Unlocking Housing Development: Zoning and Office Space Conversions With Jesse Saginor, Real Finds Podcast #45 Transcript
Jesse Saginor: If you look at San Francisco, Portland, Seattle, New York, Philadelphia, DC, on down into Florida, the cost of zoning as it relates to single-family housing might be fifty percent of the cost of the overall development.
Gordon Lamphere: Hi, I’m Gordon Lamphere, and welcome to the Real Finds Podcast, the podcast that interviews key entrepreneurs, activists, and researchers shaping real estate and, as a result, our world. On today’s podcast, we speak with Jesse Saginor. Jesse is an associate professor of real estate development at the University of Maryland and has been extensively published on affordable housing, real estate development, economic development, and real estate valuation. We discuss challenges to creating more affordable housing, tactics for developers engaging with municipalities, and strategies for successful office-to-residential conversions. It’s well worth a listen. Jesse, thanks for hopping on the podcast today.
Jesse Saginor: Thank you very much for having me, Gordon.
Gordon Lamphere: What got you interested in real estate?
Jesse Saginor: A lot of it has to do with growing up in Cleveland Heights on the east side of Cleveland and seeing how things constantly changed around me. It was a puzzle whose pieces kept changing. A restaurant might become a parking lot, an office building might become something else. That was fascinating: different uses and how they interacted. My grandparents lived in Florida, and we’d drive there because flying was expensive, so I saw how the landscape changed from the flat south shore of Lake Erie through the Appalachians to the flatlands and palm trees of Georgia and Florida. We drove down almost every year for thirty-some years, so it wasn’t just my city changing but all these other cities, and to some extent getting much denser, with more traffic congestion. Observing that got me interested in real estate, urban planning, and a variety of other things.
Creative Disruption and Building for Everybody
Gordon Lamphere: Change is a focus of this podcast, the idea that destructive and creative change go on at the same time. What changes are you seeing, particularly in housing and the connection between housing and work?
Jesse Saginor: It’s the concept of creative disruption. We change as people. What we liked ten or twenty years ago might not have been a great idea ten or twenty years later. There’s a disconnect between where people live, work, and play. A lot of cities don’t build enough affordable housing, and when that happens, a lot of people have to commute, and if they’re driving, it contributes to traffic congestion. If we build for everybody, not just mixed use but mixed income, you might cut back on congestion, and then cities might be more flexible about requiring developers to include so much parking. There’s a whole interplay in balancing those things.
Gordon Lamphere: How do you build for everybody? Deep in our hearts we all want a more just society that includes everyone, but how do you accomplish it?
Jesse Saginor: A lot of perseverance. Before I moved to Maryland, I was a professor at Florida Atlantic University and chairperson of the Delray Beach Housing Authority. Building affordable housing in a coastal town adjacent to the ocean, you have developers building multi-million-dollar condos, and the housing authority is competing for the same land, construction materials, and bank financing to build something affordable. It requires assistance at the federal, state, county, and local levels. It’s not just private financing; you usually need multiple layers of public financing, and a lot of governments don’t do a good job funding those programs, and even when they do, it’s extremely competitive. We got low-income housing tax credits for one of our projects, but once awarded, we had to wait sixty days, during which any developer that didn’t get the credits could pick apart everything we submitted. One mistake and we could lose the financing to another developer. The flip side is that some cities have inclusionary zoning, where any residential development must include a portion of affordable units. Florida didn’t require that.
Gordon Lamphere: Is Florida’s model better, or is there a model you’ve seen that’s particularly effective for public-private partnership?
Jesse Saginor: Like politics, a lot of the financing is local. If cities have flexible zoning, maybe you can build affordable housing that doesn’t require as much parking, which means more units. In other cases it’s local funding: Palm Beach County passed a bond issue of about $200 million for affordable housing. At the local level, there’s the carrot and the stick. The stick is inclusionary zoning. The carrot is incentives that provide gap financing to make it worthwhile to build affordable housing, given how difficult it is to package the financing.
The Parking Debate
Gordon Lamphere: As somebody who does a lot of suburban development, parking is always hotly contested from both sides. We’ve developed successfully in communities that required vast amounts of parking, and others are more liberal. Where do you come down, and why has the parking debate become so prominent?
