Worcester Business Journal

10 Worcester Business Journal | May 27, 2024 | wbjournal.com Converting offices into apartments sounds like a quick fix to the housing crisis, but insiders say it's not that simple Cubicles to communities BY ERIC CASEY WBJ Staff Writer M ore American office space is sitting empty than at any point since 1979, according to a January report from New York-based Moody's Analytics. A WBJ analysis shows Central Massachusetts is no exception. Data from CoStar, a real estate information firm based in Washington, D.C., reveals at least 44 properties in the area have had 10,000 or more square feet of office space for lease for more than two years. At the same time, the region is facing a housing crisis. Gov. Maura Healey identified the state's housing crunch as her top priority in a March interview with GBH News, and an April study by Forbes Advisor, a financial news and information service in New Jersey, found Greater Worcester was the third-most competitive rental market it studied. Forbes found Worcester had the second-lowest vacancy rate of examined areas, at 1.7%, with a median price of $1,995 per rental, almost $200 higher than the study's median price of $1,804. With an abundance of empty offices and a lack of supply of apartments, it may seem like converting offices to residential units would be an obvious solution to both problems. Not so fast, say real estate insid- ers. While it may seem like a simple solution, attempting to convert an office building into an apartment building can quickly turn into a logistical and financial boondoggle. A few developers have proposed office-to-multifamily projects in Central Massachusetts, ranging from urban structures in Worcester to suburban buildings in Marlborough. Others are standing on the sidelines, waiting to see how these plans play out. Infrastructure issues e untrained eye might see an expan- sive, open-plan office space as a blank canvas, easily filled by apartment units. But to a more experienced viewer, the infrastructural challenges to conversion quickly become apparent. "Depending on the shape of the building, the cores will be located in one or two vertical shas all the way through the building," said Jim Bartholomew, vice president of R.W. Holmes Realty, a commercial real estate firm based in Wayland. He is referencing the interior structures containing wiring pipes, eleva- tor shas, and stairwells. "Once you start running hallways or building separate units, that's going to make it much more difficult to bring plumbing to each unit." All that extra water, sewer, and electri- cal infrastructure raises costs. "If it's a concrete floor building, you're going to have to core through that, which causes significant expenses," he said. "Water lines are one thing, but sewer lines are just a whole other operation. It's just much easier to put that in a building that has a shell of an envelope versus one that's already established as an office building." Heating and cooling is another issue. "An office building has one central system. It's one system that heats and cools the whole building in different zones," said James Umphrey, president and principal owner of Worcester-based real estate firm Kelleher & Sadowsky Associates. "But the HVAC system is not designed to be split up into 200, 1,000-square-foot units." Seeing the light Even in today's housing market, you won't find many people willing to live in a windowless apartment. But with large, square buildings, it can be difficult to design floor plans with enough windows for each unit. "Even if a building was 50 feet in depth going along the window line, to be in a position to build a 1,000-square-foot unit, it would have to be 50 feet by 20 feet," said Umphrey. at's an awkward shape for an apartment. Even commercial buildings with high vacancies may not be entirely empty. "Any tenants that are still in that office building are going to have the right to stay there through the term. It would just add another expense to it to have to buy them out," he said. All these obstacles can be overcome for the right price, but with sky-high construction and labor costs, developers aren't exactly eager to pull the trigger. Downtown development Logistical and financial challenges might explain why office-to-multifamily conversions have historically been a rare phenomena. ese types of projects have only made up approximately 1% of completed multifamily projects over the past 20 years, according to a March 2023 study conducted by CBRE, a global real estate company based in Dallas. Still, attempts are being made to convert downtown Worcester office buildings into housing. e most recent proposal involves One Chestnut Place, the 11-story former headquarters of Fallon Health. Synergy, a Boston-based real estate firm, purchased the building for $10.5 million in March 2023. In February, City Manager Eric Batista's tax increment exemption proposal stated Synergy sought to build 198 market-rate apartments in the building, with 22 affordable units next door. Synergy declined to be interviewed for this article. Construction is scheduled to begin this summer, but if delayed, it wouldn't be the first Worcester office-to-multi- family proposal to get stuck in limbo. Property purgatory In June, WinnDevelopment, a subsid- iary of Boston-based management firm WinnCompanies, announced plans to convert the historic Slater Building at 390 Main St. into a mixed-use, mixed-in- come development featuring a to-be-de- termined number of apartments. Almost a year later, the sale hasn't been finalized, according to Worcester District Registry of Deeds records. In a statement to WBJ, Winn reiterat- ed its commitment to the project, while hinting at a need for more financial and municipal support. e Commerce Building, located at 340 Main St., and two nearby parking lots were bought by the SilverBrick Group, a Florida-based real estate firm, for $14.4 million in 2020. SilverBrick won municipal approval for the project, but now appears to be attempting to sell Jim Bartholomew, vice president of Wayland-based R.W. Holmes Realty PHOTO | EDD COTE Real estate developers are keeping a close eye on office-to- multifamily proposals, including Synergy's plans for One Chestnut Place in Worcester.

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