The city of Portland is preparing to offer developers $7 million in incentives to convert vacant office space into multifamily housing.

Prosper Portland will administer the pilot program, which was first announced in May. It’s one part of the city’s strategy to reduce its massive stock of vacant office space, which totaled more than 9 million square feet during the third quarter, according to CBRE.

Mayor Keith Wilson, in remarks given during a Multifamily NW event on Oct. 16, said the funding would likely go to only a few office-to-housing conversion projects.

“We’re not going to spread that peanut butter thin,” Wilson said.

Funding may be awarded in the next four to six weeks, Prosper Portland spokesman Shawn Uhlman said Monday.

Funding for the pilot program is expected to come from the Portland Clean Energy Community Benefits Fund (PCEF) through an intergovernmental agreement with Prosper Portland.

Limited available funding, approximately $7 million, will support two to three pilot projects, Elliott Kozuch, the city’s spokesman for community and economic development, stated in an email.

City officials are looking for projects that are ready to go.

“The initial pilot projects are expected to both be development-ready and provide access to detailed project data … and participate in an embodied carbon study with PCEF and Prosper Portland,” Kozuch stated.

The conversion incentive grew out of recommendations from the Multifamily Housing Development Workgroup that was convened by Wilson and Gov. Tina Kotek in the spring.

The City Council still must agree to an adjustment to the PCEF’s Climate Investment Plan to allow the funding to be used, and to increase the allocation beyond the pilot phase.

Prosper Portland’s board approved guidelines for the program on Oct. 8.

“Portland faces the dual challenge of historically high office vacancy rates and a shortage of affordable and middle-income housing,” Prosper Portland Executive Director Cornell Wesley wrote to the board.

Public officials have lauded office-to-residential conversions as a solution to empty urban office space, but getting those projects to construction has proved difficult. Conversion costs are significant: Building codes require stronger seismic protection in residences. Floor plates designed for an office can poorly suit an apartment building. And features including staircases, windows, heating and cooling systems, and elevators may need to be rethought or relocated.

Sarah Zahn, director of development for Security Properties and a member of the governmental work group, said it makes sense to give large amounts of funding to a few projects.

“It’s good they recognize it’s going to take a substantial investment to do a project like this,” Zahn said.

The program should interest developers, said Ezra Hammer, a shareholder at Portland-based law firm Jordan Ramis.

“Is free money good?” he said. “Yes, free money is good.”

A successful conversion project could spur more of the kind, Hammer said.

“The real value is you get the projects going, but you prove the concept in the market,” he said.

The incentive will be structured as a forgivable 10-year loan at 2 percent interest. One-tenth of the principal balance of the loan would be forgiven each year. Rents must remain affordable to renters at 60 percent to 120 percent of area median income. The affordability requirement will make apartments available to a broad swath of renters but could limit developers’ potential upside.

“This targeted investment not only accelerates the delivery of new housing units but also advances Portland’s climate action and housing production goals in tandem,” Wesley told the Prosper Portland board.

So far, prior to the incentives taking effect, two conversion projects have moved forward in Portland. A project team plans to convert the Oregon Casket Building, at 403 N.W. Fifth Ave. in Old Town, into a 25,000-square-foot mixed-use building with 34 residential units and retail space.

The second conversion project involves the Falcon Building, at 321 N.W. Glisan St. It previously held 85,500 square feet of office space and is on track to become 59 units of middle-income housing.

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When they met about a decade ago, Jessy Ledesma and Anna Mackay worked for different real estate development companies and found they share a similar commitment to inclusive, missing middle housing.

They stayed in contact over the years, each founding her own development company during the pandemic. In 2021, they collaborated to create Shortstack, a panelized mass timber housing product and development platform that is stackable and replicable.

Shortstack’s team is well underway on its first phase of projects, which house 108 units at four sites. These include Shortstack Mississippi, Shortstack Belmont and Shortstack Milwaukie, along with a partnership with a developer who is using the Shortstack solution.

“We love cultivating a team and positive energy within that team,” Mackay said, adding Shortstack’s work highlights creativity, collaboration and comfort. “We think there is a way to do this work that brings everybody to the work in a spirit of collaboration.”

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With aging office buildings trading at discounts because of high vacancies, developers have opportunities to invest in conversions of buildings into housing, education facilities, hotels, life science centers, and health clinics, according to a published by Gensler late last year.

The surplus of outdated office buildings and the flight of office users out of many cities has led to a boom in such projects, according to the firm. The adaptive reuse boom is poised to create valuable new real estate, Maurice Reid, office managing director in Gensler’s Portland office, stated in an email. Creative conversions could include retail to health care, retail to sports, office to senior living, and office to science labs, according to Gensler.

“While conversions have been discussed a lot over the last year, conversations have shifted to alternative options for these transformations, especially considering the challenging policies that make such conversions more cost-prohibitive,” Reid stated.