Jesse Saginor: To some extent, it’s how you can prevent developments. It’s not even just parking. For any development or redevelopment, you’ll probably have to do a traffic impact study, which shows your hand that it will generate additional traffic. That gets back to the point that if you build housing for everybody, maybe there’s less traffic and less parking. But parking is significant, because any city’s zoning code says specific uses need this many spots. Some places, Portland most notably, have realized a lot of those standards are relatively arbitrary, and either become more flexible or say no parking is required at all: just build and we’ll see what happens. Cities have to recognize what works for them. There’s no one-size-fits-all solution. Some people say no parking at all, and drivers can find their own. But you don’t want to kill your business or make it difficult for people to get to what you’re building. How much parking is enough? In the past, cities erred on the side of too much, which is why you had greyfields at malls: several hundred spots nobody used. More recently, they’re doing infill on the periphery, whether pad sites for restaurants or low-scale mixed use with residential over retail. But some cities say they definitely need all those spots, and sometimes parking issues are a good thing, because it means people are coming to the area. There’s no magic formula.
We did research with the University of North Carolina, talking to planners, and through the Urban Land Institute we interviewed developers at the vice president level or above in focus groups. One thing they said was that the experience of the planners in a given city was important, because if people want the type of development a developer proposes, an experienced planner or public works official can often find an imperfect solution that’s better than abandoning the development. It’s case by case. The rules differ in every city, depending on the development, how much opposition exists, whether council members are running for election, and the politics of the situation.
The Pre-Development Meeting
Gordon Lamphere: As a firm that’s developed nearly a thousand acres along the corridor I’m sitting in, the different municipalities and their level of flexibility and cooperation can be tremendous in whether a deal gets done and how well it works with the community. Were there steps developers or communities can take to create that positive relationship?
Jesse Saginor: Yes. The main thing we learned from developers is to have a pre-development meeting. Before submitting plans, meet with the city and say, we’re thinking about this type of development. That flushes out issues you might experience later. If you know there’s opposition before you file anything and it becomes public record, maybe reach out to that opposition. They might not change their mind, but at least you’ve surfaced the issues. That was relatively uniform across the developers we spoke with: it lets them understand the internal politics of the city, the opposition groups, and the track record of that type of development in that city.
Gordon Lamphere: I can’t speak enough to that. I was recently on the phone with someone about a land site we’ve been working on with the city. We have a number of uses that would be wonderful for the site, and a developer called with their heart set on self-storage. We said no, self-storage isn’t going to work. They put a big team together, offered to buy the land, went to the city, and the city said absolutely not. Groups need to take the time to go in and talk. There was a great opportunity sitting there; it just wasn’t that one. There’s a lot of entrepreneurial nature even within cities, and I’m not the biggest fan of government, but there are big entrepreneurial steps cities can take if people sit down and have the conversation. Beyond that, what are the biggest difficulties in getting something off the ground that’s sometimes seen as toxic in a community, like workforce or affordable housing?
Jesse Saginor: We built sixty units of affordable housing that opened in January 2024. The original plan for this three-acre site in Delray Beach was roughly forty units of for-sale affordable housing, duplexes and single-family homes. We tried starting in 2008, and between 2008 and 2019 the site sat vacant because we couldn’t get financing for for-sale housing. The Delray Beach Housing Authority is a public organization, so under Florida’s sunshine laws we meet publicly anyway, but we advertised to the surrounding community and discussed making it rental. We got some opposition because the plan had always been for-sale, and we had to explain that yes, we wanted for-sale, we spent hundreds of thousands on consultants putting together applications for HUD programs, most notably HOPE VI, and we failed to get the funding. When we changed course, we voted at a public meeting on whether to keep pursuing for-sale or go rental, because there were far more incentives and funding available in Florida for rental. Even though we gave public notice and posted the agenda, no opposition showed up. After it passed eight to one, some in the community thought we pulled a fast one, and we had to meet with stakeholders and ask, would you rather have a site sit vacant, or, given over two thousand people on our waitlist, build sixty units that lease up immediately at a hundred percent? It’s up to federal, state, and city code, it has amenities, it’s nice two-story housing, not the housing built in the forties, fifties, and sixties. We got people to at least understand why we had to change. Just because nobody shows up to a public meeting doesn’t mean there’s no opposition. It comes once the changes start and people see the billboard for what’s going on the site and say, that’s not what we agreed to. And that was the third phase of a three-phase project. Despite trying for almost fifteen years, we couldn’t get the financing to do what we originally wanted.
Gordon Lamphere: There’s truth to that. The worst case is no pushback originally, and then when the thing gets built, the community is deeply upset. A development we weren’t part of recently went in next to one of ours, and it’s been so toxic that there’s now a moratorium on industrial development. You want to make sure all stakeholders are involved so things can progress.
