Wu proposes tax breaks to spur office conversions downtown

Boston Mayor Michelle Wu is proposing to give downtown office building owners a property tax break of up to 75% for as many as 29 years to convert their properties into apartments or condos.

The move is meant to help revitalize a neighborhood hit hard by the emptying out of offices in the wake of the pandemic. While city officials first stressed the importance of office conversions to downtown’s recovery more than a year ago, the initiative marks the first time they have put forward financial incentives to make the changeovers a reality.

Real estate developers and property owners will have a short window to take advantage of the initiative: The city is expected to take applications beginning this fall, through June 2024. Projects will need to start construction by October 2025 or pay back any taxes. However, the city said in a statement that it may change the program based on market conditions.

Participants in the program would see savings of up to 75% off the standard residential rate, which is now $10.74 per $1,000 of value. For a property assessed at $20 million, that would amount to roughly $4.7 million in savings over the nearly three decades, though that amount would increase assuming the property gained value over time. The terms would be flexible, depending on the project: An owner may pay no taxes in the first five years, for instance, but receive less in the way of savings on the back end of the deal.

The tax breaks would be implemented through a payment in lieu of taxes, or PILOT, agreement with the city and the Boston Planning and Development Agency.

“We must take every possible action to create more housing and more affordability so that Boston’s growth meets the needs of current and future residents,” Wu said in a statement.

To be eligible, projects must meet Wu’s proposed inclusionary development policy, which would require at least 20% of on-site residential units to be income-restricted, as well as a new municipal code that requires high levels of energy efficiency in buildings.

When a building in the program is sold, the city would collect a payment equal to 2% of the transaction.

‘Playing catch-up’

Boston is playing catch-up to other U.S. cities when it comes to conversion incentives. Places like Washington, D.C., Pittsburgh, San Francisco and Portland have already introduced such incentives.

Since the pandemic, there has been little conversion activity in downtown Boston. Everett-based Thibeault Development plans to reposition the nine-story, 44,000-square-foot office building at 44 Bromfield St., next to Suffolk Law School, into a residential building with more than 40 units. Michael Nichols, president of the Downtown Boston Business Improvement District, said he is aware of a large-format building whose owner has expressed early interest in a conversion, though he declined to share which property at this point.

Nichols believes Wu’s initiative will move the needle when it comes to conversions. With the policy now public, he thinks owners will take a new look at the possibilities.

“The market was already studying conversions, and clearly we hadn’t seen a lot of movement,” Nichols said. “It was going to take something bold from the city.”

David Greaney, chief executive of the Boston-based real estate firm Synergy, said he and his colleagues have already had “constructive conversations” with the BPDA on conversions. One of Boston’s largest landlords, Synergy owns more than 20 office buildings in the city. 

But there is more to be done, he said.

“We appreciate Mayor Wu, Chief Jemison and their team’s efforts to find a solution to this important policy issue,” Greaney said. “There is still work to do to encourage the stakeholders to proceed and we look forward to seeing the full details of the conversion program.”

More details will be made available when the applications go online this fall, according to the administration. The city is positioning the initiative as a pilot program. The BPDA had previously hired the consulting firm HR&A Advisors to study potential conversions downtown. Its final report is expected to be released later this year, though city officials used HR&A’s research in coming up with the conversion initiative.

Separately, the design firm Gensler has been studying the conversion potential of downtown Boston’s buildings. According to its most recent research, 30% to 40% of the 90 buildings studied so far warrant further consideration for a conversion, up from estimates last year. That’s as much as 5 million square feet of potentially convertible space, according to Gensler.

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