Transformation in Downtown Boston: Converting Office Spaces into Homes
The Boston Planning and Development Agency (BPDA) has recently given its approval for a significant transformation in downtown Boston—a conversion of commercial office space into residential units. Under this new initiative, two prominent buildings will be transformed into a total of 175 apartments, which include 80 units at 15 Court Square and 95 units at 85 Devonshire Street. The projected conversion cost for this ambitious project is approximately $65 million, but developers will need to secure additional equity financing to turn this plan into reality.
Involved Parties and Financial Strategy
A striking element of this project is the involvement of KS Partners, a company primarily focused on commercial real estate. As the venture shifts towards residential property, there is a clear intent to bring in residential experts to manage the conversion. According to Biria St. John, vice chairman of CBRE’s multifamily capital markets team in Boston, collaborating with specialists in the housing sector will not only streamline operations but also improve cost efficiency over the long term.
St. John notes, “It’s obviously a sizable project that requires a fair amount of equity,” emphasizing the economic advantage of scale. He explains that marketing costs remain relatively similar whether for an 85-unit building or a 150-unit one, making larger projects more financially appealing.
Key Features of the Properties
The BPDA’s plans highlight the notable features of the chosen locations. The 85 Devonshire St./262 Washington St. property boasts 16,500 square feet of fully occupied retail space right in the heart of Downtown Crossing. Such a prime location is crucial, especially in a market that thrives on “strong market trends” and a “24/7 urban lifestyle.” The marketing approach aims to attract investors through the allure of a lively, well-situated property where residential units can coexist with retail.
Tax Breaks and Economic Incentives
To spur these kinds of projects, Boston’s Mayor Michelle Wu has launched a generous tax break program aimed at residential conversions. This initiative includes a potential reduction of up to 75 percent on the residential tax rate for nearly 29 years, significantly decreasing the financial burden on developers. Since the introduction of this program, the city has already received 15 applications for the creation of 762 housing units across 20 different buildings, indicating a robust interest in transforming underutilized spaces into homes.
Challenges in Conversion
Despite the affirmative steps towards residential changes, challenges remain. Kairos Shen, Boston’s Planning Director, noted that the spatial constraints and financial incentives related to office-to-residential conversions are complex. “Converting underused office spaces to residential is still a program that requires the incentive that the program has built in,” he stated during a recent hearing.
St. John echoes this sentiment, highlighting that the conversion process can often become as costly as new construction due to evolving building codes and high construction costs. He points out that recent changes, including the state’s specialized stretch energy code, have further complicated affordability in development projects.
Securing Additional Funding
To address funding gaps, KS Partners is not just relying on city incentives. They are actively pursuing federal and state historic tax credits, essential components of the project’s financial viability. Given the rising costs associated with construction and compliance, these credits are seen as pivotal in making the project feasible.
Market Reaction and Investor Interest
Reactions from potential investors have been positive so far. St. John mentions that the project has garnered “very good engagement” from interested parties, although exact identities remain undisclosed. Mark Fallon, director of research and strategy at Hunneman, reinforces the importance of existing city approvals for redevelopment, suggesting that such regulatory clearance adds significant value when seeking partners. Still, he cautions that potential buyers will evaluate overall financial sense, contemplating construction costs, labor shortages, and rising interest rates.
Conclusion
While the conversion of office spaces to residential units in downtown Boston signals a progressive shift towards accommodating housing needs, the path ahead is fraught with both challenges and opportunities. The project highlights a promising venture for urban living, balancing commercial interests with the pressing demand for more residential options within the city.