Over the past month or so, I have been engaged with several people on social media regarding why Calgary’s “office to residential” conversions rents are so expensive. Many thought because the City had subsidized the conversion, the City would require the developer to have all or some of the homes be affordable for lower income Calgarians.

The reality is NO conditions were placed by the City to require the “office to residential” developers to provide apartments at lower than market rates. And the reason for that is without the City’s subsidy few if any developers would have converted their office buildings to residential. The outdated office buildings would have sat empty providing no value to the downtown community and little tax revenue. Even with the subsidy many questioned the viability of the conversions, given the cost of the complicated conversions and more recently the cost of borrowing money to finance them.

I have done some basic math to help illustrate the rents being charged by Cornerstone the first “office to residential” conversion. And they are not out of line given the costs involved.

Cornerstone by Peoplefirst Developments is the first office to residential conversion to be completed with funding from the City of Calgary. It consists of 112 new homes, with a few being offered with affordable rents (not just at below market) for those who qualify.

I toured the building in January and found the homes to be well designed, with balconies which is difficult for office conversions. While some of the 2 bedroom homes had no windows in one of the bedrooms (which is allowed by the building code), overall the homes were bright, open concept with full bath and in suite laundry. Peoplefirst Development has approval for two other office conversions.

Let’s do the math!

The plan is simple: the city provides grants of $75 per square foot (up to $15M) for the developer to convert the office building into a residential one, waives the need for a development permit (in most cases), and expedites the approval processes for “office to residential” conversions in the downtown core. It is not a city wide program.

Let’s base our calculations on a hypothetical 1,000 sf apartment, with two bedrooms, 1.5 bathrooms and in suite laundry, to help make the math simple.

But first there are some caveats:

Every building will have different conversion costs per apartment depending on the building’s floor plate and if there is anything worth saving other than the shell of the building.

This estimate doesn’t consider that only 80 to 85% of the building’s total square footage will be rentable or that only 95% of the apartments will be rented at any given time as people move in and out and while repairs are made.

Developers’ Costs

$475/sf cost of building, renovation and financing

-75/sf City subsidy (which doesn’t get paid until the project is finished)

$400/sf Total cost to acquire and renovate

The developer must contribute about 30% or $120,000 in equity long term and upfront the $75sf city subsidy. These costs must be reflected in the rent.

The developer’s $280,000 mortgage ($400,000 - $120,000) will cost them $1,800/mth at 6%.

The developer is also responsible for all common area costs, maintenance, heating and electricity, building insurance, parkade, taxes and debt/equity financing. Let’s ballpark that at $300 per month. Condo fees per month on a 1,000 square foot condo would be higher than that.

Developer Cost Per Month

$1,800 for mortgage

$ 300 for taxes, common area costs

$ 500 5% return on the $120,000 equity investment

$2,600 total monthly costs to the developer

$ 200 profit

$2,800 rent payment for 1,000 square feet (cost + profit)

Note: If we translate this into a 500sf one bedroom apartment the rent should be in the $1,400 /mth or $2,100 for a 750 sf apartment.

Renovated/New Buildings Are Never Affordable

Simply put, an “office to residential” developer, even with the City subsidy, can’t rent out the apartments at affordable rates for low income Calgarians and still make a profit.

Sample rents at Cornerstone an Office to Residential conversion by Peoplefirst Developments

And when we are talking about new concrete residential on bare land, the cost to build are as high or higher that the conversions.

Let’s stop fooling ourselves - the private sector cannot afford to build “affordable housing” i.e. where the rent is 30% of the income of low wage earners. The living wage in Calgary is estimated to be $24/hr or about $50,000 per year which translate into $1,232/mth for rent, which will get you a 500sf apartment with one small bedroom.

Thus the $1,400/mth rent for a 500 sf one bedroom apartment is maybe manageable for a single person, and definitely not for a single parent with one or two children. And certainly not affordable to anyone earning less than $24/hr, which is $9/hr higher than Calgary’s minimum wage.

Affordable housing must be the responsibility of all levels of government and not-for-profit agencies who are not governed by the “for-profit “mandate, are eligible for subsidies and government owned land at reduced rates.

That being said Maxim Olshevsky, CEO at Astra, share this information with me in an email in November 2023:

The Cornerstone consists entirely of 2- and 3-bedroom units. Out of 112 units 45 will be offered at discounted rates. These discounted units will be offered at a minimum of 20% below market rates. Out of these 45 units we will offer 28 units at even deeper discounts where we aim to offer these units at $1340 & $1480 depending on the layout. It's important to note that the finishes in our market and affordable units are identical. You are welcome to visit https://astraliving.ca/the-cornerstone/ to review the layouts and finishes.
Please keep in mind, deeply discounted units will first be offered to various non for profit organizations first. Remaining discounted units will be offered to the public.

Note: PeopleFirst does have a few affordable rent homes for those qualify.

Dividends

While many including myself have questioned the value of the City subsidy for “office to residential” conversions, the reality is 13 empty office buildings scheduled for conversions would have sat empty for a very long time without the subsidy.

Healthy downtowns are three dimensional i.e. attractive places to work, live and play. In theory the new conversions will be filled with a diversity of residents who will help to evolve Calgary’s downtown into MORE than just a place to work, which is the current situation. The goal is to make our downtown a neighbourhood, with a sense of community where people of all ages and backgrounds calling it home.

The converted buildings will contribute more taxes as occupied residential towers, than do as empty office buildings. Without the subsidy many of them would eventually get demolished which would be a waste on many levels.

Last Word

Yes it will take decades for the residential taxes to pay back the subsidy, but hopefully the additional people living downtown will create other dividends. Perhaps the biggest dividend will be that with a critical mass of downtown residents, who will create an urban vitality in our downtown in the evenings and weekends when the workers have gone home.

That’s the theory, let’s hope it works!

Office To Residential: Let’s Do The Math!