Lake Union Partners Seeks Fee Reductions for 2,000 Home Conversions in Seattle

Key Takeaway

• Lake Union Partners aims to convert outdated offices in Seattle's Pioneer Square into 2,000 homes, contingent on city legislation reducing developer fees.
• Seattle Mayor Bruce Harrell's proposed Downtown Activation Plan seeks to create exemptions to barriers for office-to-residential conversions, making them financially viable.
• Concerns arise over affordability of converted units, with target rents ranging from $950 for small efficiencies to $2,000 for one-bedrooms.

Ambitious Plans for Pioneer Square

Lake Union Partners, a Seattle-based developer, has set its sights on transforming outdated office buildings in Seattle’s historic Pioneer Square into over 2,000 residential units. This ambitious plan hinges on the city passing legislation to reduce developer fees and other barriers to conversion projects. If successful, this initiative could turn Seattle’s first settlement into a predominantly residential neighborhood, potentially housing around 3,000 people. Patrick Foley, managing partner for Lake Union, emphasized the suitability of Pioneer Square’s smaller floor plates for such conversions, making it an ideal candidate for this transformation.

The Financial and Legislative Hurdles

The proposed conversions are not without significant financial and legislative challenges. Converting office spaces into residential units can be twice as costly as new construction, making the proposed legislation to reduce fees crucial for the feasibility of these projects. Seattle Mayor Bruce Harrell’s Downtown Activation Plan aims to create “broad and comprehensive exemptions” to these barriers, including exemptions from the city’s Mandatory Housing Affordability fees. This legislative support is seen as essential by developers like Foley, who noted that the success of these conversions would require collective effort beyond just Lake Union Partners.

Broader Market Dynamics

The trend of converting office spaces into residential units is not unique to Seattle. Cities like Fort Worth and Dallas have also seen a rise in such projects, driven by high office vacancies and the growing demand for urban housing. For instance, 3L Real Estate is converting a 330,000-square-foot building in downtown Fort Worth into over 300 apartments, with a project cost of around $30 million. Similarly, Dallas is experiencing a surge in office-to-residential conversions, expected to yield more than 3,000 apartments. These trends highlight a broader shift in urban real estate markets, where adaptive reuse of office spaces is becoming a viable solution to meet housing demands.

Potential Impact on Housing Affordability

One of the critical concerns surrounding these conversions is housing affordability. Councilwoman Cathy Moore raised questions about who would be able to afford the new units in Pioneer Square, suggesting that they might cater to high-end earners rather than the broader population in need of affordable housing. However, data from a city contest for office-to-home proposals indicated a range of target rents, from $950 for small efficiencies to $2,000 for one-bedroom units. This suggests that while some units may be affordable to middle-income earners, the overall affordability of these conversions remains a contentious issue.

Developer Perspectives and Market Implications

From a developer’s perspective, the conversion of office spaces to residential units offers a strategic opportunity to repurpose underutilized properties and meet the growing demand for urban housing. Lake Union Partners’ focus on Pioneer Square aligns with broader market trends and reflects confidence in the potential for such projects to revitalize historic districts. However, the success of these initiatives will depend on supportive legislation, collaborative efforts among developers, and a balanced approach to affordability. The experiences of other cities like Fort Worth and Dallas provide valuable insights into the challenges and opportunities associated with office-to-residential conversions.

Management Quotes

• Patrick Foley, Managing Partner for Lake Union:

  "We think that in a seven- to 10-year period, we can bring 2,000 units to Pioneer Square, which means roughly 3,000 people."
  "Pioneer Square is the most exciting, best place to do office-to-residential conversions because … the (smaller) floor plates are actually laid out just right for that."
  "Conversions can cost twice as much as new construction... The proposed legislation is absolutely critical to making office-to-home conversions feasible."
  "It’s going to be a heavy lift, and it can’t just be our company doing it."

• Geoff Wentlandt, Manager of the Planning Office:

  "(It’s) one tangible way you can bring the cost down to be competitive so we do have some conversions."