PERE reported that while office-to-residential conversion strategies might be trending topically, very few are actually converting. Most change-of-use projects are not economically viable, but falling prices, looming debt maturities and potential government assistance could change that. These high levels of vacancy are not sustainable for office owners, many of whom financed those properties with variable-rate debt, says Josh Zegen, managing principal of New York-based debt fund and private equity firm Madison Realty Capital. Because interest rates have risen significantly in recent years, the cost of servicing debt in today’s market with reduced income has become more difficult for owners. On the other side of that dynamic are the cities within which these properties are located. Zegen explains continued deterioration of office markets will eventually spur government action on the issue. “Tax revenue is going to be majorly impacted if office just completely dies,” he says. “Cities and towns throughout the US need to figure out how to supplement what was once a very significant source of tax revenue, or incentivize developers to do something more, to protect their tax bases.”

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