A new commercial-to-residential conversion incentive is in the works that could add much-needed housing in the urban core while helping property owners to maximize the potential of otherwise underutilized buildings. 

The exact rules for the incentive still are being worked out, and as we all know, the devil can be in the details. But in concept, such an incentive appears to be a step in the right direction. 

During its last session, the state Legislature passed--and Washington Gov. Jay Inslee signed into law--Senate Bill 6175, which enables a sale-and-use tax deferral for projects that would convert existing commercial buildings into housing. The Washington state Department of Revenue is going through the rulemaking process for the law now and is expected to begin taking applications late this month from municipalities that want to offer the incentive.

Some Spokane City Council members have signaled a desire to apply for the incentive and begin offering it in the city, an encouraging step toward adding a much needed tool to bolster the housing stock within the city. 

The law includes an affordable housing element, in that at least 10% of living units must be affordable to low-income households--defined as those households below 80% of the median family income for the city in which the property is located. While we'd like to see flexibility that would allow for development of more market-rate units, specifically downtown where a disproportionate number of units already are intended for low-income households, a 10% threshold seems to be a fair compromise. 

The law as written also includes language that would permit both the rental units and condominiums, creating the potential for more homeownership. Also, the deferral is transferable, should a property change hands. If the use remains consistent for 10 years, the deferred taxes need not be repaid. All of those provisions should be palatable to property owners.

Once again, we'll see what the final rules say and how the city applies it, but as written, the law appears to be a positive for commercial property owners. 

In the Spokane market, we've already seen a number of successful commercial-to-residential conversions. In 2018, Centennial Real Estate Investments converted an old, vacant Macy's department store building in downtown Spokane into a mixed-use structure with 114 living units. Around the same time, Black Enterprises LP converted the former James S. Black Building downtown from a six-story office building into the 50-unit Marjorie Apartments. 

There are other examples of such conversions that are ongoing, including the Jordan Tampien-led project to turn the historic Peyton Building downtown from offices into 96 residential units. As a business community, we have a body of work that shows such projects can be accomplished. Coupled with an office market that had a 20% vacancy rate in the core earlier this year, it seems Spokane property owners might be primed to take advantage of such an incentive. 

City leaders deserve kudos for moving in such a direction, and we're looking forward to seeing whether such an incentive helps to spur more activity.