Project developers focus on converting underperforming office buildings into apartments

If you’ve ever looked for an apartment in Greater Boston, you know how competitive it can be. Asking rents are high: The median asking rent in metro Boston was $2,873 in June, up 7.6 percent from last year, according to real estate brokerage Redfin. What’s more, available apartments are few and far between. According to apartment listing site RentCafe.com, 94.9 percent of apartments in Greater Boston were occupied in the fourth quarter of 2023, and there were eight potential renters for every available unit, often leading to bidding wars.

“There are more people looking for housing than there are available apartments,” said Van French, managing director of leasing for Gibson Sotheby’s International Realty in Boston. “It’s a difficult and frustrating cycle for renters, and even more so for lower-income renters who can’t afford a bidding war.”

That is why the possibility of creating new apartments, including affordable ones, by converting existing office buildings into homes is attracting the interest of some project developers.

“We looked at the opportunities that were opening up in the office market in early 2023 because we noticed the high vacancy rates in the buildings we were visiting,” said Adam Burns, founder of Boston Pinnacle Properties. “We traditionally define ourselves as multifamily ground-up developers, but as the cost of capital became prohibitive, we looked for other ways to create housing in a tough environment.”

Burns is leading the first office-to-apartment conversion project approved under a newly expanded pilot program launched by the Boston Planning & Development Agency in October 2023. The program offers incentives to developers to convert office buildings into housing. According to a press release announcing the extension, the program received nine applications to create a total of 412 apartments in 13 buildings — projects that will convert 403,000 square feet of office space into apartments.

Office-to-condo conversions are a win-win for all parties involved. Office building owners benefit by selling underperforming or vacant assets; multifamily developers can often seize redevelopment opportunities at bargain prices — and with government incentives to subsidize development costs; and the community benefits by creating new rental housing, some of it affordable. Vacant office buildings become homes, helping to revitalize entire neighborhoods.

Burns will renovate the interior of an existing six-story building at 281 Franklin St. and convert it into 15 apartments, three of which will be affordable. He said light-duty construction and minimally invasive work in the basement will begin as early as later this month, with full work scheduled to begin in the fall. When complete, market-rate rents for the units will start at $3,200, he said.

Office-to-condo conversions aren’t without their challenges, however. According to Biria St. John, a vice president at CBRE in Boston who co-leads the New England Multifamily Investment Sales team, zoning approvals take time, financing can be hard to come by, and the physical footprints of older office buildings can be limiting. “Midblock buildings that only have windows in the front and back rarely work, so a lot of these conversions are smaller buildings on a corner,” he said.

What’s more, once construction begins on an old office building, developers can be in for a surprise. “You have no idea what’s going to happen when you tear open the walls,” says Caitlin Sugrue Walter, Ph.D., vice president of research for the National Multifamily Housing Council. “The unknown financial costs are a big downside to these transactions.”

As a result, the expected cost of an office-to-condo conversion can vary from initial projections. “We’ve seen the cost vary widely, from $150 per square foot to $400 per square foot or more,” Burns said. “The advantage of the adaptive reuse process is that there are components of an existing office building that can be reused, but the extent to which they can be reused has a big impact on the cost of the conversion. Other factors, such as working with a building that doesn’t have a suitable floor plate for residential conversion and trying to make it work, will drive up the cost.”

Robyn A. Friedman has been writing about real estate and the housing market for more than two decades. Follow her @robynafriedman. Send comments to [email protected]. Follow Address on Twitter @globehomes and sign up for our free newsletter at Boston.com/address-newsletter.

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