With office vacancies through the roof predominantly due to the abundance of the work from home movement, Washington State is hoping to turn underutilized office buildings into housing. In order to incentivize this for developers, the State of Washington is planning to roll out a new tax incentive for office to housing conversions.
This incentive will allow developers to defer sales and use taxes if they convert existing buildings (including office buildings) into affordable housing.
How does a building qualify?
- Projects must contain at least 10% of what is considered affordable to low-income households.
- The building must be located on what the City considers underutilized commercial property.
- The project must maintain these qualifications for at least 10 years.
Converting office buildings into housing makes sense conceptually, but financially it is difficult to make those projects pencil.
What are the challenges?
There are still several challenges with office to housing conversions including the complex plumbing and HVAC systems plus the floor layouts. Office buildings typically have wide floor plans, which makes it difficult to convert to housing because every housing unit needs a window. This new tax break, however, should conceivably allow developers to be more open to take on some of these major projects.
How will this affect Spokane locally?
The hope is that existing or completed conversions currently being undertaken in Downtown Spokane, such as The 508 West and The Peyton Building, will qualify for this tax exemption. More guidance should follow later in August with exact rules and regulations. Reach out for more information!
SVN Cornerstone Multifamily Team
Jordan Lester, CCIM, MBA joined SVN Cornerstone as a Commercial Real Estate Broker in 2022. Jordan specializes in advising clients with the acquisition and disposition of multifamily investment properties. With a primary focus in Spokane County and an expert understanding of the latest market trends, Jordan is committed to maximizing his client’s financial goals to achieve their real estate objectives. Jordan began his real estate career as a broker’s assistant for three years with SVN Cornerstone, which gave him valuable knowledge and experience to jumpstart his career as a broker. To get in touch with Jordan, email jordan.lester@svn.com or call 509.496.6922