The real reason the old Fallon Health HQ is going to become housing
There is much excitement over the proposal from Synergy Investments to turn One Chestnut Place and Two Chestnut Place from office buildings into housing. Most will know the big building as the GREEN ROOF building just west of Downtown Worcester.
Yes, they are asking the City of Worcester for tax exemptions.
Yes, they are going to spend a lot of money on the modifications.
Yes, Worcester needs more housing of all kinds.
Yes, it will be cool to live in a tall building.
Yes, it is good that they are going to repurpose an office building.
Yes, there is less need for office space.
The Sad Truth
But here is the sadness. Is it true that Worcester, a city of over 200,000 people, cannot support an office building market? We can count the office towers in Worcester on one hand:
100 Front
120 Front
1 Mercantile Street (UNUM building)
446 Main Street (the glass tower)
440 Lincoln Street (Hanover Insurance)
The GREEN ROOF building was once considered the best office building in the city. Now it will be housing. This is not surprising; what is surprising is WHY?
The Real Reason
Yes, we have plenty of good reasons above, but there is one real reason: the SPLIT TAX RATE in Worcester.
2024 Tax Rates
Residential Tax Rate: $13.75/Thousand
Commercial Tax Rate: $30.04/Thousand
Tax Implications for Synergy Investments
Let's look at two buildings owned by Synergy Investments in Downtown Worcester:
446 Main Street has been undergoing a major rehab and is assessed by the city at $15,014,100 for 2024. The tax bill should be $451k.
22 Elm Street (the address of the two buildings at Chestnut Place) is valued at $17,441,700 for 2024, which has a similar tax bill of $524k.
They have recently filed permits for $49 million to convert from office to residential.
Let's imagine that the building goes up in value by $49 million to $66 million. The tax bill on a $66 million residential building will be $907,500, so it only increases by $383,500 a year.
Synergy is requesting a tax exemption valued at $3.96 million over 15 years, or basically a $264k a year reduction of taxes on the new building.
So essentially, they will take an old highly taxed office building where people used to work, create essentially a new residential tower which will make them a TON MORE MONEY, and the city only receives an additional $119,500 in tax revenue a year for the first 15 years, or a total of $1.8 million.
Taxation of Property Owners
Tax exemptions aside, let's see how the city taxes property owners. If you own a $73 million residential building or a $33 million commercial building, you pay essentially the same $1 million a year in taxes to the city of Worcester.
This is the same owner, Synergy Investments, and they realized that their investments in Worcester need to be in residential buildings, not in commercial buildings.
You see this happening all over the city as all the new buildings are residential, not commercial.
The Bigger Picture
We realize that with hybrid work, people don't need as much office space, but the city councilors who are voting every year for the lowest residential tax rate are driving the businesses out of Worcester. Where are your constituents going to work? Where are they going to shop? Do we just want Worcester to be a residential city where people live and have to drive or take a bus to go to work and shop in the suburbs?
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