically significant front facade. Photo Credit: 2 West Photography

In January 2020, Osprey purchased the 6-story building to convert it into a 40-unit affordable housing development.29 The renovated building, renamed 22 Light Apartments, opened to residents in June 2021.30 Thirty-six of the units are available to residents earning up to 30, 50, or 60 percent of AMI, and the remaining units rent at market rate.31 The units, ranging from 650 to 1,050 square feet, have one to three bedrooms, a living and dining area, and a kitchen with energy-efficient, stainless steel appliances. Common amenities include a community room, business center, fitness center, and laundry room.32 Rooftop solar panels reduce utility costs in these common areas.33 The ground level has two street-facing retail spaces, one of which is occupied by a convenience store.34

As the company’s first conversion of a nonresidential building into residences, 22 Light Apartments expanded Osprey’s portfolio into a new category of construction and presented a challenge. Tyler Grote, executive vice president of Osprey, says that the company had to assemble design and construction leaders who understood that this project required close teamwork and a willingness to learn as the project progressed.35

22 Light Apartments is a contributing building in the city’s Business and Government Historic District, which is listed in the National Register of Historic Places, and its rehabilitation had to follow the Secretary of the Interior’s Standards for Rehabilitation. Osprey coordinated with the Maryland Historical Trust to preserve the detailing and character of the façade and alter it as little as possible. Joe Ijjas, senior associate for Soto Architecture and Urban Design and lead architect for the project, says that his firm accomplished this goal by cleaning and repairing the façade details and retaining the large wood-framed windows. To improve the energy efficiency of the existing windows, the developer installed storm windows inboard of the original windows while replacing the windows on the other façades with modern, energy-efficient windows. 36

Inside the building, the developer demolished the original bathrooms at the center of each floor and removed the old office walls to accommodate modern apartments. Some of the building’s interior features were repurposed; for example, the developer used an old elevator shaft in the middle of the building to run ductwork, wires, and cables to each floor. Another feature required a more significant workaround: a load-bearing, 3-foot-thick masonry wall with limited openings that bisects the building. The wall, which extends through all six stories, along with the completely windowless south façade, limited both natural light penetration into the building and layout options for the apartments. The project team needed to cut a 10 foot by 20 foot lightwell into an exterior wall to admit natural light into the units on each floor. Without the lightwell, and with the structural interior wall, Ijjas says, “you basically had a third of the building that would have had a really hard time getting more than two small units on each floor.” 37

Apartment kitchen and dining area with living room seating in the foreground.
All but four units in 22 Light Apartments are reserved for households earning up to 60 percent of the area median income. Photo Credit: 2 West Photography

One of the project’s bigger challenges was that the office space was partially occupied by tenants, which delayed testing for asbestos contamination and structural soundness until the purchase was finalized. In March 2020, COVID-19 restrictions halted construction, which was able to resume shortly afterward once health protocols were enacted. Fortunately, the pandemic-related delays in the supply chain felt by many in the industry were not a major issue during the conversion.38

Affordable Downtown Apartments

The project’s location offered several advantages, according to Grote. The building is in a zoning district that created no significant constraints: multifamily residential development is allowed, and no off-street parking is required. The building is in one of the city’s most transit-friendly areas, with easy access to the subway and light rail systems as well as several bus routes.39 The apartments are also close to two regional rail stations, one of which is served by Amtrak. Residents are a short walk from grocery stores, pharmacies, healthcare providers, restaurants, and other services. Popular attractions such as the Inner Harbor, National Aquarium, Oriole Park at Camden Yards, and the M&T Bank Stadium are also within a 15-minute walk.

Two-thirds of the $21 million development cost for the conversion came from low-income housing tax credit (LIHTC) equity (table 2). The state and the city also provided loans, the latter of which was from the HOME Investment Partnerships Program.40 The loans were competitive, although Grote says those awards quickly followed the LIHTC award. 41


Table 2: Funding for 22 Light Apartments

Federal LIHTC equity $14,250,000
Baltimore City Department of Housing and Community Development loan $1,000,000
Maryland Department of Housing and Community Development loan $2,000,000
Private bank loan $3,000,000
Total $20,250,000

Floor plan of 22 Light Apartments.
22 Light Apartments’ development team inserted a light well on the building's windowless southern facade (bottom) that provides natural light to rooms in two apartments on each floor. Photo Credit: Soto Architecture & Urban Design

