Calgary to see payoff this year from incentives to convert aging offices into new homes

As former office buildings converted into residential complexes start welcoming new residents, they also start generating new revenues for city coffers.

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The city will soon start to see some payoff for its multimillion-dollar investment to transform unoccupied downtown office buildings into much-needed residences.

The first project to be completed under the city’s office conversion program — a development known as The Cornerstone in the downtown’s west end — is nearing the finish line and will begin welcoming some residents by the end of February.

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It will also start paying more property taxes to the city.

The $40-million project by Peoplefirst Developments has transformed the old SNC-Lavalin building at 909 5th Ave. S.W. into more than 100 apartments, with retail on the first floor.

With the redevelopment and pending arrival of tenants, the building’s assessed value has jumped from $5.5 million last year to an estimated $33 million, based on the project being 80 per cent completed, according to city data.

And its municipal property tax bill will climb to an estimated $180,000 from $41,000 last year, and could go higher once it’s complete.

“As a developer, I can’t even complain because if I have an empty office tower and I’m being assessed taxes, that’s really expensive. But if I have a full residential tower and I’m paying taxes, well, guess what — I can afford to pay that,” said Peoplefirst managing director Maxim Olshevsky.

“There are people that live there. It’s a benefit to the city.”

Calgary downtown office conversion
Pictured is The Cornerstone located at 909 5 Avenue S.W. in downtown Calgary on Tuesday, February 28, 2023. The Cornerstone is among office buildings being converted into residential complexes. Azin Ghaffari/Postmedia file

The project is one of more than a dozen already approved under the Downtown Calgary Incentive Program. Announced in 2021, the broader $153 million initiative provides grants of $75 per square foot to approved office redevelopments, once they’re complete.

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For The Cornerstone, that would represent a city investment of about $8 million. The city has previously indicated that its program will attract $4 of private-sector spending for each dollar of incentive.

The program aims to remove about six million square feet of unused office space from the downtown by 2031.

The plan is designed to bolster vibrancy as more people live downtown, as well as generate additional economic activity in nearby restaurants, stores and services.

It will remove vacant buildings from the area and help stabilize the commercial office market, which plunged after the oil price downturn of 2015. Vacancy rates in the sector sat at 30.2 per cent by the end of last year, according to CBRE.

New buildings and investment should also help pull up property values in the surrounding neighbourhood. And that, in turn, will generate more taxes for municipal coffers.

City assessor Eddie Lee said residential buildings have a lower tax rate than office structures, but the boost in property value and increased income generated by a full building — instead of an unoccupied one — means the property conversions are already having an impact.

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“The offices that are being converted to other uses, such as residential, these are older, tired buildings,” Lee told reporters this week.

“When those buildings get renovated into new uses, such as residential apartments, the overall value of that property will increase.”

The Cornerstone was one of three initial projects announced in April 2022, converting the 10-storey office tower into 112 residential suites, including affordable housing units.

The timing of the office conversions is also fortuitous.

New housing is coming online as the city is experiencing a booming population, along with soaring rents, higher home prices, and a need for more supply.

Just over 30 of the units in The Cornerstone are already spoken for, said Olshevsky.

“I don’t think it’s going to take us long to actually fill the building,” he said.

“It’s a really good time to enter the market. Calgary has grown significantly.”

While 13 projects have been approved by the city, another four proposals are under review and the program’s funding has been fully allocated.

If all these developments move forward, it will convert about 2.3 million square feet of office into residences.

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Thom Mahler
Thom Mahler, director of the City of Calgary’s downtown strategy, on Wednesday, April 19, 2023. Jim Wells/Postmedia file

Details of another phase of the initiative are now being developed and will likely come to city council in the spring, said Thom Mahler, the city’s director of downtown strategy.

“This Cornerstone project is the first one out the door and its quality is exceptional,” he added.

“It will change people’s perception of what this investment’s getting us. Not only is it getting us a more resilient downtown, it’s also getting us much-needed housing, and it’s quality housing that is suitable for a wide range of Calgarians.”

For Olshevsky, who lived in the city’s downtown west end when he was a teenager, the office conversions represent an important step toward rejuvenating the area.

“It all translates into making a better city,” Olshevsky said. “It’s one investment — one smart investment — that simulates a specific sector, creates this butterfly effect.”

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