Business

These tenants pay $3,000 rents, but are still being displaced

“Every renter — not just low-income, but moderate-to-high-income as well — is vulnerable to tactics like condo conversions,” said Millbrook tenant Greg Santos, who moved to the Millbrook Lofts complex last August with his girlfriend, Anna O’Hara.
Jonathan Wiggs/Globe Staff
“Every renter — not just low-income, but moderate-to-high-income as well — is vulnerable to tactics like condo conversions,” said Millbrook tenant Greg Santos, who moved to the Millbrook Lofts complex last August with his girlfriend, Anna O’Hara.

Less than two weeks after unpacking the last box from her move into a Somerville apartment, Jessica Meyer found a notice on the door: the building was going condo.

Millbrook Lofts, an upscale 100-unit complex on the East Cambridge line, had been open a little over a year when tenants were notified of the plans in November. Meyer, who moved from Raleigh, N.C., to take a biotech job in Kendall Square, faced two options: find a way to buy a unit, or move out within a year.

“I’m a roll-with-the-punches kind of person, but it was kind of shocking,” said Meyer, who has since relocated to a rental in Davis Square. “I would’ve appreciated knowing this when I was looking at the apartment. . . I wouldn’t have moved there.”

Advertisement

Millbrook Lofts will become Somerville’s largest ever condo conversion, if it wins approval from the city’s Condominium Review Board — a vote could take place by the end of April. The quick switch is perhaps the clearest sign yet that demand for condos in the Boston area is outpacing that for upscale apartments. Put another way, there are plenty of expensive apartments available for those with higher incomes, but not enough condos.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

The shift in the market, which has for the most part happened over the past year, has some developers opting to build condos instead of previously proposed rentals. Among them: HYM Investments’ planned tower atop the Government Center Garage in Boston, Saracen Properties’ rental complex at 99 Tremont St. in Brighton, and Related Beal’s Lovejoy Wharf near North Station.

Millbrook Lofts is an upscale 100-unit complex in Somerville on the East Cambridge line.
Jonathan Wiggs/Globe Staff
Millbrook Lofts is an upscale 100-unit complex in Somerville on the East Cambridge line.

Not far from Millbrook, a 52-unit luxury condominium complex called Point 262 is scheduled to open soon, with units priced at between $749,000 and $1.2 million.

The difference, of course, is that Millbrook was already filled with renters. And while such conversions typically affect lower-income renters who are evicted when investors buy and renovate multifamily buildings so they can charge more, Millbrook’s transformation would displace tenants paying monthly rents of $3,000 to $4,000 — and more than $5,000 for a penthouse unit. Its owner, Berkeley Investments Inc., hopes to sell the most spacious units for as much as $850,000 apiece.

“Every renter — not just low-income, but moderate-to-high-income as well — is vulnerable to tactics like condo conversions,” said Millbrook tenant Greg Santos, who moved to the complex last August with his girlfriend, Anna O’Hara. “My friends have had to move farther and farther away from the core of the city.”

Advertisement

The fact that tenants who can afford higher rents are being pushed out reinforces a harsh reality of Greater Boston’s housing market: It’s becoming unaffordable for a larger swath of people. A housing shortage has driven up demand, particularly for condos close to the city and public transit. High-end complexes under construction, like the Alloy in Somerville’s Assembly Row, sell out before they are finished.

Millbrook was built in a converted 100-year-old former cold storage facility next to Twin City Plaza that Berkeley bought in 2014 for about $5 million. It includes 85 apartments that rent at market rates, 10 affordable units, and five affordable-rate artist lofts. The driving force behind the company’s move to turn Millbrook into a condo complex is simple supply and demand, said Berkeley president Young Park.

“We felt that the market was asking for a more for-sale product,” Park said, adding that the tenant turnover rate at Millbrook was almost 50 percent. “Particularly at the upper end of the market, there has been a lot of catching up, and the supply has increased on the luxury apartment front.”

The saturation of the high-end apartment market has made it more profitable to sell condos, said Constantine Valhouli, cofounder of NeighborhoodX, a website that tracks real estate values. On a per-square-foot basis, a condo can fetch about 12 times the average annual rent for a luxury or high-end apartment in Somerville, he said. And there’s room for that to grow — in neighboring Charlestown, condo prices per square foot are about 18 times the average annual rent.

“It seems like this is a milestone moment for this real estate market,” Valhouli said. “People are willing to pay significant premiums to buy in Somerville.”

Advertisement

The pace of Somerville condo conversions has accelerated in recent years as the city continues to attract young professionals looking for an urban setting with an easy commute to Cambridge and Boston. Last year, 250 apartments were sold as condos, according to Mayor Joseph Curtatone. But it’s mostly happening to two- and three-family homes — nothing on the scale of Millbrook.

“We’re very concerned about it,” said Curtatone, who encouraged negotiations between Millbrook tenants and Berkeley executives. He called the pace of displacements in the city “a housing crisis that is affecting people so special to our community. It’s a market force out of control, in a sense.”

After the Millbrook announcement, Santos formed the Millbrook Tenants Association to negotiate better displacement terms with Berkeley.

“People were dazed about the whole thing,” Santos said. “This was a brand new building — people assumed they would stay there for a certain amount of years.”

After months of talking, the group reached much more favorable mitigation terms with Berkeley than what Somerville’s three-decade-old condominium conversion ordinance calls for. Under the city guidelines — which tenants and landlords have criticized as being outdated— displaced market-rate tenants are not entitled to have moving costs reimbursed by a landlord when their apartment is converted into a condo. Low-income tenants receive $300 or one month’s rent — whichever is higher — to cover their relocation expenses.

Millbrook tenants wanted a relocation stipend closer to what’s offered in Boston: $6,000 per market-rate unit. After the tenants rejected an initial deal from Berkeley, the company upped its offer to $12,000 for each market-rate unit — $6,000 in relocation costs, and $6,000 to address the impact of construction in common areas. The terms are retroactive for tenants who submitted notices to move after Jan. 1.

Tenants who choose to buy a condo would get $6,000, plus a 5-percent purchase-price discount. Park said the condos, which range in size from about 530 square feet to more than 1,200, could go for around $700 per square foot.

“We understand it is disruptive, and we’ve provided for that disruption, and then some,” Park said. “It goes into the category of doing the right thing. We did not want to get into a conflict . . . that was certainly not our intent.”

To avoid such wrangling in the future, Curtatone has submitted a revised conversion ordinance to the board of aldermen to “reflect the realities of the marketplace and economy.” In addition to declaring a housing “emergency” in the city, the proposed ordinance provides a tenant relocation stipend that would match Boston’s and be adjusted annually.

In addition to the payments to market-rate tenants, Park said, the company is in discussions with Somerville Community Corporation to have the organization purchase the 15 affordable and artists units, without displacing those tenants, and continue operating them as rentals. Those tenants would still get the $6,000 construction mitigation payment. If they choose to move, Berkeley has committed to matching Boston’s relocation reimbursement for elderly, low-income, and disabled residents — $10,000 per unit.

“It took a long time and it’s not quite over yet,” Park said. “Both parties walk away feeling a little bruised, but I think it’s a very positive outcome.”

Katheleen Conti can be reached at kconti@globe.com. Follow her on Twitter @GlobeKConti.