Downtown Revitalization

Grote says the city appreciated the needed affordable housing, which not only brings workers and customers for nearby businesses but also contributes to the vitality of downtown.42 Downtown Partnership of Baltimore (DPOB), a nonprofit that promotes the downtown’s community and economic development, considers rapid residential growth the top priority for downtown, as stated in the organization’s 2011 strategic plan.43 A guiding principle of the plan is that a diverse economy and population are fundamental to a thriving city and that finding new uses for underused buildings is an important component of the area’s revitalization.44 “Downtown needs more residents, and the broader goal to activate downtown post-COVID is to lean in on the residential growth and lifestyle,” says Lauren Hamilton, DPOB’s chief marketing officer. “The development of 22 Light Street is very helpful to the street as a whole.”45 Although 22 Light Apartments is currently one of the only conversions to affordable housing in downtown Baltimore, other adaptive reuse projects with low- and moderate-income housing are under construction.46 A city-owned property is being converted into 62 apartments.47 Two former hotel towers near the Inner Harbor also will be transformed into 558 apartments in 2024.48 These projects are part of more than $3 billion in new development that has been completed or is under construction in downtown Baltimore since 2018. Additional downtown developments totaling $3 billion are planned.49

Conclusion

In several ways, Professional Building Lofts and 22 Light Apartments exemplify the advantages of converting older office buildings in downtown areas to housing. The buildings’ small footprint and layout simplify their conversion. Both projects benefited from public policies and incentives intended to promote downtown revitalization. Following decades of public-private efforts, the downtown locations of these buildings are walkable, with nearby entertainment, shopping, services, and employment opportunities, and city officials and their partners continue to make these downtowns more attractive places to live, work, play, and learn. Both cities’ zoning ordinances permitted downtown office-to-residential conversions without changing any zoning, density limitations, or additional parking requirements. Federal, state, and local support for the conversions in the form of tax credits and financing supported the buildings’ use as affordable housing. These strategies and supports, along with additional incentives as needed, can be useful tools for other cities needing to increase their affordable housing supply and revive their downtown areas through the adaptive reuse of underutilized office buildings.

