From empty offices to housing? Michigan leaders support bill to fund shift

Lansing is home to about 118,000 people, but just a fraction of them — roughly 2,500 — live downtown.

Boosting that number was a goal of Mayor Andy Schor before the pandemic. Now, facing climbing office vacancy rates as the state of Michigan contracts its leased space, it’s a big priority once again.

“It builds (business) capacity to say we have more people living, working, walking around downtown,” Schor told Bridge Michigan.

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One potential way to accomplish that: Converting those underutilized office buildings into housing. 

New federal legislation proposed on July 28 brought the potential for underutilized office buildings in downtowns across the country into the spotlight. 

A group of five U.S. lawmakers — including three from Michigan —  introduced the Revitalizing Downtowns Act, which calls for providing tax credits for developers who find new purposes for the buildings.

The proposed legislation is modeled after the Historic Tax Credit, and it would provide a 20 percent credit for many of the expenses associated with converting obsolete office buildings that are 25 years or older into residential, institutional, hotel, or mixed-use properties. If used for residences, at least one-fifth of the units would have to be dedicated affordable housing.

"As our workplaces change because of the COVID-19 crisis, we will see more unused buildings in our downtowns. Converting these buildings to residential and mixed-use properties will benefit families and our cities," said bill sponsor Sen. Debbie Stabenow, D-Lansing, in a statement. 

 "Our bill will help with this transition, support the economic growth of our cities, help small businesses and provide people affordable places to live."

Stabenow was joined on the bill by Michigan legislators Sen. Gary Peters and Rep. Dan Kildee, D-Flint, along with Reps. Jimmy Gomez of California and John Larson of Connecticut.

The bill coincides with the creation of a new coalition of 37 national and regional economic development organizations, which they’re calling Revitalize Our Cities.

Among the state’s participants are Grand Rapids, Detroit, the Detroit Regional Chamber of Commerce and the city of Lansing.

The group, along with legislators, recognizes that the use of office spaces may change with remote work made commonplace in the pandemic.

Downtowns have traditionally depended on daytime office workers to support restaurants, stores and service businesses, but they could be reshaped if companies don’t return their full workforces.

Nationally, vacancy rates for offices was 16.4 percent midyear, up from about 13 percent in the first quarter of 2020. 

Detroit vacancy is just over 18 percent, while vacancy in Grand Rapids is climbing from about 8 percent at year-end.

In Lansing, the vacancy rate is about 20 percent, Schor said, up from 16 percent at the end of 2020. 

The increase is due in part to the state of Michigan reducing its office footprint in privately owned buildings in the city and across the state.

Thousands of state workers started to return to offices in mid-July, but space consolidations and lease cancellations were made in the months ahead of that to trim costs.

That leaves Schor and other city officials looking for options to fill the empty space in what they want to be a prime corridor for public and business activity.

“We’re not excited about having unused buildings and lease cancellations,” Schor said.

The city’s focus on adding downtown housing already includes the former Oliver Towers, damaged two decades ago by fire, and the site of the former Y building, which was demolished.

Converting office space to residential use can be expensive, Schor said. However, he said, allowing developers to recoup costs through a specific tax credit for former office space could be enough incentive to make it worth it.

The difference could be dramatic for downtowns, including Lansing, where many existing businesses have reduced their hours until activity increases over more hours of the day.

“Businesses stay open later when they see things are happening,” Schor said. “We were getting there before the pandemic happened.”