One solution for downtown Minneapolis' vacant offices: Affordable 'co-living' housing

There's a glut of vacant office space plus a shortage of inexpensive housing in downtown Minneapolis, and one team of urban planning and design experts has come up with a solution for both: ultracompact rentals about the size of a cruise ship cabin at half the cost of a typical Twin Cities apartment.

The plan, presented Tuesday, is a how-to guide for transforming empty office buildings into dorm-style microapartments that offer residents private sleep and work spaces but shared kitchens in a "co-living" arrangement that's an updated variation of the once-common "single-room occupancy" (SRO) model.

"We're adding a lower rung on the housing ladder," said Alex Horowitz, project director of the Pew Charitable Trusts' housing policy initiative.

He collaborated with Wes LeBlanc, strategy director and principal for national planning firm Gensler, on the plan. They focused on showing how building owners, investors, city planners and others in Minneapolis, Denver and Seattle can transform urban office buildings into vertical neighborhoods for service workers, retirees and other budget-conscious renters.

In Minneapolis, the report detailed how a theoretical 21-floor office building could become a mixed-use building with 1,080 co-living units. The ground floor would have a lobby, management office and just shy of 13,000 square feet of retail space. The second floor would have 10,000 square feet of office space, and the third would have shared amenities, including a fitness center. Beneath the building, there's room for 343 cars and 250 bikes.

The residential floors, on levels four through 21, would have an identical layout with single-occupant sleeping rooms of 130 to 157 square feet. Those fully furnished spaces would include an oversized twin bed, desk and chair, nightstand, microwave and standard-depth, half-sized refrigerator. They'd wrap around the shared spaces (living room, kitchen and laundry) clustered toward the center of each floor. Each rental would have its own private entrance, and each floor would require key-card elevator access.

At about half the size of today's traditional studio apartment — which typically has a full kitchen and bathroom — these would rent for about $750 on average, including all utilities, which is about half the cost of a typical rental in downtown Minneapolis.

Needed solution

The project comes at a time of intense interest in finding new uses for empty office buildings. The pandemic drove up the prevalence of remote work, and in all three cities, there's a growing mismatch between the housing developers are building and the housing people need.

Specifically, the average household size is shrinking, but new housing isn't. Nor is it becoming more affordable. The majority of renters are now singles who earn less than the area median income, Horowitz said, and homelessness is on the rise at a time when more than a quarter of the downtown offices are vacant.

In Minneapolis, the report said there are about 110 office buildings of more than 50,000 square feet around what's known as downtown's central business district. Together, those buildings have about 39 million square feet, and an estimated 66 of them are at least 30% vacant.

Horowitz said Monday while the SRO concept isn't new, and some developers are building co-living rental apartments, he's not aware of any office-to-SRO conversions currently underway.

"This is something new," he said. "This would have been hard in any of these cities five years ago."

The time is right for such a vision, Horowitz said, for three main reasons: Minneapolis has already updated its comprehensive plan to allow for such housing, office buildings have become less expensive, and rental housing has grown scarce and more expensive.

"There's a reason why we haven't seen this until now, but this could make a lot of sense," he said.

The team said Minneapolis is a prime target for such conversions because there's "notable local political will to encourage new housing typologies," along with other policy solutions aimed at addressing housing affordability.

LeBlanc said the concept makes sense for big office buildings because there's enough space in them to include a variety of uses. Such mixed-use buildings are increasingly hailed as an antidote to the single-tenant office buildings that are increasingly obsolete.

"You can break these buildings down into zones and pieces depending on the type of users," he said. "The reality is that we have plenty of building inventory throughout the country that's not well aligned to [current] needs."

More for the money

Minneapolis is especially well-suited for the co-living concept, Horowitz and LeBlanc said, because more than half of downtown office space is from the 1980s or later. Such newer office buildings can be difficult — and expensive — to convert into a typical, fully self-contained apartment in part because the buildings don't have operable windows, and the floor plates are too deep to provide enough windows for all the rooms. Generally, older office buildings are more suitable for such conversions because they're smaller and have windows that open and close.

In Minneapolis, a typical co-living conversion would cost $167,300 per unit, while the current cost of developing a traditional studio apartment with its own kitchen and bathroom can easily surpass $400,000 per unit, making such conversions difficult without tax credits and public subsidies. The Pew report factors in the additional cost of managing and maintaining these buildings, which a nonprofit, government agency or health care firm would do.

The lower cost of co-living conversions, Horowitz and LeBlanc said, means Minneapolis could see quadruple the number of low-cost units for the same subsidy.

"This seems to me one of the most exciting findings," Horowitz said. "Cities can stretch their subsidy dollars so much farther."

SROs can have a negative connotation. Once known as "flophouses," they were common in big cities throughout the country in the early part of 20th Century, but many were under poor management and had a reputation for being last-resort housing for people with addiction issues.

Today, communities are increasingly focused on SROs as a swift and more affordable way to increase the supply of housing. In 2021, after the city of Minneapolis had already begun refining its SRO ordinance, Hennepin County released a report that summarized a task force's findings. Nearly a dozen Twin Cities housing experts weighed in on strategies that could help support SROs and alleviate a deepening affordable housing shortage in the midst of the pandemic.

Maureen Michalski, senior vice president of real estate development for Ryan Companies and a member of the task force, said the focus was on creating affordable housing in motels and other small and midsize buildings for people who earn less than 30% of the area median income, which varies by location and household size.

The Pew report targets co-living apartments with monthly rents between $500 and $1,000 because in Minneapolis, the greatest shortage of rentals are those considered affordable to single-occupant households with an annual income of $20,000 to $40,000, according to the U.S. Department of Housing and Urban Development guidelines.

She said while the task force found SROs are a viable solution to the housing shortage if managed professionally and properly, even the much smaller projects the task force studied encountered a variety of financing challenges.

She said the realities of the lending world often stifle such innovation, especially at a time when commercial lenders are already cautious.

"It's intriguing," Michalski said. "But there are a lot of moving parts with anything that's new."