Office-to-apartment conversions heat up
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Illustration: Tiffany Herring/Axios
The yearslong effort to turn office buildings into apartments is finally breaking through this summer, with three projects bringing hundreds of new residents downtown.
Why it matters: The conversions — two in Minneapolis and one in St. Paul — will provide a boost to local businesses that have long depended on office workers who are spending more time at home.
Between the lines: These are incredibly complex projects to pull off, because it's more expensive to convert buildings to residential than to build new and because landlords can't charge as much for converted space as new construction.
- That means taxpayers are heavily subsidizing the new projects. All of them are utilizing federal and state historic tax credits that offset a combined 40% of construction costs.
State of play: St. Paul's Galtier Plaza, long an office and retail complex next to Mears Park, received a city permit last week for a 166-unit conversion.
- Developer Bigos Management is spending $56 million on the project, which will make apartments out of the former office space of supercomputer company Cray. The city is helping with additional tax-increment financing.
- Schafer Richardson closed on $21 million in financing earlier this month and got a permit to convert the top three floors of a North Loop building into 42 market-rate apartments, according to the Minneapolis/St. Paul Business Journal. The ground floor of the building is home to acclaimed restaurant Spoon & Stable.
- Sherman Associates told Axios construction will begin this fall at the Grain Exchange building kitty-corner from Minneapolis City Hall, transforming most of the office complex into 232 apartments, 186 of which will be affordable. Sherman was also approved for tax-increment financing this month.
Yes, but: While these projects are a sign of momentum, a few hundred thousand square feet of office space being converted is just a drop in the bucket.
- Minneapolis has 9 million square feet of vacant office space and St. Paul has nearly 2 million, according to a new Cushman & Wakefield report.
What we're watching: There are several more conversions that have been proposed, including the Minneapolis Flour Exchange, the former South Minneapolis Wells Fargo campus and the iconic Yamasaki Building on Washington Avenue, which is slated to become a hotel.