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Last April, I wrote about office to residential conversions, and the various challenges in making such projects work. On October 11, 2022 the Oregon NAIOP Chapter hosted a panel to discuss how we might make such conversions projects economically viable in Portland.
Office to residential projects could potentially solve two problems we have in Portland – high office vacancy rates, which are forecasted to get worse in the next few years, coupled with a desperate need for more housing. And in the new work-from-home reality, bringing home downtown becomes the new de facto downtown office environment. But, as I described in my prior post, these projects can be difficult to get off the ground.
At the NAIOP panel, we first heard from Duanne Render from Gensler. Gensler has developed a tool to determine the feasibility of conversion projects based on five categories and giving various weights to each category based on importance: site context (10), building form (30), floor plate (30), envelope (10), and servicing (such as parking) (20). Based on the score generated by the algorithm, Gensler can predict which projects are likely to be successful and which are not. In a nutshell, according to Mr. Render, “bad office makes good residential;” meaning Class B and C office buildings are better suited for conversions mostly due to smaller floor plates essential for residential use. But, they also may have high ceilings, which once converted to residential, make the space seem more luxurious. He also noted that creating additional amenities may compensate for other project deficiencies, such as an irregular building shape.
Mr. Render then showed some examples from Calgary, Alberta of successful office to apartment conversions, and noted that Calgary has been able to increase downtown residential by 23%.
We next heard from Michelle Schulz with GBD Architects, who put things in context for Portland. She agreed that smaller floor plate buildings close to amenities make for the best projects, and that Class B and C office buildings in downtown Portland may also have operable windows, which is helpful for conversions. Additionally, she noted that in the downtown area, zoning for the most part allows for residential uses, which makes Portland unlike other larger cities that have banned residential uses in their downtowns. However, in order to entice people downtown, there need to be amenities like daycare, schools, and grocery stores, especially if the subject building doesn’t have parking. But, the biggest issue when it comes to Class B and C buildings is need for seismic upgrades for residential use. Such upgrades are usually what makes conversion projects prohibitively expensive compared to new development. Ms. Schulz emphasized the need for financial incentives to make conversions pencil out. Which is where the final panelist came in.
Andrew Fitzpatrick from the Portland Mayor’s Office focuses on initiatives to revitalize downtown and has specifically been working on how the city may incentivize office to residential conversions. The city sees such conversions as an important piece of revitalizing downtown. According to Mr. Fitzpatrick, the city is currently looking at three ways to incentivize these projects: system development charge (SDC) exemptions, property tax exemptions for seismic upgrade costs (for which a statewide framework already exists), and making the permitting process more agile. Additionally, the city is talking to legislators about a seismic fund or tax exemption.
Right now, it seems like the ball is in the city’s court to help make these projects feasible for developers. Let’s hope they can find a way to reduce project costs so that currently under-utilized space can be reactivated in our city’s core.