Office-to-Residential Conversions
Gordon Lamphere: One of the most hotly contested parts of the housing debate is office conversions. Have you done research there? All our listeners’ interest is piqued.
Jesse Saginor: I’m in the early stages of research on office conversions specifically to multifamily, because that seems to make the most sense. There’s a fervor throughout the United States because a lot of cities have high office vacancy, and there have been a few cherry-picked buildings in Chicago, New York, DC, and elsewhere converted to multifamily, so there’s a wave of people who think you can take any office building and convert it. You and I know that’s not the case. Existing research mostly looks at older buildings, say 1970s, and part of it is the floor plate: the distance from the building envelope to the core matters for the likelihood of success, because of natural light and how you orient units to maximize feasibility. More recent buildings have much larger floor plates. Gensler did a building in Philadelphia where they brought the exterior wall in, creating a deck or porch on the interior, so the wall was closer to the core and they could make sense of the living space, keep natural light, and add amenities. That’s one of the simpler examples. Then you have zoning: can you convert to multifamily, and what does zoning allow? Then the inner workings, HVAC and all the other systems, which are not easy or cheap to retrofit. Then where do you put amenities, since office buildings might have a ground-floor lobby and not much else? Smaller floor plates are better to work with, but it all depends on the building’s condition and age, and there are additional costs.
A lot of cities, Boston and DC come to mind, are creating incentives with gap financing for retrofitting office to multifamily, because they know it’s expensive and some DC submarkets have twenty-seven percent office vacancy, and banks will only finance so much. At the federal level, a bill was introduced in July, H.R. 9002, the Revitalizing Downtowns and Main Streets Act, which would amend the Internal Revenue Code to create an investment credit for converting nonresidential buildings to residential. It hasn’t gotten a lot of mileage yet; there’s a little politics going on.
Gordon Lamphere: What are the politics? We follow it locally in Illinois and Wisconsin, but what are you seeing nationally on affordable housing and office conversions?
Jesse Saginor: I think the bill has bipartisan support, because there’s a huge need. They look at historic tax credits and low-income housing tax credits, the programs passed in 1986 that have been very beneficial in encouraging those uses. Without low-income housing tax credits, I can’t imagine how many millions of units wouldn’t have been built. Same with historic credits: instead of bulldozing, you see churches and old elementary schools creatively retrofitted into multifamily. Conversions involve buildings that aren’t necessarily historic and might not become affordable housing, so this would provide another funding stream. It’s not just high office vacancy; the pandemic disruption in how and where we work has changed the scale of what to do with all these buildings, and the nature of work is going to keep changing. We don’t want a bunch of vacant downtown office buildings. If this is at the federal level, it says this is a national issue, and we don’t want dead cores in our downtowns with nothing providing gap financing to encourage retrofitting our cities.
Gordon Lamphere: We recently had Joe Brady on, who talked about creative destruction being great, but at the same time downtown neighborhoods are almost economically destroyed because vast tracts of businesses relied on commuters and office buildings. Unless we do something, places like the Loop could have massive vacancy with all sorts of negative externalities. What’s the most effective way for government to partner with developers? It’s not politically feasible to rain cash on wealthy developers, but there are probably ways to make things work.
Jesse Saginor: Cities stepping in. Mayor Bowser in DC and the mayor of Boston both created local programs to piggyback on this, because they have a better idea of how to channel the money and relationships with developers. At the federal level it could be helpful, but locally you can find more effective programs, assuming cities aren’t already cash strapped. Keep in mind we’re talking about Class A downtown office, the most expensive property tax generator for most major cities, so it’s in their interest to create these programs. Even if it generates slightly less property tax, you have more eyes on the street and more people living downtown. Not exactly like opportunity zones, but a city could say, in this urban core with the most vacant office space, we’re creating a localized conversion program. At the state and local level you can craft programs relative to specific conditions and to the city’s comprehensive plan and vision for the future.
Gordon Lamphere: Is cash the big barrier, or are there other things? As a developer who’s worked on conversions, though not office to residential, office to industrial for example, the cost of converting is a lot more than people speculate. But beyond that you have regulatory issues like floor plates and windowless bedrooms that some municipalities don’t permit. Are there other ways communities can facilitate housing, or is cash king?
