Photo courtesy of The Procopio Cos.
Interest rates have risen significantly in the five years since The Procopio Companies broke ground on The Somerset, a 29-unit apartment complex in downtown Winthrop.
The changing capital markets conditions have depressed investment sales pricing for investors interested in acquiring the property as rentals. The Middleton-based developer opted for a condominium conversion for The Somerset, betting that the relative scarcity of new construction for-sale units in Winthrop will make The Somerset a desirable address and receive strong demand.
“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. “[Small apartment buildings] are great assets, they perform well, but they are difficult to sell because of where the debt market is.”
At the same time, pricing for individual condominium units remains strong in Greater Boston despite a significant build-up of inventory this year.
According to MLS PIN data, the average days a condo spent on the market in Massachusetts increased by 23.7 percent from May to September of this year, alone.
Through August, the median year-to-date condo sale price in Winthrop are over $535,000, according to data compiled by The Warren Group, publisher of Banker & Tradesman. Across Greater Boston, the August median sale price fell 3.2 percent year-on-year, but still ended the month at $600,000.
MLS PIN data shows that condos priced between $250,000 to $599,000 made up 39.9 percent of all active inventory statewide as of Sept. 17. Homes between $600,000 and $700,000 made up another 21.4 percent of the market.
Procopio Companies completed the 4-story, 22,000 square-foot building at 10 Somerset Ave. in 2022, offering units ranging from 500 to 1,300 square feet. The project received $7.7 million in construction financing from North Shore Bank in 2020.
As leases expire, tenants will be given the first option to buy their unit, Vitale said. Projected pricing ranges from the high $300,000 range to over $800,000 for two-bedroom units with balconies. The condos will be marketed as an affordable alternative to single-family new construction, Vitale said.
Massachusetts condo conversion law requires developers to provide one year’s notice to tenants and pay relocation expenses up to $750.
But at least 11 communities have local ordinances providing additional protections for tenants.
Somerville’s anti-displacement task force recommended strengthening the city’s existing condo conversion ordinance, which was last updated in 2019. In its final report issued this year, the group recommended that tenants receive payments of up to $18,000 per unit to cover relocation costs.
Massachusetts’ Affordable Homes Act, enacted in 2024, amended the state’s 1983 condo conversion law to provide expanded protections to tenants in two- and three-family buildings, affecting an estimated 124,400 buildings, the Metropolitan Area Planning Council reported.
The market shift comes as developers are eyeing opportunities for more small-scale multifamily development in Boston’s suburbs thanks to new MBTA Communities zoning districts. However, experts say low acquisition costs remain a key part of the equation for projects to hit their profitability targets, a stipulation made more difficult thanks to uncertainty around changing tariff rates on lumber, kitchen cabinetry and other key inputs for new buildings.
