Jan 31, 2023 - Business

Turning office towers into apartments is tricky, especially in Minneapolis

Illustration of a high-rise office building with an oversized "Home sweet home" embroidery piece framed and hanging from the roof

Illustration: Annelise Capossela/Axios

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.


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