Turning office towers into apartments is tricky, especially in Minneapolis

The Twin Cities need more housing, and downtown Minneapolis office towers are becoming emptier. That’s led to speculation that skyscrapers will be turned into apartments.

Yes, but: It's not that easy.

Driving the news: A recent report by real estate firm CBRE predicts that the volume of office space in the U.S. converted into apartments will double this year compared to 2022.

Zoom in: While we've seen some of that activity locally in recent years, particularly in St. Paul, downtown Minneapolis is a tougher code to crack for developers.

Between the lines: Minneapolis has a more modern skyline than St. Paul, with over a dozen office skyscrapers built in the last 50 years. St. Paul preserved many of its old buildings.

What they're saying: Towers built in the 1950s and later were constructed with larger floors thanks to the introduction of fluorescent lighting and air conditioning, said Meghan Elliott, founding principal of New History, a historic building reuse consulting firm based in Minneapolis.

• That means modern office buildings have lots of space in the middle that is far from a window, which is typically a must-have for an apartment tenant.

The intrigue: Apartment developers and the lenders who finance their projects need to get creative on how they use the middle of the buildings, Elliott said.

• Potential uses could include daycare centers, schools, retail or storage, Elliott said. Or, in some cases, it could be cut out to make more natural light for apartments.

What's next: Even if developers solve the problem of the middle of buildings, these projects remain a struggle to finance because in some cases they can be more expensive than building new.

• On top of that, the Minnesota Legislature allowed its historic tax credit program to sunset last session. Those credits incentivized developers to rehabilitate historic buildings.
• While many of downtown Minneapolis' office towers aren't historic now, they could be soon.
• "The rule of thumb on a building being historically designated is 50 years or older," Elliott said. The iconic IDS Center just turned 50.

What to watch: Gov. Tim Walz has proposed reinstating the historic tax credits in his budget.