BOSTON-With the Downtown office vacancy rates languishing at record level highs and the mayor's office calling for more housing, developers are increasingly looking to convert class B and C buildings into residential space. The latest entry in this blight-to-beauty pageant is 199 State St. The former Colony Group building is being transformed into a swan of sorts, with Tambone Investments and partner RiverOak Investment Corporation converting the class C office building into a luxury residential/retail condominium.

"We've been working on this for a year," Paul Resten, VP of residential development for Tambone, tells GlobeSt.com. "We've been following the Rose Kennedy Greenway project, researching the market and putting it through the permitting process. It's [going to be] a charming building, and a great deal."

The building was formerly situated just 13 feet from the breakdown lane at the elevated portion of Route 3 that ran through Downtown. Thanks to the Big Dig and the new Rose Kennedy Greenway, the building's entrance will soon face the harbor and the park space and gardens rather than traffic. Greenway Place, as it has been named, is an eight-story condominium project that will have 12 residential units and one commercial unit. The units will feature full balconies and floor-to-ceiling 16-foot wide glass curtain walls overlooking the parks, harbor and streetscape. The asking price for the units is $1,000 per sf, and four units have already been pre-sold. The retail portion will be on the bottom floor and "will probably be reserved for an art gallery," according to Resten.

The Tambone development project is being financed by a $10.5-million construction loan and $2.4-million equity mezzanine loan from Tremont Realty Capital and a $2.4-million equity investment from partner RiverOak. RiverOak's funding is coming from two separate funds, $900,000 from RiverOak Fund II, and $1.5 million from RiverOak Fund II. As preferred equity investors, their return on investment will be distributed in advance of the Tambone's returns, but it is capped at 26.5%.

"We really liked the upside of this project when we inspected it last year," George Yerrall, managing director for RiverOak, tells GlobeSt.com. "The office market is poor and the stock market is wobbly, so investors are more willing to invest in real estate."

Jon Collinger, president of the Collaborative Cos., thinks that Tambone will do well with the project. "It's one of those projects that's going to be really dramatic with the views and the Greenway. It's going to be for those who want a unique property. I think it's going to have an eclectic universe of buyers."