Affordable Multifamily Real Estate: Repurposing Outdated and Unused CRE Properties
Updated: Apr 14, 2021
The commercial real estate landscape is changing. Investors now have the opportunity to purchase outdated or unused CRE properties and use them to create affordable housing opportunities. With a national affordable housing crisis exacerbated by the pandemic, this could be the perfect chance to invest in the future of American cities.
The American Affordable Housing Crisis
We face an unprecedented affordable housing crisis in this country. According to the National Low Income Housing Commission (NLIHC), the U.S. needs about 7.2 million more affordable housing units to meet demand. Currently, only about 35% of extremely low-income families and 55% of low-income families have access to affordable housing. Of those, many are rent-burdened, meaning their housing costs comprise more than 30% of their total income. In fact, one out of every five renters is extremely rent-burdened, spending 50% of more of their income on housing costs.
The bottom line: rent is rising, more people than ever need affordable housing, and there is a drastic shortage. Consequently, some 500,000 people are homeless each night in America. For investors, these statistics represent an opportunity to create safer, more equitable communities. Investing in affordable multifamily real estate not only generates reliable income, but it also improves the lives of those needing safe and secure housing.
Coronavirus and the Housing Market
The pandemic has changed the multifamily real estate landscape. Commercial real estate as a whole is shifting, with office buildings, hotels, and retailers experiencing drastic declines while industrial real estate and warehouses are thriving. The multifamily sector has seen mixed impacts from the COVID-19 pandemic. Tenants in the major metropolitan areas, like San Francisco and New York, are leaving for the suburbs. With interest rates at a near all-time low, many families are taking this opportunity to purchase homes rather than rent. However, most multifamily property owners – particularly those outside the larger cities - report little to no change in their overall occupancy rate and income. Multifamily real estate remains a solid investment.
Multifamily Real Estate Investing
Commercial real estate investors and property managers have a unique opportunity during this pandemic. As the economic impacts continue to mount, more and more office buildings, retail centers, and other commercial properties are losing tenants. Therefore, investors can purchase these properties and repurpose them as multifamily real estate.
These investments would benefit not only the investor but also the community as a whole. These buildings can be repurposed as affordable housing in some areas, helping local families and the local economy.
Furthermore, tax incentives in Opportunity Zones have created incredible earning potential for investors who purchase or repurpose commercial real estate in low-income areas.
Repurposing Other Commercial Properties for Use As Multifamily Real Estate
Abandoned buildings aren’t the only commercial properties being repurposed as multifamily real estate. Older buildings are also popular among investors for use as both affordable and luxury housing. In the past 70 years, some 2,000 historic properties across the U.S. have been repurposed as multifamily housing (Source: https://www.rentcafe.com/blog/apartmentliving/yesterdays-factories-todays-apartments-70-years-of-building-conversions-in-the-u-s/). Around 65 percent of these properties were converted into low-income housing. Investors and developers have repurposed a variety of commercial properties:
Hotels and other short-term rental properties are a perfect example of this pandemic’s silver lining. With the hospitality industry in trouble, many hotels now face foreclosure. Investors can use this opportunity to purchase failed hotels and transform them into affordable apartments or lofts. Hotels are perhaps the most manageable commercial property to repurpose as multifamily real estate. The footprint is already established for bedrooms, bathrooms, and kitchenettes, so construction only requires knocking down walls to create larger individual spaces. In addition, the lobby makes a perfect office for the property management team.
The pandemic transformed the way Americans work. With so many employees working remotely – and concerns about the health and safety of offices growing – office buildings face an economic crisis. These properties are ideally located and suited for multifamily real estate conversions. In the past decade, developers have increasingly purchased office buildings and repurposed them into both affordable and luxury multifamily properties.
Historic school buildings are another excellent option for affordable multifamily housing. These buildings are centrally located, and many are abandoned. However, investors and developers can use the existing footprint to create studio or one-bedroom apartments, giving housing options to hundreds of families in the area.
Outdated medical centers represent another option for multifamily real estate investors and developers. One report found that about 79% of all repurposed medical buildings were transformed into affordable housing. Like hotels and office buildings, most medical centers are perfectly suited for apartments and multifamily housing.
The Coronavirus pandemic highlighted our need for safe and affordable housing. Investors have a unique opportunity to purchase failing commercial real estate and transform these properties into housing for the most vulnerable populations.
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