Downtown Stamford as seen from a platform at the Stamford Transportation Center. (Courtesy Photo / Public Domain / DBen)
As part of a $100 million package of incentives to help communities remove their barriers to affordable housing production, the Biden administration announced a pair of much-maligned below-market loan program for office-to-residential conversions are getting a revamp.
The two loan programs, run by the federal Department of Transportation and aimed at spurring transit-oriented development, were initially touted by the White House as important capital sources for developers trying to make downtown office conversions pencil amid steep financing and construction costs.
But the Transportation Infrastructure and Finance Innovation Act (TIFIA) and Railroad Rehabilitation & Improvement Financing (RRIF) programs, which together can inject up to $35 billion into conversions, came with a slew of red tape including extensive environmental impact studies more typically associated with billion-dollar rail projects. According to reporting by Bloomberg, the requirements led to 18- to 24-month turnaround times on loan approvals instead of the normal two- to three-month commercial real estate loan underwriting period. Combined with sizable – and nonrefundable – deposits required just to submit an application, few if any developers jumped on board.
On Tuesday, the Biden administration issued new rules saying that both TIFIA and RRIF loans for office-to-residential conversion projects “may be eligible” to skip lengthy National Environmental Policy Act, or NEPA, reviews. Projects must be within a half-mile of a transit station, can’t expand the footprint of the building and can’t “modify other facilities” according to an updated “frequently asked questions” webpage on the DOT website.
TIFIA loans can be used to refinance existing debt as part of conversion projects, and both TIFIA and RRIF loans can serve as permanent, take-out financing for construction loans. TIFIA loans must be at least $10 million in size and can cover up to 49 percent of eligible project costs; RRIF loans can cover up to 75 percent of total project costs. Neither program has a maximum loan size and both can have ultra-long-dated maturities – up to 75 years but “will likely be shorter, e.g., 35 years post substantial completion,” the FAQ states.
While the changes don’t mean the loans will have the same short turnaround that accompanies normal development financing, the White House promises that the time to close the loan will be under 12 months under the new rules. A webinar is planned Aug. 27 to provide more information.
It remains to be seen if the program changes will create opportunities to deal with the vacant-office conundrum afflicting downtowns in Stamford, Hartford and other Connecticut cities.
While office-to-residential conversions have been popular in Hartford in recent years, the pandemic took a hammer to the city’s downtown office market. And while the Greater Hartford office vacancy rate has dipped slightly for two successive quarters, according to Cushman & Wakefield research, the downtown’s overall vacancy rate still ended June at 35 percent after seeing just under 20,000 square feet of negative absorption for the quarter and over 30,000 square feet of it year-to-date.
Downtown Stamford’s office sector, in the doldrums since the Great Recession, is still dragging 2.16 million square feet of vacant or subleasable office space around, for a total vacancy rate of 26.8 percent according to Cushman & Wakefield. It, too, saw negative absorption in the second quarter, to the tune of 45,487 square feet. A
