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March 15, 2024

CT lawmakers consider tax credit for office-to-apartment conversions

PHOTO | COSTAR Spectra Pearl is a $50.6 million downtown Hartford redevelopment project that used $3 million in historic tax credits to convert two derelict commercial properties, at 101 and 111 Pearl St., into 258 studio, one- and two-bedroom apartments.
By Greg Bordonaro
See related story package: Hartford’s struggling office sector shows cracks with new foreclosure, falling property values
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Amid a struggling office market and lawmakers’ push to increase affordable housing in the state, the General Assembly is considering multiple proposals that would incentivize the conversion of commercial buildings into residential developments. 

One proposal has already passed out of the Housing Committee and is part of a broader affordable housing bill. 

Senate Bill 6 would offer developers a tax credit voucher for converting a commercial building -- including hotel, retail or office space, but not industrial properties -- into residential developments. The tax credit voucher would equal 10% of the qualified conversion expenditures, according to the bill. 

The state Department of Housing would be charged with administering the tax credit program. Eligibility requirements would take into account “whether such conversion will create or preserve units for affordable housing,” according to the bill. 

The tax credit would be applied to the income tax. It’s not clear how much it would potentially cost in terms of lost tax revenue. 

See related story package: Hartford’s struggling office sector shows cracks with new foreclosure, falling property values

Democrats on the Housing Committee passed Senate Bill 6 last week, after making several changes to the original legislation following a public hearing. The bill would also create a housing growth fund and allow housing authorities to build in other towns, among other measures.  

Another proposal, Senate Bill 270, was also introduced in the Housing Committee and just focuses on a similar tax credit voucher program for commercial property conversions. 

Conversion of office space into apartments has been a hot topic nationally since the pandemic led to significant increases in office vacancy rates as employers embrace more flexible work arrangements, including remote work.

Hartford’s office market has been particularly hard hit, and the city’s largest landlord has repeatedly called for the state and federal governments to aid in potential housing conversions. Hartford has already experienced a number of office-to-apartment conversions in recent years, and more are already in the works. 
 
Congress has debated similar federal legislation, including a proposal that would grant a tax credit — worth 20% of project costs — to support metro area office building conversions into mixed-use residential properties.
But the proposal has failed to gain bipartisan support.

See related story package: Hartford’s struggling office sector shows cracks with new foreclosure, falling property values

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