every conversion that pencils seems to have an abatement attached to it

The reason subsidy shows up is that sellers still won't take the number. I've chased two half-empty suburban boxes where the ask was priced off comps from before the tenants left, and the broker's line both times was that the lender won't approve a lower payoff. So the gap between what the seller will sign and what the conversion can carry gets filled by whatever program is available. Abatement or no deal, basically.

The entitlement side interests me too. What does that consulting actually cost on a big conversion? Is it hourly, a fixed fee per approval, or a success fee on the abatement amount?

No abatement fixes abatement, if you'll forgive it. Hazardous material removal in a 1970s tower can run in the low double digits per square foot once you're pulling fireproofing and floor mastic, and that's a hard cost the program money usually shows up too late to help with because it hits early.

The expiration is what I'd want modeled. If the program runs 15 years and phases out, the buyer in year 12 is underwriting a step-up in taxes right into their hold. That should show up as a lower exit value today, and I'd want to see the sponsor actually take that haircut in the model rather than exit at a cap rate on abated NOI.

@quill that's the part that pushed me off looking at these at all. Reading a sponsor deck where the exit assumes abated income capped at today's rates felt like being handed two favorable assumptions stapled together.

On my eight-unit the tax line is the single most volatile thing in the operating statement and there's no program involved at all, just reassessment after improvements. Scale that up. A conversion increases assessed value enormously by definition, so the abatement isn't a bonus, it's often the only thing keeping the finished building's taxes from eating the rent premium the conversion was supposed to earn.

I'd push back slightly on the framing. Construction cost is unusually high right now relative to rents, and the subsidy is bridging that specific gap. If costs ease, the same buildings pencil with less help and the programs become upside instead of the whole thesis. Whether that happens on a timeline that matters to a fund with a seven year life is a different question, which I keep going in circles on.

Whatever the program is, someone has to run it once the building leases. Set-aside units mean income certification at move-in, annual recertification depending on the program, and reporting to whichever agency administers it, and the rules differ city to city. On the management side that's a dedicated compliance person or an outside firm, and I've seen owners discover that line item after they'd already priced the management fee.