Ever since the start of the pandemic, the Boston real estate market has been turbulent.
On the one hand, the rise of remote work means the demand for office space has plummeted, with a nearly 20% vacancy rate in metro Boston office space. That's a higher amount than what we saw during the 2008 recession. It's left downtown feeling a bit empty.
On the other hand, the city faces a severe lack of housing. With rents skyrocketing and the median home price reaching $900,000 last month, the city is becoming increasingly difficult to live in.
In order to address those two issues, the city of Boston is launching what they're calling the Downtown Office to Residential Conversion Pilot Program. The program helps to incentivize developers to convert their empty office buildings into residential properties, helping to alleviate the housing crisis while breathing new life into the city's downtown. To help us understand the ins and outs of the program, Arthur Jemison, the director of the Boston Planning and Development Agency spoke with GBH's All Things Considered guest host Craig LeMoult. This transcript has been lightly edited for clarity.
Arthur Jemison: Thrilled to be here. Thanks so much for inviting me.
Craig LeMoult: So, to start us off here, can you tell us about the program? How does it work? What are the incentives for developers to convert their properties?
Jemison: The incentive is probably easiest to start with. What we're proposing is that if you're a developer or more likely an owner of an office building who would like to convert your building to residential, we can make available a tax abatement of your property for between 25 to 29 years, depending on the circumstances. That would reduce your tax obligation on your residential building that you convert to by approximately 75%. That's the the basic gist of the program. It'll be administered through an application process. We'll ask folks who would like to convert their building to residential to propose the exact amount of abatement they would like.
LeMoult: What impact do you think this could have on downtown?
Jemison: Well, the way to think about it is if you were to walk through the financial district of Boston, you'll see it's increasingly active with the summer holidays, there are some residents down there and a few residential buildings, but just even a change of one to three historic office buildings to residential use would have a huge difference in the way that that neighborhood feels and add a lot of life and activity and support to the commercial businesses there and add even more use to the parks, Theater District, and other activities around it. The opportunity to live downtown is an opportunity that I think many people would like to take advantage of.
There's one additional aspect I'd like to highlight, which is the program also requires that the city's new inclusionary development policy, the provision of 17% IDP units, affordable units, would also be part of the transition. So, not only would we be creating great places to live and work in downtown, we'd also make sure that a wide range of Bostonians would be able to take advantage of living there.
LeMoult: Yes, that's a key point because it seems like every new property that goes up is luxury apartments and there's a concern that maybe those properties might be just more luxury housing. But your approach here will ensure that there will be more affordable options here?
Jemison: Exactly. The board of the Boston Planning and Development Agency earlier this month, passed a new inclusionary development policy requiring that 20% of each development be affordable, 17% at a 60% area median income and another 3% to make sure that people who have Section 8 vouchers have a place to lease up.
LeMoult: Doing this kind of conversion isn't that easy, right? The office buildings aren't designed the same way an apartment building is. How challenging would it be to redevelop this space and make it into a usable residential space?
Jemison: This is a great question. First, we're really trying to target two to three buildings to start the program in the next couple of years. This is a very challenging thing to undertake. However, the number of studies and the plan that we've been working on for "plan downtown" have highlighted that in particular, at some of the older stock that is primarily in the financial district, there's a little more opportunity. A new and modern office footprint is more likely to have what we would call deeper dimensions, which make it a little less hospitable for conversion. But Boston, as a historic and longtime hub, has in the large number of the smaller scale office buildings that are a little bit more apt for conversion. So there's some of the physical cues that suggested these are present in those older buildings. But again, the issues that developers face here are challenging, and that's why we've got sort of a SWAT team established here, including our ombudsperson and staff of the Mayor's Office of Housing and the Assessor, who are prepared to help work through all the individual circumstances that the owners have to help them see a path to conversion.
LeMoult: You mentioned that you're targeting one to two out of the gate here. Are there specific properties that you're talking about? Are the ones that have said, "Yes, we will do this if you launch a program like this"?
Jemison: We've had, I would say, about five inquiries, about about three of them have been quite serious where developers have said, "I would love to participate in a program like this, and I'm really eager to come in and make the conversion." Again, each one has a different circumstances. There's a range of issues here in the sense that lenders and and owners are sort of measuring a conversion scenario against continued office use, thinking to themselves, "Well, I'm releasing into the market the office space that I have. Do I have a good chance of getting it fully occupied again? And if so, what will it be at the rates that I've historically enjoyed? Or would it be better to say I might end up maybe getting a little bit less value, but I have more certainty about the future of my building?" These are some of the things that the owners and developers are weighing. We've got a number of people who've come forward with great interest and we're we're working closely with them now so that when the program is launched, they're ready to go.
LeMoult: Has this worked anywhere else? Have we seen pilot programs like this in other cities, or is this unique to Boston?
Jemison: New York and Los Angeles both have had office to residential conversion programs that have been successful. And Chicago and Pittsburgh as well as Washington, also have recently launched programs in the same generation as what we're working on.
LeMoult: Well, we'll look forward to seeing how it goes to and seeing if it makes a difference in our housing situation and in the in the commercial real estate market here in Boston. Thank you so much for joining us.
Jemison: It was a real pleasure. Thank you for the invitation.
