NYC expands finance pool for office-to-residential makeovers

New York City administration officials took a stride toward spurring more office-to-residential conversions by expanding a long-term financing option used in clean energy construction.

In late June, the city made embodied carbon eligible for financing under its Commercial Property Assessed Clean Energy program, known as C-PACE. Embodied carbon refers to emissions locked into a building’s existing concrete, steel and glass.

It’s the kind of bureaucratic tweak that rarely makes headlines outside real estate finance circles. For the Big Apple, it could help city leaders turn more obsolete buildings into much-needed housing.

The city is the only municipality nationwide to implement the embodied carbon change. Colorado is the only state where embodied carbon is included in law.

This change became effective shortly before structural problems at one of the city’s largest conversion projects raised safety and cost concerns last month.

Ensuing conversations focused on design and engineering hurdles as inspectors swept through the city checking other projects. They found problems but determined none presented a hazard to public safety.

The episode also served as a reminder that conversions cost more than planned, and funding can be difficult to secure.

That discussion comes as the city has long been a standard-setter for office-to-residential conversions, with a pipeline to prove it. Manhattan alone has 19.2 million square feet of conversions underway, according to Avison Young‘s second-quarter 2026 Manhattan office report.

Much of that momentum traces back to a tax break state lawmakers passed two years ago. The 467-m program exempts qualifying conversions from property taxes for up to three years during construction. Exemptions can last 25 to 35 years afterward if at least a quarter of the units are income-restricted.

Financing picks up the pace

C-PACE started as a single pilot program in Berkeley, California, in 2008. Nearly two decades later, roughly 40 states plus Washington, D.C., authorize the financing. New York enacted law to allow the financing in 2009, updated it in 2019 to expand eligibility to new construction. New York City established its initial program in 2021.

Property owners repay the debt through a voluntary assessment on property taxes. That means the debt, which sits at the top of the capital stack, follows the property, not the owner.

“It won’t impair value or step in the way of bankruptcy or foreclosure,” Laura Rapaport, founder and CEO of C-PACE lender North Bridge, told HousingWire TBD.

Over the past two years, it has become an increasingly important lever for converting empty office towers into apartments.

Other cities show what’s possible once the financing lines up. In Washington, D.C., a 532-unit conversion called The Geneva closed $465 million in C-PACE financing this year through Nuveen Green Capital. It ranks as the largest such deal on record.

The deal demonstrates how this type of financing has “graduated from a supplemental tool to a foundational one,” according to Nuveen.

What the financing covers

This type of financing has typically covered upgrades like boilers, insulation and renewable energy systems. For new construction, it applies to energy-efficient and sustainable building elements.

C-PACE evolved directly from the green building movement. The financing blunted upfront cost barriers to eco-friendly upgrades and new construction that incorporated sustainable practices. Proceeds can come as the project starts or retroactively in a refinancing, with loan terms running as long as 30 years.

The funding question comes down to one number, which varies by state and city: the maximum loan-to-value ratio a C-PACE loan can reach. Texas raised its own cap last year, moving from 25% to 35% loan-to-value.

The change gives Texas developers meaningfully more room to lean on C-PACE within a capital stack. The state has facilitated more than $500 million in financing since 2015, according to the Texas PACE Authority.

Activity has picked up since the cap increase. Lone Star PACE, an administrator for the state program, announced Tuesday it closed $64.8 million across six deals in the first half of 2026. That followed $86.6 million across eight projects in all of last year.

“The Texas PACE Program continues to gain momentum because it addresses two priorities that are critical to today’s commercial real estate market: improving project economics and reducing long-term resource consumption,” Lee McCormick, Lone Star PACE‘s president, said in a statement.

One of the deals is a Houston mixed-use development that includes multifamily. McCormick expects demand to remain strong for the rest of the year.

The percentages set the outer limit of what C-PACE can realistically replace in a project’s financing. A 35% cap means C-PACE still must work alongside senior debt and equity, not instead of them, on all but the smallest deals.

In New York City, the cap now sits at 35% of a property’s as-stabilized or as-complete value.

Adding a layer

Policymakers addressing climate change have baked sustainability and energy-efficiency rules into building codes.

“What’s happened is that if you build to code or better than code in most markets, the code has become so stringent that you’re already checking a box to be energy efficient,” Rapaport said. “On a multifamily project, we can be up to 40% of the total project cost in most markets. Florida’s a great example of that.”

Florida instituted stricter building codes after Hurricane Andrew struck in 1992. It adopted a unified statewide code in 2002 that added hurricane-resilience standards.

Embodied carbon is a different kind of cost. Climate policy has mostly focused on a building’s ongoing energy use – not the carbon footprint locked into its materials before anyone turns on the lights.

Mining the iron ore, making the steel, pouring the concrete releases carbon. That carbon is “embodied” in the finished structure forever. Demolishing a structure and building new means paying that carbon price again. Reusing what’s already standing avoids it entirely.

That’s the logic behind New York’s move. When New York City created its program, Rapaport said it focused only on green improvements.

“There are no solar panels in Midtown Manhattan,” she said. “Nor is there hydropower.”

By letting C-PACE cover the cost of buying a building slated for reuse, not just retrofitting it, the city made preservation more competitive than demolition.

“That’s the most sustainable type of building,” Rapaport said.