Large Tax Break Proposed For Worcester Office-To-Apartment Project

WORCESTER, MA — A mostly-vacant office tower in downtown Worcester could be converted into nearly 200 market-rate apartments under a new proposal by a Boston developer, and the project will rely on a nearly $4 million tax incentive under a newly expanded state program.

Developer Synergy Investments has proposed converting the Fallon Health office tower at 22 Elm St. into 198 apartments. The healthcare company said in November that it would vacate the Elm Street building by the end of 2024 to move into a smaller space at the former Unum headquarters adjacent to the Mercantile Center.

The converted building would include a mix of studio, one-bedroom and two-bedroom units, with rents projected to start at close to $2,000 for studios. Synergy would also develop a four-story building attached to the Fallon tower into 22 condominiums that will be affordable for buyers earning 80 percent of the area median income — that's about $69,000 for a single person and up to $130,000 for a household of eight.

City Manager Eric Batista is asking the Worcester City Council to approve a tax increment exemption (TIE) incentive for the project. The TIE would allow the developer to pay reduced taxes over 15 years for a total savings of just under $4 million total. At the end of 15 years, the building will be fully taxable.

Although the TIE will apply to local property taxes, it will fall under the state's Housing Development Incentive Program (HDIP), a special program designed to increase the number of market-rate units in so-called gateway cities in Massachusetts. Gov. Maura Healey expanded the HDIP program beginning in fiscal year 2024, a move that followed her hiring of former Worcester city manager Ed Augustus to lead the Executive Office of Housing and Livable Communities — the same state agency that oversees the HDIP program.

HDIP tax incentives have been criticized by housing advocates for only subsidizing expensive apartments in areas where affordable housing is in high demand. State lawmakers attempted to add an affordability component during debate in 2023 over Healey's tax reform bill, but the effort failed. One-bedroom units in the renovated Fallon building would cost an estimated $2,400 per month, with two-bedrooms renting for about $2,800 per month.

In a memo to councilors, Worcester Chief Development Officer Peter Dunn said the building would still generate an average of $525,000 per year in property tax revenue while the TIE plan is in place. When the TIE expires sometime near 2040, the building could have a taxable value of close to $50 million compared to about $10 million today, Dunn said. The TIE wouldn't begin until the renovated building gets its certificate of occupancy.

Synergy expects to spend about $73 million on the renovation, and could begin construction this summer, with a completion date sometime in fall 2025. The council's Economic Development Committee chaired by District 2 Councilor Candy Mero-Carlson will discuss the TIE proposal before bringing it back to the full council for a final vote.