Related Information

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    1. Alexandra Ciuntu. 2020. "Yesterday's Factories, Today's Apartments: Adaptive Reuse Projects at All-Time High in the U.S.," RentCafe, 30 September.
    2. Kevin Collison. 2020. "KC a National Leader Converting Old Buildings to Apartments," City Scene KC, 7 October; Information provided by the Economic Development Corporation of Kansas City; City of Kansas City. 2019. "Greater Downtown Area Plan."
    3. The Alexander Company. "Projects" (alexandercompany.com/projects/). Accessed 6 July 2023; Email communication with Kendra Bishop, 2 August 2023.
    4. Email communication with Kendra Bishop, 21 June 2023; "Missouri Cities by Population," Missouri Demographics website (www.missouri-demographics.com/cities_by_population). Accessed 17 July 2023.
    5. U.S Department of the Interior, National Park Service. 1979. "National Register of Historic Places Inventory Nomination Form: Professional Building, Kansas City, Missouri"; The Alexander Company & Elm Street Development. 2017. "The Original Mount Vernon HighSchool: Request for Proposal," 39; Email communication with Kendra Bishop, 21 June 2023.
    6. Kendrick Blackwood. 2003. "A Fines Mess," The Pitch, 20 February.
    7. Jackson County Missouri. "Property Account Summary" (ascendweb.jacksongov.org/default.aspx). Accessed 2 August 2023; Interview with Kendra Bishop and Dave Vos, 21 June 2023.
    8. U.S. Department of the Interior, National Park Service, 2; 3; 5.
    9. Interview with Kendra Bishop and Dave Vos.
    10. Ibid; U.S. Department of the Interior, National Park Service, 2; Email communication with Kendra Bishop, 21 June 2023.
    11. The Alexander Company. "Professional Building Lofts" (alexandercompany.com/projects/professional-building-lofts/). Accessed 17 July 2023.
    12. Email communication with Kendra Bishop, 21 June 2023.
    13. The Alexander Company. "Professional Building Lofts: Amenities" (pblofts.com/amenities/). Accessed 25 June 2023; The Alexander Company & Elm Street Development, 37.
    14. "Maps and Schedules," RideKC website (ridekc.org/routes). Accessed 2 August 2023.
    15. Email communication with Kendra Bishop, 21 June 2023.
    16. Interview with Kendra Bishop and Dave Vos.
    17. Novogradac. "About the Historic Tax Credit" (www.novoco.com/resource-centers/historic-tax-credits/htc-basics/about-historic-tax-credit). Accessed 1 August 2023; U.S. Department of the Interior, National Park Service. "The Secretary of the Interior's Standards for Rehabilitation" (www.nps.gov/subjects/taxincentives/secretarys-standards-rehabilitation.htm). Accessed 1 August 2023.
    18. National Trust for Historic Preservation. 2023. "State Historic Tax Credit Resource Guide," 8–11.
    19. Email communication with Kendra Bishop, 21 June 2023.
    20. Document provided by David Macoubrie, 2 August 2023; Missouri Partnership. "Chapter 353 Tax Abatement."
    21. Interview with Kendra Bishop and Chris Qualle, 25 July 2023.
    22. Ibid; Interview with Kendra Bishop and Dave Vos.
    23. Interview with Kendra Bishop and Dave Vos; The Alexander Company & Elm Street Development, 37–9.
    24. Imagine KC. 2022. "2030 Strategic Plan," 25; Information provided by the Economic Development Corporation of Kansas City; Collison.
    25. City of Kansas City. 2021. “A Vision for Housing: Solutions for Kansas City,” 15; 31.
    26. Andrea Neculae. 2022. "Record Office-to-Apartment Conversions Registered as Adaptive Reuse Apartments Go Up 25% from Pre-Pandemic Numbers," RentCafe, 20 December; Jacques Kelly. 2020. "Affordable Light Street apartments, but no liquor in the basement," Baltimore Sun, 1 February.
    27. Soto Architecture and Urban Design. "22 Light Street: The Final Touches" (www.sotopllc.com/blog/22-light-street-the-final-touches). Accessed 7 July 2023.
    28. Interview with Tyler Grote, 14 June 2023; Kelly.
    29. Interview with Tyler Grote.
    30. Email communication with Tyler Grote, 24 July 2023.
    31. Interview with Tyler Grote.
    32. "Floor Plans," 22 Light Apartments website (www.live22light.com/floorplans). Accessed 7 July 2023; "Amenities," 22 Light Apartments website (www.live22light.com/amenities). Accessed 7 July 2023.
    33. NGBS Green. "NGBS Green Case Study: 22 Light Street," 1.
    34. Interview with Tyler Grote.
    35. Ibid.
    36. Email communication with Joe Ijjas, 2 August 2023; Email communication with Tyler Grote, 1 August 2023.
    37. Email communication with Joe Ijjas.
    38. Interview with Tyler Grote; Email communication with Tyler Grote, 24 July 2023.
    39. Interview with Tyler Grote.
    40. Email communication with Tyler Grote, 14 June 2023.
    41. Interview with Tyler Grote.
    42. Ibid.
    43. "Downtown Partnership of Baltimore," Visit Baltimore website (baltimore.org/listings/downtown-partner-ship-of-baltimore-inc/). Accessed 19 July 2023; Downtown Partnership of Baltimore. 2011. "Downtown Baltimore: The Strategic Plan," 7.
    44. Downtown Partnership of Baltimore, 6–7.
    45. Email communication with Lauren Hamilton, 26 June 2023.
    46. Ibid; Interview with Tyler Grote.
    47. Email communication with Lauren Hamilton; Ed Gunts. 2022. "City sells parcel for Guardian House apartment project, with some units reserved for 'Baltimore City First Responders,'" Baltimore Fishbowl, 26 July.
    48. Email communication with Lauren Hamilton; MacKenzie Commercial Real Estate. "Vivo Living Baltimore," (www.mackenziecommercial.com/property-living-baltimore/search/vivo-living-baltimore/). Accessed 19 July 2023.
    49. Downtown Partnership of Baltimore. 2023. "2022 State of Downtown Baltimore," 12–3.

     

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The contents of this article are the views of the author(s) and do not necessarily reflect the views or policies of the U.S. Department of Housing and Urban Development or the U.S. Government.