Boston Attracts Developers with 75% Property Tax Break for Office-to-Resi Conversions

When CIM Group, based in Los Angeles, purchased a six-story office building in Boston, the initial plan was to renovate it. Rich Kershaw, vice president of development at the firm, mentioned that they intended to upgrade elevators, bathrooms, lobbies, and the facade with the hope of increasing rental income.

Impact of the Pandemic

The building, originally an industrial warehouse, stood out as a historic structure amidst Boston's modern glass towers. Despite successful upgrades, the pandemic drastically altered the market. With remote work becoming prevalent, Kershaw could only lease one of the six floors, leading him to conclude that residential use might be more viable for the foreseeable future.

Boston's Push for Residential Conversions

Boston is promoting residential conversions to tackle office vacancies and address the high demand for housing. The city is offering a 75% property tax break to encourage these transformations. Kershaw’s building is among 13 in Boston considering such conversions, a move aimed at both reducing vacancies and increasing housing in an expensive market.

Advocates and Challenges of Resi Conversions

Tim Love, founder of Utile Architecture and Planning, supports residential conversions, emphasizing their potential to create livelier downtown areas. However, only a small percentage of office buildings are suitable for conversion. High interest rates, labor and material costs, and the need for extensive mechanical upgrades pose significant challenges. Additionally, housing generally generates lower rents compared to office spaces.

Financial Incentives and Affordability Requirements

To support conversions, Massachusetts is offering up to $4 million in subsidies per project. Developers like Kershaw view these incentives as crucial. Boston also mandates that 20% of new housing units in conversions must be affordable, ensuring lower-income residents benefit from these projects.

Similar Efforts in Other Cities

Cities like Chicago and New York are also pursuing office-to-residential conversions. Chicago has embarked on a large-scale project involving 10 city blocks, backed by over $150 million in subsidies, with a portion of units designated as affordable. New York is looking to rezone areas to facilitate more conversions, with significant interest from developers despite the challenges of converting newer buildings.

Potential but Limited Impact on Housing and Real Estate

While conversions alone won't resolve Boston's commercial real estate issues or housing shortage, proponents believe even a single successful project can positively impact its immediate surroundings. The city acknowledges the need for 69,000 new housing units in the coming years, with conversions being one part of the solution.