Massachusetts Law Boosts Tenant Protections as Boston Sees Condo Conversion Surge

Interest rates have surged over the past five years, significantly impacting real estate investment sales. The rise in interest rates has prompted developers like The Procopio Companies to pursue condo conversions of properties such as The Somerset in downtown Winthrop as an alternative to rental sales.

The Somerset, a 29-unit apartment complex completed in 2022, is being converted into condos due to the depressed rental market caused by rising interest rates and changing capital market conditions.

“We've had groups tell us, ‘If I could get more from a lender, I'll pay more, but I can't get it right now,'” Procopio Companies Senior Vice President Bryan Vitale said in a statement shared with Banker & Tradesmen. “[Small apartment buildings] are great assets. They perform well, but they are difficult to sell because of where the debt market is.”

Despite a buildup of inventory in Greater Boston, condo prices remain resilient. For example, as Banker & Tradesmen noted, Winthrop's median year-to-date condo sale price exceeded $535,000 through August. The median sale price for the Greater Boston market averaged approximately $600,000 year-over-year, although it was down 3.2% compared to the previous year.

According to Banker & Tradesmen, Procopio completed its four-story, 220,000-square-foot building in Winthrop in 2022, with condo units from 500 to 1,300 square feet. As leases expire, tenants will be given the first opportunity to purchase their unit. Prices are projected to range from the high $300,000s to more than $800,000 for two-bedroom units with balconies, according to Vitale. The condos will be marketed as affordable alternatives to new single-family homes.

Massachusetts condo conversion law now requires developers to give tenants at least one year's notice and pay up to $750 in relocation expenses during condo conversions. Additional protections are in place in at least 11 communities, like Somerville, which proposes increasing payments to as much as $18,000 per unit to cover relocation expenses.

Massachusetts has strengthened tenant protections through the Affordable Homes Act of 2024. This act aims to balance development and tenant rights by expanding protections for tenants in approximately 124,400 two- and three-family buildings across the state, according to the Metropolitan Area Planning Council.

Developers are increasingly interested in small-scale multifamily projects in Boston suburbs, driven by new zoning under the MBTA Communities program. However, they face challenges from low acquisition costs and tariffs on building materials, such as lumber and cabinetry.