Office-to-residential conversion in Spain: financing guide
An office-to-residential conversion in Spain is usually financed with a bridge loan to buy the building and a construction tranche drawn down against certified milestones, combined with the developer’s own equity. For an investor taking part in that debt, the key question is not just the interest rate. It is what the building is worth today, what it will be worth once finished, whether the planning permission is achievable, and how much headroom there is before a fall in prices or a cost overrun affects the loan. This guide explains how it works, with recent data and an illustrative example.
What an office-to-residential conversion involves
It is the transformation of a commercial building (offices, sometimes retail units or old hotels) into residential use. The municipal zoning plan must allow housing on that plot, the maximum density must not already be used up, and the building must meet habitability standards: natural light, ventilation, ceiling heights, accessibility and energy efficiency.
Not every office building works. Very deep floor plates leave interior areas without daylight, and lift cores or building services can force an almost complete refurbishment. That is why every deal is different and must be assessed building by building.
Why building conversions are growing in Spain
Housing demand clearly exceeds supply. As we explain in our analysis of Spain’s housing shortage, the country lacks hundreds of thousands of homes and ready-to-build land is scarce. At the same time, many older offices have become obsolete compared with the new, efficient buildings companies now want.
The result is an increasingly active conversion market. According to CBRE data reported by Alimarket (26 October 2026), the first half of 2026 was the most active period on record.
| Indicator | H1 2025 | Full year 2025 | H1 2026 |
|---|---|---|---|
| Changes of use identified | 23 | 73 | 46 |
| Floor area converted | — | Over 392,000 m² | Over 224,000 m² |
| Investment in deals involving a sale | — | — | EUR 390m (+115%) |
| Residential (living) or hotel end use | — | — | 91% of deals |
Two nuances from the same report: offices were the original use in 35% of cases (historic buildings and other disused properties are also being converted), and Madrid attracted 73% of the capital invested, with 13 projects, compared with 3 in Barcelona.
How an office-to-residential conversion is financed
The usual structure has three layers, from lowest to highest risk:
- Senior debt secured by a mortgage. It funds part of the purchase and the works. It ranks first over the building and is repaid before anyone else.
- Intermediate tranche, if any. Subordinated or mezzanine debt that fills part of the gap between senior debt and equity. It is repaid after the senior lender and requires a higher return.
- Developer’s equity. It absorbs the first losses and any cost overruns.
Senior debt usually has two tranches. The first is a bridge loan to buy the building while the change-of-use licence is processed. The second is a construction tranche that is not paid out in one go: it is drawn down in stages, once an independent surveyor certifies that the works have progressed. This way the lender never advances money for work that has not been done.
Traditional banks finance these projects cautiously, especially before the licence is granted and when the developer has no pre-sales. Alternative lenders often fill that gap in time and risk, focusing mainly on the project’s viability and its exit plan (selling the homes or refinancing with a bank on completion). We explain the bank-to-alternative handover in more detail in our article on bridge-to-term structures.
The three metrics an investor should ask for
- LTV on current value (as is): the loan compared with what the building is worth today, as offices. It is the protection if the project stalls.
- LTC (loan to cost): the loan compared with the total project cost. It shows how much the developer puts in.
- LTGDV (loan to gross development value): the loan compared with the estimated value of the finished homes. It measures the headroom if everything goes to plan.
Illustrative example: how a lender’s headroom is measured
Illustrative, hypothetical example with round figures, unrelated to any real deal. A developer buys an office building for EUR 4,000,000, budgets EUR 3,000,000 for works and EUR 500,000 for licences, design and other costs. Total cost: EUR 7,500,000. A valuer estimates the finished homes will be worth EUR 10,000,000.
The loan is EUR 4,500,000 (60% of cost): EUR 2,000,000 on purchase (50% of the price) and EUR 2,500,000 for works, drawn against certified milestones. The developer contributes EUR 3,000,000 of equity. The initial LTGDV is 45%.
| End-value scenario | Value of the homes | Final LTV | Headroom over the debt |
|---|---|---|---|
| As planned | EUR 10,000,000 | 45.0% | EUR 5,500,000 |
| 10% fall | EUR 9,000,000 | 50.0% | EUR 4,500,000 |
| 20% fall | EUR 8,000,000 | 56.2% | EUR 3,500,000 |
| 30% fall | EUR 7,000,000 | 64.3% | EUR 2,500,000 |
In this example, the end value would have to fall by 55% to equal the debt, before enforcement costs and default interest. A 15% overrun on the works (EUR 450,000) would be borne first by the developer’s equity. But note: the real headroom depends on the works being completed. If the project stops halfway, what matters is the value of a half-converted building, which can be considerably lower. That is why the LTV of the first tranche and milestone-based drawdowns matter so much.
