Two downtown Minneapolis firms are advocating for a statewide tax credit that would incentivize the transformation of mostly-empty buildings into new, in-demand uses.

Sherman Associates and Hempel Real Estate are part of a coalition that’s lobbying at the Capitol for the catalyzing underused buildings (CUB) credit, a six-year program designed to make expensive conversion projects more economically viable for developers.

Supporters tout the proposed tax credit as a remedy for widespread office vacancies and plummeting property values. 

“What we are finding is that we still have a much higher availability in office space than there is a demand, and we're also seeing this flight to quality,” said Kristen Anderson, vice president of design and construction at Hempel. 

“We see (the CUB credit) as a great opportunity to utilize these office buildings that are now becoming obsolete to office and converting them to housing.”

The CUB tax credit is equivalent to 30% of qualified conversion costs for projects over $5 million. Smaller investments would be eligible for a grant equal to 27% of qualifying conversion costs.

In order to qualify for the CUB credit, a building must be at least 15 years old and meet one of two conditions: 1) At least 50% vacant over the past five years or, 2) be converted to a new use after the conversion. Plus, the developer must retain 75% or more of the existing structural framework, and work must be completed within three years of the application for the CUB credit.

Projects could involve the conversion of offices into apartments or hotels, school buildings into senior housing, and churches into daycare centers.

The CUB credit can be used with other incentive programs, except the 20% state tax credit for qualified historic rehabilitations, which is similar in structure but has more stringent requirements.

Sherman Associates recently completed the Groove Lofts at Northstar Center, a $98 million commercial-to-residential project in the heart of downtown’s skyway system, which took advantage of the 20% state historic tax credit, in addition to a 20% federal historic tax credit. But if the CUB credit had been available at the time, Collison said, Sherman Associates would’ve opted for it instead of the state historic tax credit.

Legislation supporting the CUB credit was introduced to the Minnesota Legislature during its previous session. Bills are currently working their way through the Minnesota House of Representatives and Minnesota Senate. The hope is that they'll pass before the end of the current session.

St. Paul-based historic preservation nonprofit Rethos and lobbying firm Momentum Advocacy are on the ground at the Capitol, talking to legislators, rallying support, and working on bill language. Rethos also lobbied at the Capitol for the historic tax credit, which was implemented in 2010 and reinstated in 2023.

“If the state doesn't invest now, they're going to be shifting more and more of that burden on to taxpayers,” said Heidi Swank, executive director of Rethos.

The CUB credit provides a pathway for buildings that would never make the National Register of Historic Places – thus be ineligible for the state and federal historic tax credits – because they’ve been too altered or aren’t significant enough.

“We see historic preservation in a broader sense; it's something that we call ‘the new preservation,’ where you're more of a steward of the built environment,” Swanks said. “We've got a dire situation with the built environment in many cities across Minnesota, and if we don't find a tool really soon, we're going to end up putting a lot of these buildings in the landfill.”

Swank sees the Ameriprise Financial Center as the “poster child” for the CUB credit.

The 31-story building was completed in 2000, so it’s only halfway 50 years old, the minimum requirement for most historic designations. Once its anchor tenant, Ameriprise Financial, finishes moving out, the building will be completely vacant.

Onward Investors recently acquired the Ameriprise Financial Center at a steep discount. Though the firm hasn’t solidified its plans for the property, they could involve at least a partial conversion into a use other than office.

Onward Investors did not respond to Downtown Voices’ request for comment.

“The CUB credit gives a great financial incentive to look at opportunities to convert these buildings,” Anderson said. “It is meant to be a short-term tool for the State, and, of course, the City of Minneapolis to really catalyze development, because we have a lack of development currently happening due to a variety of factors.”

Dan Collison, senior director of business development and public affairs at Sherman Associates,  identified 20 Washington Ave. S. as a site that could take advantage of the CUB credit to “create something that would be very meaningful to downtown Minneapolis.”

The vacant six-story office building was designed by world-renowned architect Minoru Yamasaki, who’s best known for the original World Trade Center, and opened in 1965 as the headquarters of the Northwestern National Life Insurance Company. The property is part of the three-building Washington Square portfolio that’s currently on the market. 

The two other buildings at 100 and 111 Washington Ave. S. are between 60% and 95% occupied by office and retail tenants, including Café Cerés, so they’re less likely candidates for conversion.

Sherman Associates owns the former Wells Fargo operations center a block away from the Washington Square buildings. The firm initially planned to raze the site at 200 Washington Ave. S. for redevelopment, but now it’s open to an adaptive reuse, especially if the project is able to access the CUB credit.

“We are exploring adaptive reuse for which the credit could be an important piece of how we take that building and ultimately reuse it for different uses,” Collison said.

Simikarly, Hempel considers tools like the CUB credit essential for ensuring it can continue to invest in downtown Minneapolis, according to Anderson, who’s also a board member for Rethos.

“It will definitely make a difference as we look to potentially acquire other buildings that come on the market in the next couple of years,” she said.