As Calgary’s office conversion program reopens, initial projects remain under construction

‘Eventually you have to ignore the talk and see what the walk looks like,’ said Greg Kwong, Alberta region managing director at CBRE

Coming up on four years since the program was announced, one project — the Cornerstone, a 112-suite building on 5th Avenue S.W. — has reached the finish line, with 10 more waiting in the wings. One other project, the planned redevelopment of United Place by United Canadian Investment Inc., is no longer being pursued, the city said.

Industry experts say that while it’s unclear whether the program has been a success, the city bears no financial risk from forging ahead with a new round of funding.

“Eventually you have to ignore the talk and see what the walk looks like,” Greg Kwong, Alberta region managing director at CBRE, said in an interview.

The Downtown Development Incentive Program was designed in 2021 to help fill space in Calgary’s languishing downtown, which became a shell of its former self in the late 2010s as oil and gas companies vacated their spaces during a major downturn.

City ‘confident’ in bringing back the program

Thom Mahler, director of downtown strategy for the city, said he felt confident bringing back the program because projects had already moved to construction. He said he’s still “blown away” by the level of market interest in the first round, and pent-up housing demand in Alberta has increased the project’s viability.

The terms of conversion agreements stipulate the city only pays developers once projects have finished and been approved by the city for residency, eliminating any financial risk.

Through both funding rounds, the city has provided $75 per square foot. Mahler said the city still believes that figure is sufficient given the first round’s popularity, though it needs more data to understand whether that number should change.

“We didn’t feel we had enough data or experience to say it should be a different number,” Mahler said. “It was successful in the first round, enough to get 11 projects underway, so that’s why we’ve stayed with the $75.”

Most conversions today cost around $300 per square foot, said Vince Dods, architect at GGA Architecture. The architecture consultancy is helping design the Taylor Building, Palliser and Barron Building conversions.

Dods said the city’s offering is significant enough to get developers interested; however, increased construction costs and the general price tag of pursuing conversions means a greater contribution would give conversions more certainty.

“$75 (per square foot) is good, but there certainly could be an increase based on the actual cost of what redevelopment is costing these people,” Dods said.

real estate office conversion
In April 2023, the City of Calgary announced funding recipients for downtown office to residential conversions. The Loft Building on 4th Avenue S.W. is one recipient.Photo by Jim Wells /Postmedia

Converting older buildings comes with risks

Dods said initial expectations for projects to be finished by this time was optimistic due to the complex design and construction processes that go into conversions.

While Strategic, the Barron Building developer, has said it’s able to shoulder the costs of a doubled budget, Bill Black, president and chief operating officer of the Calgary Construction Association, said issues uncovered during construction can be fatal to conversion projects.

“There’s so many things that can lurk beneath the surface that you’re not aware of until you get going . . . what happens if you go in and you think you knew everything, and you discover that you’re too far in by the time you learn the bad news?” Black said.

Barron Building
The Barron Building in downtown Calgary was photographed on Monday, Aug. 19, 2024.Gavin Young/Postmedia

‘I think they did the right thing’

Black said he’s glad the city is continuing with the conversion program. As more projects are completed in desirable buildings, it will become clear which office buildings in downtown Calgary are poor candidates for conversions.

“The more these buildings get applied for, eventually you’ll be left with the dogs that don’t work,” Black said.

“I think they did the right thing,” Kwong said of the city’s decision to open the second round of funding. “But . . . we’ve been at this long enough that you can look at the results, and the results show that the program has not been successful to date. No fault of the city, just (due to) other economic factors.”

Office conversion

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