Jesse Saginor: Cash is one obvious thing. Another is flexibility in zoning. Using the parking example, a city can require fewer spots or offer waivers on parking or landscaping, since there’s not much landscaping with downtown office buildings anyway, and be more flexible on the specific project. But you raise an important issue: ingress and egress, fire escapes, and other things that change the nature of a building. Retrofitting for residential safety becomes a lot more expensive, so it’s hard to avoid the cash aspect. And I need to do more research, but I don’t know how banks see the risk of retrofitting. Historically, banks have always seen new things as risky, and they should be conservative. Think about brownfield remediation: if a site was contaminated, banks wouldn’t lend, so government stepped in with remediation programs, an industry developed, and there were enough examples that banks got comfortable. Then historic and low-income tax credits. A tax credit for office-to-multifamily could help, depending on how risky banks see it. Right now I’d assume banks see new office buildings as pretty risky, and with conversions they’re hesitant, because it might not work. But given how many commercial mortgage-backed securities are coming due and how many buildings are in distress, they might be more willing to take that risk. I’m not a banker.
Gordon Lamphere: As someone who’s helped investors purchase distressed office and turn it cash positive, I’ll say banks are incredibly conservative, and they should be. When we get into trouble, it’s usually when they’re not. But a lot of banks and distressed developments are doing a dance right now, and some banks would be happy to take a little risk to end that dance.
Good Zoning, Bad Zoning
Gordon Lamphere: We’ve been dancing around zoning, which is probably the issue of our times. With Moore’s Law and how quickly things change, the fundamental underpinnings of how we zone our society are changing too. What’s good and bad zoning policy? I like flexible zoning as a developer, but I’m not sure I want an oil refinery next to my house. Where’s the balance?
Jesse Saginor: It’s an equation we’ve never balanced well. We’ve never come up with perfect zoning. Think about the tax code: it’s never been significantly changed, just nitpicked and modified. Zoning is similar. The original zoning in most cities was single-use: residential here, office there, retail there, industrial there. That was the early 1900s. As things changed, we added overlay districts, a historic district, a mixed-use overlay, but you still have single-use zoning underneath. There haven’t been major reforms; we keep stacking things on. Good zoning is a little more flexible, while bad zoning can be very restrictive. Even within residential zoning there can be significant requirements to build single-family. A colleague at the University of Pennsylvania, Joseph Gyourko, did a report on the cost of zoning, and in coastal areas, plus Chicago as the only non-coastal city included, San Francisco, Portland, Seattle, New York, Philadelphia, DC, down into Florida, the cost of zoning for single-family housing might be fifty percent of the overall development cost. Within zoning, it’s where the driveway goes, whether it has to be LEED certified, landscaping requirements, and so on. Those minimum standards make development more expensive even for single-family. That’s where flexibility matters. If cities and developers want the same future, there should be flexibility, but flexibility doesn’t mean going back to the Wild West before zoning. You don’t want to live near a factory, and we’ve done enough environmental studies to know not to build single-family right next to certain industrial uses. Bad zoning is extremely strict, and you see it everywhere. In Arlington, Virginia last week, the county lost a lawsuit over an ordinance that would have increased density allowances in strictly residential areas to build more units and improve affordability. Even when changing single-family zoning to increase density makes sense, there’s quite a bit of opposition. It gets back to not in my backyard.
Gordon Lamphere: I’m okay with light industrial in my backyard, but NIMBYism is real. The balance is biggest as we get into the post-industrial age, because there’s a big difference today between light industrial and heavy petroleum manufacturing, and some of our zoning was built on early-1900s law when factories and environmental codes were vastly different. I can look out my window at a factory owned by a major company that’s our tenant, and there are no fumes, nothing. Looking toward the future, let’s transition to the Final Four. Where do you see zoning and commercial real estate going as we move from the industrial age to a digital age?
The Final Four
Jesse Saginor: You raise a good point about industry having a negative stigma: when you say industry, people picture a large factory spewing noxious gases. Part of it is segmentation: there’s heavy industry and light industrial, and some cities define that better than others. Even light industrial or last-mile logistics is another traffic issue. When will you see the most traffic, at night when people aren’t on the roads, or when they’re taking kids to school? It goes back to being a kid with a puzzle whose pieces constantly change. The cities and developers that succeed will be the ones that understand how the pieces are changing and how to maximize what the puzzle looks like in the future. Maybe we build smaller office buildings with smaller floor plates, so it doesn’t have to be office forever and can be retrofitted to residential, because most office buildings weren’t built with that in mind. More flexibility in what we build now. Even something like CVS closing a bunch of stores: what do you do with that space? Adaptive reuse, not just office to multifamily but everything. The people who get expertise there and figure out how to do the feasibility and market analysis so it makes financial sense will be the way developers and cities succeed.
