From Boston Business Journal, July 6, 2022
https://www.bizjournals.com/boston/news/2022/07/06/other-cities-are-turning.html
Since Covid-19’s arrival, there’s been
a lot of talk about converting office buildings in downtown Boston into
apartments or condos, to enliven a part of the city still missing many of the
commuters who once walked and shopped along its sidewalks daily. In fact,
office-to-residential conversions are a key plank of Mayor Michelle Wu's plan
to revitalize downtown.
While such projects are moving
forward in such cities as Philadelphia and Pittsburgh, there’s been
little to no activity in Boston. The reality is, in a city as old and expensive
as this one, with a life sciences industry gobbling up much of the real estate
in sight, converting offices into housing is a tougher task than it is
elsewhere.
“Conceptually, I see the
benefits,” said Gregory Minott, managing principal at the
Boston architecture firm DREAM Collaborative. “Architecturally, there are some
challenges.”
Not conversion-friendly
By the numbers, it would seem
there's plenty of opportunity in Boston. No major U.S. city has a higher percentage of its
downtown square footage taken up by office space, according to
a New York Times analysis of dozens of cities last year that used CoStar data.
Real estate firms look for a
few things when considering remaking offices into housing, like a building's
floor plates. If they're too large, some space will be unusable because it
won’t get enough daylight. If they're too small, builders may not be able to
fit enough units to make a conversion worthwhile. Many buildings that
predate World War II don’t fit the bill. Shape matters, too. A rectangular
footprint can be easier to work with.
Downtown Boston’s building
stock is not as conversion-friendly as those of other cities. The design
firm Gensler recently studied the office buildings in a large chunk of downtown
Boston, to see how many would be viable for an office-to-residential conversion.
Just 10 of 83, or 12%, scored high enough, said Todd Dundon, a principal at the firm. In other
cities, that figure is more like 25% or 30%, he said.
Many downtown buildings have
awkwardly sized floor plates or butt up against another
building, according to Dundon, making it impossible to put in windows
on one or more sides. Those few that rate highly enough, according to Gensler's
criteria, tend to have been built in the 1970s or later, he said.
Other U.S. cities have outpaced
Boston on conversions. In 2020 and 2021, almost 400 apartment units were
created in converted buildings in Boston, according to data from research firm
Yardi Matrix. By comparison, eight cities produced at least twice as many
converted units in the same time frame. Philly more than quadrupled Boston’s
total. (Those numbers include conversions from all types of buildings, like
hotels, factories and retail stores.)
Labs, labs and pricey land
Of course, nowadays in Boston,
landlords open to a conversion may be eyeing a potentially more lucrative
makeover: office-to-lab.
“Everybody’s first thought is
lab space,” said Charlie Adams, regional vice president for New
England at the affordable housing developer Pennrose.
Those projects are easier to
find: A one-time downtown WeWork site is now set to become lab space, and
lab-conversion work has already taken place at a long-time office building in
Winthrop Square. A life sciences real estate developer acquired a Summer Street office
building for the same purpose earlier this year.
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The Wu
administration is prioritizing the addition of downtown affordable housing, but
the high cost of buying property in the neighborhood — in part a function of
the lab craze — is making affordable-housing housing more difficult.
“It’s a great idea, and I think
there’s some real potential there,” said Adams, whose firm is converting
offices to housing in Hartford. “It all comes back to the land-acquisition
costs.”
Class B, C potential
For all the factors weighing
against residential conversions in downtown Boston, there are some market
dynamics that could push at least some landlords in that direction.
Class B and C office
buildings, considered to be of lower quality, are generally seen as the most
likely candidates for residential conversions. In the first three months of
2022, Class A office rents in Boston were in line with pre-pandemic highs, but
Class B rents were 11% lower than their previous peak, according to a Colliers
report. Similarly, vacancy rates were a good deal higher in Class B than they
were in Class A.
Class B landlords may be
waiting for corporate return-to-office policies to drive workers downtown and
rents back up, or for a lab developer to come knocking. But if those fail to
materialize, some may eventually turn to housing.
“The more vacant space there
is, the more pressure landlords are going to be under to figure out ways to
monetize their buildings,” Colliers research director Jeff Myers said.
Enlarge
A vacant office building at 25-29 Beach St. in Chinatown is for
sale, and the real estate firm representing the seller says most inquiries have
been about remaking the property for a residential use.
GARY HIGGINS / BOSTON BUSINESS JOURNAL
To encourage
office-to-residential conversions, the Wu administration has designated a team
in City Hall to help property owners with the transition. The Boston Planning
and Development Agency is looking to hire a planner focused on downtown,
including potential residential conversions, and plans to issue a solicitation
for quotes later this summer for a study of the feasibility of the conversions,
according to a BPDA spokesperson.
Other cities are putting up
money to get more housing in their downtowns. Pittsburgh’s mayor has announced plans for a fund to help
convert older offices to housing stock. Officials in Washington, D.C., proposed millions of dollars in tax
abatements a year to spur downtown residential development.
Real estate leaders say grants and tax incentives could help in Boston.
'It turned out to be a great project'
Locally, real estate professionals
report interest in the conversions. Boston City Properties is marketing a
vacant six-story office building on Beach Street in Chinatown for a sale price
of $15 million. Most potential buyers so far have expressed a desire to turn
the site to residential, according to Boston City Properties President Daniel
Amodeo. Smaller units catering to Tufts Medical Center residents and local
college students could make sense there, but “you’d definitely have to build
up,” he said, referring to the potential for a skinny tower on the site. If
more stories are not added, a lab conversion may make sense, Amodeo said.
There are success stories, too,
if not many of them — including one in the heart of Downtown Crossing.
Boston-based The Hamilton Co. decided to convert its office building at 8
Winter St. to residential in 2011, with office rents there failing to rise much
in the wake of the Great Recession, CEO Jameson Brown said.
The conversion took nearly two
years and required a gut renovation of the entire building. After a swoon
during the height of the pandemic, all but one of the 48 units in the
45,600-square-foot building at the intersection of Summer, Winter and
Washington streets is now occupied, Brown said.
“It turned out
to be a great project,” he said.
Gensler’s Dundon contended that
even a small number of office-to-residential makeovers downtown could have a
big effect.
“If 10 buildings in that
neighborhood were converted to residential, you’d all of the sudden have the
beginnings of a 24-7 neighborhood,” Dundon said.