How does as-converted vs. as-is NOI underwriting work on a conversion deal?

How the appraisal split works and what binds the loan size

Conversion appraisals come in two values: as-is (the existing office building's market value as office) and as-converted (the projected residential value at stabilization, post-conversion). Construction-loan sizing is driven by as-converted value with a completion-and-stabilization haircut. As-is value is reported but typically not the binding test on a true conversion.

Advance-rate mechanics: typical construction-loan LTV against as-converted is 60% to 70% (vs. 65% to 75% for ground-up construction), reflecting the higher execution risk of a conversion. LTC tests the total cost stack (acquisition + hard costs + soft costs + interest reserve + contingency) at 70% to 80%, generally the binding constraint when the conversion is heavy.

Completion guaranty mechanic: the sponsor and a credit-worthy completion guarantor sign a completion guaranty obligating them to fund any cost overrun and complete the conversion to a defined plan. Without an investment-grade completion guarantor, debt-fund pricing and structure widen materially. Some incentive programs (NYC 467-m, DC) require defined completion timelines tied to the abatement.

Stabilization gate: bridge-to-perm requires the converted asset to hit a defined occupancy and rent threshold (typically 90% physical, in-place rents within 5% of underwriting) for a 3 to 6 month trailing window before the perm take-out can fund. The construction lender's interest reserve must size to the stabilization period, not just the construction period.