NAIOP Massachusetts played an active role in passage of a state bill that makes it easier to pursue office-to-residential conversions.
It’s no secret that major cities across North America are still feeling the impacts of the COVID-19 pandemic on the office market. According to Collier’s recent report “The U.S. Office Market 5 Years After COVID,” the pandemic’s impact “triggered a sharp decline in the U.S. office market as companies reassessed their real estate strategies by rethinking how much space they truly needed, how to utilize it, and where it should be located.”
Another trend dominating market discussions is the widespread housing crisis, brought on by decades of underproduction. In Massachusetts, restrictive zoning and fragmented regulations have resulted in a severe supply-demand imbalance, driving home prices and rents to unsustainable levels and becoming a major concern for the state’s competitiveness. Employers at all levels repeatedly cite Massachusetts’ housing shortage as a key challenge in attracting and retaining talent.
Given these two trends, it’s no surprise that conversations about commercial-to-housing conversions have increased. While the concept is not new, both the public and private sectors have shown greater interest in encouraging these projects. Still, challenges remain. In Massachusetts, where the building stock is significantly older than in many other parts of the country, feasibility is a significant barrier. In 2022, a study on the viability of office-to-residential conversions found that only 10 of the 84 buildings Gensler analyzed in Boston warranted further review. In addition, conversions in Massachusetts are more expensive than ground-up construction due to the complex energy and building regulatory frameworks in place.
Advocating for the Affordable Homes Act
In 2022, Massachusetts Gov. Maura Healey was elected on a pro-housing platform, and there was a swell of support for addressing the commonwealth’s housing needs. In fall 2023, Healey introduced the Affordable Homes Act (AHA), a historic bond bill focused on providing resources for the preservation and creation of housing. NAIOP Massachusetts was engaged from the beginning, briefing the administration on the industry’s housing and economic development priorities.
As AHA moved through the legislative process, NAIOP Massachusetts deepened its relationships with key policymakers, including Rep. James Arciero, House chair of the state Legislature’s Joint Committee on Housing. Arciero conducted listening sessions across the commonwealth and met with stakeholders from all backgrounds as priorities were heard before his committee. As part of these discussions, NAIOP Massachusetts served as a resource on the topic of conversions, emphasizing that the cost was significantly higher than the expense of ground-up construction. NAIOP Massachusetts also shared proposed federal legislation supported by NAIOP Corporate, the Revitalizing Downtowns and Main Streets Act. At the time, the federal legislation demonstrated bipartisan recognition — at a national level — that tax credits could jump-start production on these challenging projects.
Gov. Maura Healey’s signing of the $5.16 billion Affordable Homes Act was cause for celebration for NAIOP Massachusetts. Office of the Governor of Massachusetts
Prior to the Joint Committee on Housing releasing its language for AHA, Arciero reached out to NAIOP Massachusetts and asked how the Legislature could make a tax credit work for conversion projects. The chapter provided feedback on other tax credits that have worked to stimulate the production of market-rate housing in the commonwealth, including the Brownfields Tax Credit and the Housing Development Incentive Program.
NAIOP Massachusetts’ top priority was ensuring that the tax credit could make a meaningful difference. After discussing thresholds and challenges with chapter members who were tackling conversions across the state, NAIOP Massachusetts suggested state-specific changes to the legislation being proposed at the federal level. The chapter successfully advocated for the final state language to allow a tax credit of up to 10% on the total construction cost of individual projects (excluding land purchase) and to be available to projects including a minimum of 80% market-rate development. The Massachusetts House of Representatives formally adopted the language into its version of AHA. In addition, a new $50 million Momentum Fund was created to support the development of workforce housing.
NAIOP Massachusetts also met with key members of the state’s Senate leadership to advocate for the tax credit and the Momentum Fund’s inclusion in a final bill, as well as for the addition of language addressing frivolous appeals. The language increased the maximum bond that a court may require in appeals of certain approvals; clarified that no finding of bad faith or malice of a plaintiff is required for the court to mandate the posting of a bond; and allowed the court to award reasonable attorneys fees if the court finds that the appellant acted in bad faith or malice in making the appeal.
NAIOP Massachusetts understood that coalition activation was critical to advancing its priorities. Throughout the legislative session, the chapter worked with business groups and advocacy organizations to ensure aligned messaging and support for key initiatives.
Pursuing Partnership
On Aug. 6, 2024, NAIOP Massachusetts was thrilled to learn that every priority was included in the final legislation and signed into law as part of the historic $5.16 billion bill. Additionally, NAIOP Massachusetts was successful in blocking the advancement proposals seeking to implement transfer taxes, right of first refusal and rent-control policies by using real-world data showing the negative impact these policies have on production and investment.
“NAIOP is grateful to the Healey-Driscoll administration and the Legislature for their commitment to advancing bold legislation to meet the needs of residents across Massachusetts,” said NAIOP Massachusetts CEO Tamara Small in applauding AHA’s passage. “This legislation is an important step for the commonwealth and sets us on the right path to tackle our 200,000-unit shortfall.”
In a newsletter update to his district, Arciero wrote, “One particular policy I’m proud to have helped implement into this historic bill is a conversion tax credit that would help developers convert underutilized commercial real estate into mixed-used housing. This is a forward-thinking, effective policy.”
NAIOP Massachusetts believes bold action and partnership between the public and private sectors and the state and local governments are critical to meeting the needs of the commonwealth’s businesses and residents. NAIOP Massachusetts encourages all NAIOP chapters to proactively develop relationships with policymakers, providing data-driven and technical feedback both to advance policies that promote growth and to fight harmful proposals. Working with business and advocacy groups as appropriate, chapters can leverage their members’ expertise to position NAIOP as the leader on issues facing commercial real estate in the market. The advocacy work of NAIOP Massachusetts is frequently cited as the most important reason to become a member, and the organization is always willing to serve as a resource for other NAIOP chapters as they face similar issues within their own markets.
NAIOP Massachusetts stands ready to work with policymakers at all levels of government and continues to act as a resource for the Healey administration on the implementation of AHA and myriad other policy priorities impacting housing and economic development.
Anastasia Daou is vice president of policy and public affairs at NAIOP Massachusetts.
