turning commercial properties into residential in Arizona

Converting Commercial Properties into Residential Space Arizona - Gottlieb Law

The Legal Landscape of Converting Commercial Properties Into Residential Spaces in Arizona

The Legal Landscape of Converting Commercial Properties Into Residential Spaces in Arizona 2160 1441 Gottlieb Law

Real estate, especially in Arizona, is constantly changing to meet the ever-growing need for housing as the population increases. This shift is particularly prominent in cities such as Phoenix, where property owners and investors are exploring the potential of transforming commercial buildings into residential units. However, this transition involves navigating a complex legal landscape that encompasses zoning regulations, building codes, permits, and approvals. This article provides an in-depth guide on the process and legalities of converting commercial properties into residential spaces in Arizona, offering valuable insights for businesses contemplating such a move.

‍Understanding Commercial to Residential Property Conversion 

Commercial to residential property conversion involves repurposing commercial buildings, such as offices or retail spaces, into residential units like apartments or condominiums. This process is often driven by factors such as changes in market demand, socio-economic shifts, urban development, and the availability of vacant commercial properties. The conversion of these properties can prove to be beneficial to the community and lucrative, but it also requires due diligence on your part as the landlord to remain compliant and to maneuver through the legal and regulatory hurdles. 

Developing an understanding of zoning laws where your property is located is the first step in your journey to achieving a successful and compliant conversion. Zoning regulations dictate the allowable uses of a property, and changing the designated use requires obtaining a zoning variance or rezoning the property.

Beyond understanding zoning laws, embarking on a commercial to residential property conversion necessitates a deep dive into the market and demographic trends specific to your property’s location. Identifying the target demographic for your residential units—be it young professionals, families, or retirees—will significantly influence your conversion strategy. This involves considering the design and amenities of the converted space to meet the expectations and lifestyle needs of your prospective tenants. Additionally, assessing the demand for residential units in the area and the potential rental yields can guide your financial planning and investment strategy. This preparatory step ensures that your conversion project not only complies with legal standards but also aligns with market needs and maximizes the property’s potential for success.

Zoning and Rezoning Regulations and Processes in Arizona

Zoning laws define the usage possibilities for land and its buildings. In Arizona, local municipalities, such as the city of Phoenix, are responsible for establishing and enforcing these laws. Zoning laws are designed to help preserve the character and intended feel of a community or neighborhood. 

If you are contemplating converting a commercial property into a residential space, one of your first steps should be to review the current zoning designation of the property. You will need to apply for a rezoning permit for residential use if your property is zoned for commercial use. 

The following steps are typically involved in the process: 

  1. Examine Local Area: Consider the impact of the proposed conversion on the local community and whether there have been recent changes in land use in the area.
  2. Research Zoning Laws: Zoning laws and regulations need to be researched to understand the permitted uses for the property.
  3. Consult With Neighbors: Engage with your neighbors to gauge their opinion about your rezoning plans. Their feedback can significantly influence the decision-making process of the local planning department.
  4. Apply for Rezoning: Submit a rezoning application to the local planning department. This application usually involves completing paperwork and paying an application fee.
  5. Undergo Analysis: Wait for the planning department to conduct an analysis of your rezoning application. This process may involve adjusting your plans based on any objections or concerns raised.
  6. Commission Meetings: Engage in a public hearing where community members can express their concerns or support for the rezoning. Provide evidence as to why it would be beneficial to the community. 
  7. Final Decision is Made: The recommendation on the rezoning matter is forwarded to a legislative body by the planning commission, which makes a final determination on whether rezoning should be approved or denied. 

Navigating the intricacies of property rezoning or securing a variance approval can be a complex and lengthy endeavor. Consulting with a seasoned real estate lawyer about your project or intended modifications is a crucial move. We shared a detailed guide to Arizona zoning, variances and land use laws in this previous article for those that want to understand the key steps and laws.

Restrictive Covenants and Their Influence on Property Conversion

Another crucial factor to consider when converting commercial properties into residential spaces is the presence of restrictive covenants. These are pre-existing restrictions that were recorded with the local county and encumber the subject property and determine how the property can or cannot be utilized or developed. 

A pre-existing restrictive covenant may limit or prohibit certain types of renovations or even specify that a property is only intended for commercial use or a certain other type of use. If such covenants exist, they could significantly limit your ability to convert the property into the desired residential use. Therefore, it’s imperative to review all relevant recorded encumbrances affecting the property thoroughly with an experienced real estate attorney to identify any restrictive covenants or other documents that might hinder your conversion plans.

Compliance with Building Codes

Building regulations encompass a series of guidelines and norms that oversee the planning, construction, and upkeep of structures, prioritizing the safety and well-being of residents. These regulations differ for commercial and residential properties, reflecting their distinct functions.

