Minneapolis cuts red tape for developers turning office buildings into housing

Minneapolis Mayor Jacob Frey signs an ordinance loosening regulatory requirements for developers converting office space into housing on Sept. 24, 2024. Photo by Madison McVan/Minnesota Reformer.

Minneapolis Mayor Jacob Frey signed an ordinance Tuesday that will ease the regulatory burden on developers who want to turn empty office buildings into apartments.

The move is expected to cut costs for developers and signal to private investors that Minneapolis is “open for business,” said Michael Rainville, a Minneapolis City Council member representing parts of downtown.

U.S. cities are still dealing with the fallout from the COVID-19 pandemic. The number of people working from home is well above pre-pandemic levels , and the value of office buildings is dropping as companies opt to downsize or sell their spaces. That has significant implications for the city’s budget, which depends both on sales taxes and commercial property taxes.

Declining Minneapolis office tower values are pushing the city’s property tax burden onto homeowners. Homeowners paid around 47% of the city’s tax levy in 2023, and this year will pay more than 51%, Axios reports .

Nationwide, offices are increasingly becoming housing , but developers face city zoning restrictions, challenging construction and relatively high (but falling) interest rates.

Minneapolis leaders hope the conversion of empty office buildings into housing will increase the number of people downtown, stabilize tax revenues, attract more businesses and increase safety.

“This is no longer going to just be a place where people come in to work at 8 a.m. and leave at 5 p.m.,”  Frey said.

Under the new rules, commercial-to-residential conversion projects will not be subject to public hearings — instead, the plans will only require approval by city staff. The ordinance will also exempt projects from intensive traffic studies and from an inclusionary zoning ordinance that requires developers to designate a portion of apartments as “affordable housing” or pay large fees instead.

Converting an existing office building into housing doesn’t need the same level of public input and traffic study as a brand-new building, Frey said.

“Time is money and uncertainty is money,” Frey said. “If we can cut down on the uncertainty and cut down on the time frame that it takes to get this done, more owners and developers will choose to make that shift.”

City leaders and developers also want more incentives from the state and federal governments. A bill ( SF5194 / HF5191 ) introduced in the 2024 legislative session would have created a tax credit for developers who convert vacant or underutilized buildings into housing or mixed-use spaces. The bill did not pass.