Minnesota Pursues Tax Credit for Office Redevelopment Projects

The COVID-19 pandemic dramatically shifted the way we work. And, notably, where we work. According to the American Community Survey (ACS), remote work increased across all major industries between 2019 and 2021. Even now, remote work rates remain higher than they were in 2019. This has had major implications for office spaces and buildings across the country.

This legislative session, Minnesota lawmakers are taking a stab at breathing new life into empty office buildings. HF457/SF768 seeks to offer a 30% state tax credit for developers who rehabilitate or convert historic buildings. Currently, the state offers a 20% tax credit for rehabilitation projects, but the credit is fairly limited in its application. Under the proposed bill, more projects will be eligible. They still must meet certain requirements to qualify. For example, the structure must be converted from one commercial, income-producing, habitable use to another for which it had not been previously used. The structure must also be at least 15 years old, and a certain percentage of the exterior must remain in-tact. 

Converting office buildings is a major undertaking, particularly if the structure is repurposed for residential use. Most office buildings are not structurally compatible with housing. For instance, offices generally have centralized plumbing (like a common restroom area), whereas apartments require plumbing across an entire floor.

The proposed bill, if approved, may help to spur redevelopment projects in downtown areas, which have experienced high vacancies since the pandemic. Although the cost of redevelopment or retrofitting can be expensive, the additional tax credit may help sweeten the deal.