Northeast Real Estate Business

NOV-DEC 2015

Northeast Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Northeast United States.

Issue link: http://northeastrealestatebusiness.epubxp.com/i/610971

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42 • November/December 2015 • Northeast Real Estate Business www.REBusinessOnline.com MAKING ADAPTIVE REUSE PROJECTS MAKE SENSE From due diligence to government-funded incentives, there are many factors involved in successfully converting a development from one use to another. By John C. (Chris) Morris III, P.E. T he popularity of adaptive re- use — which is the reconfgura- tion of an existing building for a use other than that for which it was originally built — continues to grow in urban markets around the country. Developers and investors increasingly recognize adaptive reuse projects as an attractive option to address a short- age of available land, to revitalize de- pressed areas and curb urban sprawl, and to capitalize on today's changing market demands. With a new genera- tion of renters and buyers who want to "live, work and play" in urban areas and in spaces that are not only functional but sustainable and charac- terful, adaptive reuse is a promising solution. Changing demographics, techno- logical developments and economic trends are shifting demand across the commercial real estate industry. As a result, certain buildings are becom- ing obsolete. For example, the original industrial use of a brick warehouse along a river in a sought-after urban area may not be the most proftable use in today's market, which there- fore presents a perfect opportunity for adaptive reuse. With its industrial history, the Northeast has a huge inventory of in- dustrial plants, factories, warehouses and refneries, making the region particularly suitable to facilitate the adaptive reuse trend. For develop- ers in the region, these projects are an increasingly attractive option to get a foothold in hot markets like New York City or Hoboken, New Jersey. Adaptive reuse projects can be f- nancially reward- ing. However, these projects bring added risks, and require careful due diligence and spe- cifc skills. Under- standing applica- ble regulations and limitations, as well as opportunities for improvement and fnancing options available is critical to optimizing ROI for adaptive reuse projects. The feasibility of an adaptive reuse project depends on many factors, and the decision whether to upgrade an existing structure or knock it down to rebuild requires a close side-by-side analysis of the risk factors, opportu- nities and various development sce- narios. Fundamentally, ground-up de- velopment tends to be less risky and easier to fnance when weighing up- front due diligence cost and the ongo- ing risk of unknown issues associated with rehabilitation projects. However, adaptive reuse can have a great ad- vantage over new builds in several ways: the market demand for "char- acter" means well-executed adaptive reuse projects can achieve premium rental rates and sales prices, and im- proved tenant attraction/retention. Using existing structures reduces ma- terial costs, and importantly, installing the latest technologies and energy ef- fciency measures can bring a rehabili- tated building on-par with (or even outperform) the operational effciency of newer builds. This means an adap- tive reuse building can be up and run- ning faster, more cost effectively and more sustainably than a ground-up new build. When does adaptive reuse make sense? Local Demand Millennials value and demand ur- ban living and sustainable develop- ment. As the new generation of rent- ers and buyers, they are a key driver of the demand for adaptive reuse projects. Anecdotally, we fnd that adaptive reuse development is re- warded most in more urban areas by a young, professional demographic. Broad redevelopment of depressed areas can be a driver for adaptive re- use projects, while a single adaptive reuse project can also provide the economic incentive to revitalize the surrounding buildings. Proximity to transport, parking capacity, access to retail or restaurants and an area's gen- eral movement toward continued sus- tainable development all play a role in attracting the people needed to make a project feasible. Structural and Design Consideration Repurposing older structures can result in a huge cost saving on design, material and construction costs if the structure is in good condition and remains intact. Crucial to a project's feasibility are strong foundations and structural frameworks; the amount of usable interior space; and suitable dimensions of a building to allow for minimal space reconfgurations. Of course, the building's façade is a pri- mary concern in providing historic personality and aesthetic charm, and should be highlighted in the project design. Most buildings being repurposed were built well before current build- ing codes were in place, so develop- ment timelines and budgets must incorporate signifcant allowances to bring the project into compliance with applicable building regulations, such as seismic retroft ordinances, insulation requirements and asbestos abatement codes. Applicable zoning codes and restrictions, including his- toric limitations, must be understood to determine if a proposed design will work. In some cases, a rezoning appli- cation can be a worthwhile exercise in order to be able to execute a proposed project. AN ADAPTIVE REUSE FAVORITE: THE BRONX With an abundance of historic industrial buildings, the Bronx is proving to be a leader in the adaptive reuse trend. The $345 million Kingsbridge Armory project, which will see a former storage facility converted into the world's largest ice center, will break ground in 2016. The former Bronx Opera House was converted to a hotel with the fa- cade restored to its original 1913 design. The historic Bronx General Post Offce built in 1937, was recently sold by the USPS to a developer that proposed an extensive adaptive reuse project to turn the historic landmark into a hospitality hub. These plans have been approved by the Landmarks Preservation Commission follow- ing some revisions and on the condition that restorations are performed on the exterior as well as the landmarked lobby, including its 13 gorgeous murals. BL Companies, Inc. | 274 Madison Avenue, Suite 1401, New York, NY 10016 800.301.3077 | www.blcompanies.com Connecticut | Maryland | Massachusetts | New Jersey | New York | Ohio | Pennsylvania | Texas VISIT BL'S BOOTH #652 AT THE ICSC NYC NATIONAL DEAL MAKING SHOW! For nearly 30 years, BL Companies has been an award-winning leader in delivering high-quality, integrated architecture, engineering, environmental, land surveying, planning and consulting services for land development, building design and infrastructure projects. At BL Companies, we seek to understand design challenges from our clients' perspective and deliver solutions that result in vibrant, practical, and inspiring places for people to work, shop, visit, and socialize. With proven creativity, reliability, experience, and understanding of commercial development concerns, we have built a reputation in our industry for achieving our clients' objectives while meeting their time and budgetary needs. Employee owned. Client driven. John (Chris) Morris III Partner Engineering and Science Inc.

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