Minneapolis Mayor Frey backs the conversion of office towers to apartments
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Minneapolis Mayor Jacob Frey is beginning a push to convert office towers into apartments.
Why it matters: Downtown continues to struggle because of a loss of office workers, and Frey told Axios replacing some of them with residents will liven up the core of the city.
State of play: The shift to remote and hybrid work is leading to rising vacancy rates for downtown — and suburban — buildings in the metro. Companies are downsizing their offices, sometimes shedding as much as 75% of their space.
Reality check: Turning office buildings into apartments would help solve the metro's housing shortage, but it's not that easy. Real estate experts told Axiosthe cost of converting the towers can be prohibitive without government help.
What's happening: Frey is ready to offer city assistance. What exactly that could look like is still taking shape.
- One tool he mentioned is tax-increment financing (TIF), which uses the additional property tax revenue from a project to pay for development costs.
- The city approved a $12.3 million TIF package for a $75 million conversion of downtown's Northstar Center East office building into 216 apartments, 20% of which would be income-restricted.
What he's saying: Frey said the city is ready to be a TIF partner on more projects, but noted that "there's no blank checks here."
- He also said he supports the reinstatement of state historic tax credits that would help certain projects and would support more state and federal incentives beyond that.
- Gov. Tim Walz has included the historic credits in his budget.
The big picture: This is not just a Minneapolis problem. Other cities are already incentivizing office-to-apartment conversions.
- Chicago created a $197 million fund from its own TIF program for conversions, and the city has selected three projects that would create 1,000 housing units.
Between the lines: If it wasn't clear already, officials now have accepted that it could be a long time before office workers return to their pre-pandemic levels, if they ever do.
The bottom line: Minneapolis Downtown Council CEO Steve Cramer said the demand for office space will continue to decline and tenants will migrate to the newer and nicer buildings.
- "Other buildings are going to be left behind," he said. "Hence, we need to be thinking about what their next life is."