California’s housing shortage has a new source of aid: conversions from commercial property to much-needed multi-family units.

The adaptation of vacant or underused commercial property, such as hotels and offices, into apartments has become a sustainable option for creating more housing. In the first six months of 2022, Los Angeles took the lead in most apartment conversions — the repurposing of unused commercial space into apartments — with over 1,240 apartment conversions in the first half of 2022, according to RentCafe.

Nationally, California is leading the charge with future conversions in cities such as:

  • Fresno with 1,010 apartment conversions; and
  • Los Angeles with 4,130 apartment conversions.

While this is a minor drop in the bucket in terms of meeting housing needs, these cities are inching towards progress by converting buildings like vacant retail stores and healthcare buildings into apartments, according to RentCafe.

These apartment conversions fall in line with the Middle Class Housing Act of 2022, consisting of legislative initiatives Assembly Bill (AB) 2011 and Senate Bill (SB) 6.

Both bills — beginning July 1, 2023 — encourage builders to transform office and retail commercial spaces into housing units for low- and middle-income Californians. These housing bills require general plans for land development and the compliance to local zoning laws.

Apartment conversions improve the quality of life for Californians on the verge of homelessness and for those already experiencing homelessness. More housing means:

  • fewer Californians on the streets; and
  • more fees available for real estate professionals who earn income from new housing transactions.

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Benefits to repurposing an existing building

With the growing need of more housing, apartment conversions are an opportunity for builders to meet demand and do so at a reduced cost.

New apartment construction is costly as building material shortages continue to cause delays as Californians play catch up after the historic jobs losses of 2020. The commercial-to-residential transformation cuts down the usage of building materials and other huge startup costs.

Additionally, builders don’t have to worry about potential roadblocks typical for new construction such as:

  • site acquisition;
  • zoning laws; and
  • environmental restrictions.

The recycling of an existing building means there’s no need for a demolition, which is known to have a harsh impact on the environment. Though builders may run into financial setbacks from meeting residential health and safety standards due to unexpected hazards, conversion is still a less costly project over a new startup all together.

But, alas, builders aren’t the only ones to benefit from apartment conversions — there’s something in it for real estate professionals too. Builders and real estate professionals are going to need a Plan B as the 2023 recession approaches. For builders, it’s finding less costly ways to meet the growing demand for housing. But for real estate professionals? It may look like supplementing your income from transaction fees by becoming a property manager.

Once these apartment conversions are finished, they’re going to need property managers to keep it running. Property managers may use these converted spaces as apartments or flexible spaces — depending on the local zoning regulation. As a flexible space, landlords may let space to housing residents and businesses, such as retail and restaurants, within the same building.

With the 2023 recession on the horizon, real estate professionals offering a little bit of everything tend to go a long way for residential and commercial tenants.

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