Permits issued in Portland from January 2024 through April 2025 led to completed conversions such as an office space to an ice cream shop at 3987 N. Mississippi Ave.; a vacant athletic facility to a retail store at 9312 S.E. Stark St.; a tattoo shop to a comedy club at 1510 S.E. Ninth Ave.; an open office space to a pickleball area at 2201 N.E. Lloyd Center (suite F); and an auto repair shop to a food court and bar at 16116 N.E. Halsey St.

Conversions in the works include a billiard hall to a coffee shop at 8435 S.E. Powell Blvd.; a chiropractic clinic to a restaurant at 7834 S.E. 13th Ave.; and an office to a coffee shop at 4826 N.E. 105th Ave.

Converting offices into residential spaces holds promise, Reid stated. But there is a growing concern about what to do with buildings that are not suitable for housing and will not recover as office spaces, he added.

“It’s worth exploring how former courthouses, grand bank buildings, and historic public structures — no longer serving their original purposes — could be repurposed into recreation centers, sports facilities, and community hubs, offering new ways for people to connect with and engage in their cities,” Reid stated.

Old courthouses with large internal courtyards could be covered with glass roofs, creating indoor atriums that house climbing walls, racquet courts, and multipurpose recreational areas, Reid stated. Other new uses could include cafes, lounges and social gathering areas.

Gensler is seeing a significant number of office-to-residential conversions happening on the East Coast, where seismic upgrades are not required.

The Oregon Casket Building and the Falcon Building are the first two office-to-residential conversions that have been issued permits and remain on track for completion, Portland Permitting & Development spokesperson Ken Ray stated in an email.

A project team plans to convert the Oregon Casket Building, at 403 N.W. Fifth Ave. in Old Town, into a 25,000-square-foot mixed-use building with 34 residential units and retail space. The exterior scope of work would be limited to replacing windows and doors and reconstructing the storefront along Fifth Avenue. Design Research Office is the project designer. Construction is expected to start in January 2026 and finish around March 2027.

The Falcon Building, at 321 N.W. Glisan St., previously held 85,500 square feet of office space. It’s set to become 59 units of middle-income housing. In January, the project team submitted a building permit request. The permit intake was approved by Portland Permitting & Development, but fees must be paid prior to review. The project’s design is by Brett Schulz, Architect PC.

Portland City Council in March 2023 passed incentives for building conversions. One exempts developers of office-to-residential building conversions from paying system development charges (SDCs). This exemption applies to conversion of an office building to residential use when a required seismic upgrade is completed as part of the process. The city will cover up to $3 million in SDCs or the cost of the seismic upgrade, whichever is lower.

A second incentive amends the seismic design requirements for office-to-residential conversions to meet the American Society of Civil Engineers (ASCE) 41-BPOE (Basic Performance Objective for Existing Buildings) standard, which is for life safety – enabling occupants of a building to exit it safely following a major earthquake. The change could ensure feasibility for some projects.

Also, a city initiative to boost housing development is under consideration in Portland. The proposed ordinance would waive SDCs until either 5,000 housing units are built or three years pass. The proposal will go before the Revenue Committee in early June and then the Portland City Council.

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Founded in 2020, Adre is a leader in socially responsible real estate development. Anyeley Hallova, CEO and founder, was inspired to start the company after leading the development of the Meyer Memorial Trust Headquarters as a former partner at project^.

The project allowed her to deeply engage with themes of social equity and environmental sustainability, compelling her to move away from conventional market-rate developments. It also drove her to embed equity-focused values into her work.

Hallova’s passion for social equity extends beyond real estate to a rethink of the entire built environment. Through her roles on various boards and commissions, she is committed to addressing historic injustices by policy alongside development work.

Adre has $139 million in real estate projects under pre-development or construction, totaling more than 145,000 square feet. It has raised $36 million in grants and construction debt for clients, with an 87 percent success rate for grants.

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With more than a century of experience, Schwabe, Williamson & Wyatt has built a legacy as a leader in construction and real estate law. Known for its forward-thinking approach, the firm helps clients navigate the evolving landscape of construction challenges, from complex disputes to innovative development projects.

At the heart of Schwabe’s success is its ability to provide comprehensive legal solutions that balance risk management with opportunity. The firm’s attorneys handle everything from large-scale construction litigation to intricate zoning and land use matters, ensuring projects move forward with confidence. Whether advising on environmental compliance or managing contract negotiations, Schwabe is a trusted partner at every stage of construction and real estate development.

A notable example of the firm’s expertise is its representation of ICTSI Oregon Inc. in a landmark labor case. In 2019, a jury awarded ICTSI $93.6 million in damages due to illegal labor slowdowns that led to the shutdown of Terminal 6 at the Port of Portland. Schwabe’s attorneys played a key role in securing this outcome, demonstrating the firm’s strength in high-stakes litigation.

With a commitment to collaboration, innovation and industry leadership, Schwabe remains a key player in shaping the future of construction and real estate law.

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