Gordon Lamphere: Adaptive reuse is a central part of what we’re working on with developers and investors, whether reuse of long-vacant land or of buildings, particularly in dense, highly developed areas like Chicago. How can communities best participate in renewing themselves versus taking a NIMBY attitude? If a community member wants more redevelopment, how can they participate in positive change?
Jesse Saginor: Get involved, whether on a citizen advisory board or otherwise. Every city has a comprehensive plan, a vision for the future, and cities update these from time to time. Go to those meetings. If you haven’t read your city’s comprehensive plan, read it. It might have been written in 1980, 1990, 2000, 2010, and anything written pre-pandemic needs to be rewritten, because things are different now. I was appointed to the Delray Beach Housing Authority by the city council, and that’s how I got involved in affordable housing. There are always opportunities to get involved. A lot of people aren’t interested in public meetings, but it gives you an appreciation for why things are the way they are and why change is so difficult, and lets you be part of the change you’d like to see in the comprehensive plan or other things the city is trying to do.
Gordon Lamphere: I’m working with a couple of communities on their comprehensive plans right now, and it can seem brutal, but it’s necessary. We have a good cadre of younger people in real estate listening. Any advice for someone just starting out, maybe more academically inclined like yourself?
Jesse Saginor: We all start as specialists. We have to show expertise to get a job, whether becoming a professor or getting that first job. But it’s important to also become a very good generalist, and that means reading things you might not necessarily read. What a lot of people don’t know is that when you get a PhD, nobody teaches you how to teach, so I read a lot of books about teaching, and those helped me become a better public speaker. I still read about finance, about artificial intelligence. The main thing is to keep reading and understand that you might feel like you know everything, but there’s so much you don’t. I know there’s so much I don’t know. That’s why I keep reading and talk to developers, because not everything can be found in a book or article. Keep reading, keep talking, and keep an eye out for things that pique your interest.
Gordon Lamphere: On reading, what one book should a listener pick up next?
Jesse Saginor: I’ve read a lot of case study books about people in the industry, and they’re interesting but very siloed. A relatively recent book by Tom Eisenmann from Harvard, who’s written for the Harvard Business Review, is Why Startups Fail. He surveyed CEOs, venture capitalists, and companies and asked why they failed. It’s interesting because a case study can give you tunnel vision, especially when it’s about successes. Success isn’t guaranteed, and it’s survivorship bias: that person succeeded, but following the same path doesn’t mean you will. He looks at a hundred-some companies, so you see trends rather than cherry-picked case studies. Sometimes it’s the same idea that succeeded elsewhere, but the people were different, or they spent too much on marketing up front. For younger listeners trying to get a business off the ground or planning to someday, it’s a good book on the pitfalls, because most startups aren’t going to succeed.
Gordon Lamphere: Phenomenal advice. Younger brokers reach out to me, and I’m not a coach but I’ll take their calls, and they’ll say, someone told me to make a hundred cold calls a day and I’m not going anywhere. There’s so much survivorship bias. If you just looked at Google, you’d think starting a search engine today would succeed, and a lot of search engines failed along the way. Now, there’s one thing we won’t let you off the podcast without: the whole point is to reach out to the men and women in the arena and get one name we should reach out to next. Who should that be?
Jesse Saginor: I mentioned Gensler. They have an office in Chicago and offices everywhere, and they’re spearheading the effort to convert office buildings to multifamily. The City of Calgary asked them to help figure out a plan for their office buildings, and they created a model with about a hundred and fifty data points. The model is pretty good at selecting buildings that might be right to convert, though it’s missing the finance component of how much it would cost. The person who spearheaded that effort is Steven Paynter. I can’t remember if he’s in Gensler’s New York office, but his name keeps popping up in everything I’ve read, and they’ve now done it in New York, Philadelphia, and other cities.
Gordon Lamphere: We’d love to have him on. One more: for anybody who wants to learn more about zoning, real estate, or the other topics today, what’s the best way to reach you?
Jesse Saginor: Email me at [email protected]. That’s the best way to get in touch.
Gordon Lamphere: Jesse, thank you so much for hopping on the podcast today.
Jesse Saginor: No problem. It was a pleasure. I enjoyed it and hope I left you with something useful.
Gordon Lamphere: Thanks again to Jesse. We appreciate his insights. If you enjoyed the podcast, please give us a like, a five-star rating, and a review. Your comments, interactions, and subscriptions truly matter and help us continue to provide quality guests. You can find us on YouTube, Spotify, or wherever you get your podcasts. I’m Gordon Lamphere with the Real Finds Podcast. Thank you for listening.
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