Minneapolis to convert deserted downtown offices into apartments

I’ve written a few times recently about the looming budget problems in Minneapolis and St. Paul resulting from the collapse in commercial real estate prices.

These prices are down, for the most part, because the offices are much more sparsely occupied than they were before COVID-19 hit. The Minneapolis/St. Paul Business Journal reported that the Forum buildings in downtown Minneapolis — which just sold for $10.25 per square foot, 90% less than they were bought for in 2019 — “have an occupancy rate of about 45%, as of earlier this year.”

What to do with the growing number of deserted office buildings in downtown? The Minnesota Reformer reports:

Minneapolis Mayor Jacob Frey signed an ordinance Tuesday that will ease the regulatory burden on developers who want to turn empty office buildings into apartments. 

The move is expected to cut costs for developers and signal to private investors that Minneapolis is “open for business,” said Michael Rainville, a Minneapolis City Council member representing parts of downtown.

…

Nationwide, offices are increasingly becoming housing, but developers face city zoning restrictions, challenging construction and relatively high (but falling) interest rates. 

Minneapolis leaders hope the conversion of empty office buildings into housing will increase the number of people downtown, stabilize tax revenues, attract more businesses and increase safety.

“This is no longer going to just be a place where people come in to work at 8 a.m. and leave at 5 p.m.,”  Frey said.

Under the new rules, commercial-to-residential conversion projects will not be subject to public hearings — instead, the plans will only require approval by city staff. The ordinance will also exempt projects from intensive traffic studies and from an inclusionary zoning ordinance that requires developers to designate a portion of apartments as “affordable housing” or pay large fees instead.

Converting offices to residential use is notoriously difficult. As the Center for American Progress notes:

Office buildings and multifamily housing differ fundamentally in their design, and successfully converting office buildings into apartments can be a challenge due to physical limitations. Some of the issues in office buildings include the lack of access to natural light and air. Office buildings with large floor plates—the amount of rentable square footage on one floor of a commercial building—make it difficult to bring natural light to the core of the structure. Although some historic office buildings have narrow floor plates that are suitable for conversion, many modern office buildings—particularly large glass and steel office buildings—do not. These buildings may need significant structural interventions to bring enough natural light into the living space, require significant plumbing changes to accommodate multiple apartment units on each floor, and may lack windows that open. Most office buildings do not have balconies, and many are constructed with just two large bathrooms per floor, which is not sufficient.

This does not sound like very appealing housing, certainly not for a family, and is another example of development geared to single or childless people. Perhaps this is a sensible reaction to the decline of family formation in the United States, or maybe it is part of the cause.

Neither is such redevelopment going to solve the city’s budget problems. Commercial property is generally taxed more heavily than residential property so the transfer of property from commercial to residential use still represents a hit to the city’s finances. This is especially the case if the housing is designated “affordable” and the tenants qualify for relief on their property taxes. The Minneapolis ordinance seeks to avoid this by “exempt[ing] projects from…an inclusionary zoning ordinance that requires developers to designate a portion of apartments as “affordable housing” or pay large fees instead,” but, then, it is hard to see people paying top dollar for apartments with little natural light and insufficient plumbing.

There are no easy solutions to the problems Minneapolis faces.