Trends: what is happening worldwide and in Spain
- Europe is buying offices to convert them. According to MSCI data reported by Bisnow (25 August 2026), 17% of office sales in Europe’s central business districts in H1 2026 were earmarked for refurbishment or redevelopment, a 14-year high and above the 13% long-term average.
- Liquidity strain in US private credit. Blackstone’s largest non-traded private credit vehicle received about USD 4.3bn of redemption requests in the third quarter, around 10% of its shares, and kept its 5% quarterly cap (BNN Bloomberg, 3 September 2026). Remember that private debt is illiquid: only invest money you will not need during the term.
- Spain: record number of changes of use. 46 conversions in H1 2026, double the figure a year earlier, and EUR 390m invested in deals involving a sale (CBRE via Alimarket, October 2026).
- Euribor remains high. The 12-month Euribor stood at 3.239% in October 2026, 1.052 points higher than a year earlier, according to a Banco de España (Spain’s central bank) press note of 3 November 2026. Higher rates make exit refinancing more expensive and squeeze project margins.
For a private investor, the message is twofold: more conversion projects need capital, but the rate environment and illiquidity call for selectivity on structure and term.
Risks to consider
- Planning risk. If the change-of-use licence is delayed or refused, the building remains an office and the exit plan changes completely.
- Technical and cost-overrun risk. Conversions hide surprises: structure, services, asbestos, façades. Overruns reduce the headroom.
- Timing risk. Delays in works or licensing extend the investment and increase accrued interest.
- Market risk. If house prices fall or sales slow, the end value may fall short of the plan.
- Illiquidity risk. There is no secondary market: capital is usually tied up until the sale or refinancing.
- Enforcement risk. The mortgage mitigates but does not eliminate risk: enforcing it takes time and money, and a half-converted building is hard to sell.
Every private debt investment carries risk, including the partial or total loss of capital.
How we analyse this type of deal at Ondara
Since 2018, Ondara Group has worked with real assets as collateral. In conversion projects we review planning viability before committing capital, obtain valuations of both current and completed value, and favour structures with milestone drawdowns and meaningful developer equity. We seek target double-digit returns, always as a target and never guaranteed, and we diversify across deals. Investors deal directly with the management team. Learn more about who we are and our brands, or read about other residential formats in our guide to financing flex living and build-to-rent.
Frequently asked questions
What is the difference between LTV and LTGDV in a conversion?
LTV compares the loan with the building’s current value; LTGDV compares it with the estimated value of the finished homes. The first protects you if the project stalls; the second if it reaches completion.
Why are the works financed in stages?
So that the money lent follows the actual progress of the works. An independent surveyor certifies each stage before each drawdown, so the lender does not advance funds for unfinished work.
Can any office be converted into homes?
No. It depends on the municipal zoning plan, the density allowed on the plot and whether the building can meet habitability standards. Each city council has its own rules.
What happens if the change-of-use licence is not granted?
The project is delayed or rethought. That is why the first loan tranche should have a moderate LTV on the building’s value as offices.
How long is the capital usually invested?
It depends on licensing, works and sales. Conversion projects typically have a horizon of several years, which can lengthen if delays arise.
In summary
- An office-to-residential conversion is financed with a bridge loan, a milestone-based construction tranche and developer equity.
- Conversions doubled in Spain in H1 2026, according to CBRE.
- Investors should look at current LTV, LTC and LTGDV, not just the interest rate.
- The main risks are planning, technical, timing, market and illiquidity.
- All investments carry risks, including the loss of capital.
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This article is for information purposes only and does not constitute an investment recommendation or financial advice. All investments carry risks, including the possible loss of the capital invested, and past or target returns do not guarantee future returns. Analyse each opportunity with a professional before investing.