When converting a commercial building to a residential setting, it’s pivotal to update the property to meet residential standards. This may involve significant renovations, such as installing egress windows, modifying the electrical and plumbing systems, and altering the layout of the building to create living spaces.

These renovations rely heavily on obtaining the necessary permits to carry out your desired plans of conversion. The complexity of the renovations and the regulations of the local building department will determine the type of permits you need and the timeframe for obtaining them.

Assessing the Cost of Converting Commercial to Residential 

When contemplating the transition from commercial to residential use, investors should gear up for a detailed financial roadmap, as the costs involved stretch beyond the initial surface. The journey from a commercial façade to a residential oasis involves several financial layers that demand careful consideration.

Application and Legal Fees: The first checkpoint involves the application fee for rezoning, which is just the tip of the iceberg. Legal expenses also come into play, especially when navigating the complexities of zoning laws, restrictive covenants, and potential appeals. Partnering with experienced legal counsel not only increases your chances of success but also adds to the initial investment.

Upgrading to Residential Standards: Bringing a property up to residential codes involves a substantial overhaul. This includes interior renovations such as creating functional living spaces, ensuring proper insulation, and updating heating, ventilation, and air conditioning (HVAC) systems to meet residential comfort standards. Accessibility upgrades, like installing elevators or ramps, might be required to comply with regulations such as the Americans with Disabilities Act (ADA).

Exterior and Infrastructure Adjustments: The transformation often requires significant exterior modifications. These could range from aesthetic enhancements to align with residential appeal, to structural changes for creating individual entrances or private outdoor spaces. Infrastructure adjustments are equally pivotal, including the expansion of parking spaces, landscaping, and even creating communal areas like gardens or playgrounds, depending on the target demographic.

Permitting and Compliance Costs: The maze of obtaining necessary permits is not just bureaucratic; it’s also financially consuming. Every permit typically carries a specific fee, and the total number required can vary based on your project’s scale. Compliance with building codes might necessitate hiring architects, engineers, and contractors, whose expertise is invaluable but comes at a price.

Holding Costs: A critical, often overlooked aspect is the holding cost. This encompasses the expenses of maintaining the property during the transition period, from property taxes and insurance to utilities and security. These costs accrue while waiting for approvals and during renovation works, potentially stretching over months or even years.

Opportunity Costs and Financing: Diving into a conversion project means allocating funds that could have been deployed in other ventures. This opportunity cost, coupled with the interest on any financing obtained for the project, adds another layer to the financial puzzle. Securing favorable financing terms can mitigate some of these expenses, making thorough financial planning and negotiation skills paramount.

Market Analysis and Exit Strategy: Lastly, a comprehensive market analysis should inform your budgeting process. Understanding the local real estate market, potential rental income, or resale value of the converted property can shape your investment strategy. Additionally, having a clear exit strategy in place will ensure that you’re not just pouring money into a bottomless pit but investing in a venture with a vision for return on investment.

Investors diving into the conversion pool must brace for a venture that is financially intensive but ripe with potential. A well-thought-out plan, accounting for every penny from inception through completion, lays the groundwork for a successful transformation that can turn a profit and enrich communities.

Leveraging the Potential of Mixed-Use Development

One innovative approach to commercial to residential conversion is the concept of mixed-use development. This approach facilitates the dual-purpose development of a structure, accommodating both commercial and residential functionalities within the same edifice. For instance, the ground floor of a building could house a retail store or a restaurant, while the upper floors could consist of residential apartments.

Mixed-use development can offer several advantages, such as promoting urban revitalization, enhancing the vibrancy of the community, and increasing the property’s rental income potential. However, it’s vital to ensure that the mixed-use development aligns with the local zoning laws and community preferences.

Partnering with Experienced Legal Counsel for Property Conversion

Tackling the legal intricacies involved in transforming commercial properties into residential areas can present a formidable challenge. It’s crucial to partner with an experienced legal counsel who can guide you through the intricacies of zoning laws, restrictive covenants, building codes, and permit requirements.

The attorneys at Gottlieb Law leverage extensive experience and determination to achieve superior results for clients. Whether it’s rezoning, land use issues, construction permits, and other real estate legal matters, Gottlieb Law is equipped to handle the legal aspects of commercial to residential property conversion and help guide clients through the process.

Final Thoughts

Transforming commercial properties into residential spaces offers a distinctive prospect for property owners and investors in Arizona. However, it’s a journey fraught with legal and regulatory challenges. From understanding zoning laws to complying with building codes, obtaining necessary permits, and tackling restrictive covenants, each step requires careful planning and execution. Gottlieb Law can provide the necessary legal guidance and support to navigate this complex landscape, ensuring a successful and profitable property conversion.  Call us today at 602-899-8188 or schedule an initial consultation online using our contact us page.  

Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship.  You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation.