Developers looking at turning northern Ontario offices into apartments say it's more complicated than it looks

Many looking for a solution to the housing shortage in northern Ontario are looking to empty office buildings in downtown cores. 

But those who are crunching the numbers say often don't add up.

Chris Tammi is one of them. He's the broker of record at Mallette Goring in Sudbury and one of the investors who bought the former Gougeon insurance building in the downtown last year.

It has offices on the main floor, apartments on the top and empty offices on the second floor at the top of two flights of stairs, which Tammi initially thought could easily be turned into four apartments.

He says with the high demand, these apartments would be "rented the first month" they were on the market, but the high costs of meeting fire and building code regulations make it unprofitable.

"The feasibility analysis shows that it would be better for us to rent this as very cheap office space then to incur the cost to convert it to residential to get slightly more rent," Tammi said.

"And that's where a lot of people just say: 'Do nothing.'"

One of the big reasons is each apartment needs two ways to get out under the fire code, which would require some kind of fire escape on the front of the building. 

Another challenge, especially in downtown Sudbury, is a change to provincial environmental laws in 2006 regarding contaminated soil.

Guido Mazza, Greater Sudbury's director of building services and the chief building official for the past 30 years, says it required developers to test the ground beneath any building they were switching from commercial to residential.

And in downtown Sudbury, they are bound to find evidence of decades of industrial contamination from the downtown trainyards, plus a long forgotten dry cleaning plant.

"Unfortunately in downtown Sudbury you can't find any place without that coming into play," says Mazza.

"And then it would kill the project."

Mazza says the rules were loosened in 2011, that allow residential on higher floors as long as the main floor remains commercial and a few office buildings in the downtown have been converted to housing since then.

He says many of the buildings in downtown Sudbury are just two or three storeys and the numbers often still don't work, however he says he is hopeful that we'll see some more people living in the core in the coming years.

Tammi doesn't see that happening without some of the rules loosening up and feels the housing crisis is coming to a "breaking point."

"The risk of not doing that is a lot greater than the risk of someone maybe being expose to slag in the ground that was here 100 years ago, for example," he said.

"We need to be willing to take some calculated risks to solve the problem."

Former Sudbury city councillor Geoff McCausland, who now works at Mallette Goring as a development and project manager, says there needs to be more "flexibility" in the building rules that often require a "perfect blank slate."

"People assume it makes sense but if the building is just naturally the wrong shape, the apartments are going to be livable. You see people start it up, think it through and a lot of them just stop because there's so many challenges," he said.

"There's just so many different requirements that don't line up in a coherent way."

The city recently increased its incentives for converting offices into housing, offering $20 per square foot or $20,000 per unit, but McCausland thinks they need to go even higher to get investors to bite.  

"You can actually invest a few million and end up with a building that's worth less than that. So it's a very strange time," he said. 

McCausland also says if lots of office space continues to sit empty, all taxpayers could face hefty increases as city councils try to make up for lost tax revenue. 

Other cities in northeastern Ontario don't have as many office buildings, but James Caicco, the broker of record at Century 21 in Sault Ste. Marie, says there have been a few proposals over the years that were abandoned when the "numbers don't work."

He also says that the office market in the Sault is "more stable" that he thought it would be following COVID.

But Caicco says there is a big focus on carving out more residential units in existing houses, garages, as well as former schools and churches.

He says he's sold several churches in recent years that people are now living in and has one church on the market right now, where half of the interest is from buyers planning to turn them into apartments.

"It's a task. It's an undertaking. Oftentimes you need an engineer, you need an architect," Caicco said.

"But people are looking for those. Because there is a need."