Could vacant commercial and office spaces be turned into residential units?

A: They can. The endeavor is large, with many considerations in play, and must conform with the city’s general plan.

Investors convert commercial into residential because there is money to be made. The secret behind this is the valuation method used to appraise each project.

Commercial spaces are valued based on their income generating potential, or cap rate. When the cap rate is determined, a price can be determined. The price in relation to the cap rate will inform somebody of how long it takes to break even on the investment. For example, breaking even in 10 years may sound like a long time, but when the asset is growing in price, the profit is going to be greater than it is on paper.

When commercial is converted to residential, something very special happens: the valuation changes from the cap rate approach to the sales comparison approach. The sales comparison approach says that valuation is determined by historical sales of like kind property selling nearby. They leverage the change in valuation method to uncover potential gains in equity. Only the most prepared individuals with laser focus and a strong heart should apply. Otherwise, nonprofits might be able to leverage these opportunities, too. Dean Paul Dominguez, Alliance Bay

Realty, 510-304-6060, deanpaul.dominguez@gmail.com.

A: This has been in the news recently and some are looking into this as a way to offer more housing or more affordable housing. The question is, how easy or difficult is this transition?

Many years ago I remember serving on a focus group for this same question, and from what I recall that work did not take place because it was not a realistic situation. Trying to take a business space into a living and breathing residential offering is a difficult conversion on many fronts, such as the building structure, plumbing and sewer, kitchens and bath and so on.

I would imagine it’s easier to start from scratch and build something new, rather than trying to create a living space in what was not meant to be used for that purpose in the first place.

Commercial warehouses turned into a residential space is most likely somewhat easier if there is a wide open space to work with. Think in terms of what are called “loft spaces,” but the traditional lofts had a bare minimums of a kitchen and bath, no walls and do not always appeal in the normal sense of conventional living.

Either way, how cost effective is it to transform a non-residential property into a welcoming space that can be called home?

Jeannie Anderson, Compass,

415-271-4887, jeannie.anderson@compass.com.

A: In San Francisco, where one-third of offices are vacant, office conversions have become a popular topic. The city’s abundance of smaller, older office buildings give it a higher number of conversion appropriate commercial buildings than some other markets.

However, given all the economic, practical, and regulatory barriers currently in place, it has been estimated that less than 10% of the city’s buildings could be converted, and though the city and some developers would love to see the buildings reused, in many cases, the price to reposition them could be higher than tearing them down and starting over. There are legislative efforts being proposed now that, if passed, could speed up the development process 18 months.

With a push to change zoning, and more incentives coming, and along with a possible further drop in office building values, conversions could be a game-changer down the line.