Rewards and Pitfalls of Historic Redevelopment
Rewards and Pitfalls of Historic Redevelopment
Distinctive buildings, from decaying warehouses to abandoned churches, have become trendy targets for new development throughout the country. Many of them require extensive redevelopment, but they often have unique characteristics that promise opportunities for specialty leasing. In addition, in some areas entire neighborhoods full of distressed and underused properties are ripe for modernization and for what today is termed adaptive reuse.
It's a real estate niche that requires timing, creativity and commitment. The upside is that, at least in some locales, municipal governments and planning and zoning officials are thoroughly supportive of private efforts and, in some cases, are willing to partner with private owners and developers in imaginative ways.
The years following the housing crisis of 2008 were hard for commercial real estate as well. But, as early as 2010, there were signs that sales of distressed properties were beginning to rebound. In the years since, in most markets, commercial development has outpaced residential building. At the beginning of the year, reports circulated that 2018 would shape up as a construction boom across all sectors. In addition, the demand has spurred demand for new construction as well.
A wrinkle in the rosy forecast, however, is the shortage of trained construction labor. But, in some ways, redevelopment of existing buildings alleviates some of the labor crunch. When the heavy work of development, including site prep, utility installation and building of the shell is already completed, it can be easier to find skilled professionals to perform updates and interior finish-outs. In addition, there is no doubt that costs to renovate are always lower than costs for ground-up development.
The downside, though, is the same. Market knowledge and extensive financial planning is required to assure the viability of any redevelopment project. As with any planned development, adaptive reuse projects require market knowledge, construction expertise, and financial strength.
Statistics point to a growing trend toward reuse of older buildings rather than new construction. It's a combination of generational preferences for Class B spaces and cost-effective conversions, combined with a relatively abundant supply of suitable buildings. There are auto dealerships, empty big box stores, abandoned shopping centers, historic buildings, closed manufacturing facilities and outdated specialty buildings including apartments, hotels and hospitals on the market. Because many of the most desirable properties in prime locations have already been renovated, what's left may be in marginal locations and can require more cash and more creativity. But a potential for high return on investment exists.
Existing warehouses and mid-Century office buildings may lack the period charm of older buildings, but updating for new technology may also require few major alterations. Primary concerns are energy efficiency and the integration of new technology. While new construction allows for the ultimate customization, adaptive reuse promises great flexibility, a plus for most technology-driven firms looking for lease space today.
Many modern companies are reinventing the way they do business. Traditional office cubicles often give way to more open and collaborative space. Tomorrow's office buildings will likely introduce many new concepts. Adaptive reuse principles encompass two-way redevelopment. A former office building has the potential to become a teaching center, collaborative business incubator or artistic development catalyst, while an existing factory or warehouse may find new life as open space office or a gallery.
In urban neighborhoods and small towns across the nation, homes and churches have routinely been converted to small office buildings and retail space. The new trend is similar, although it sometimes occurs in reverse in cities like Boston, Atlanta, Minneapolis and Dallas. Former commercial districts morph into trendy new residential neighborhoods, with modern condominiums and lofts carved out of former factories, mills, offices and warehouses. Historic schools, theaters and churches are ripe for redevelopment as well, and many of them become new restaurants, lounges, craft breweries and entertainment venues.
Some observers predicted almost a decade ago that the time would come for such redevelopment. That time is now: Whether it's the creative adaptation of a nondescript distressed big box store, the greening and adaptive reuse of an architecturally significant historic church or a former factory become new condominiums in a trendy live-work enclave, the new trend is obvious, as well as significant.
Every market is different, so generalities are inconsistent, and they don't explain the phenomenon. But it is clear that creative redevelopment signals a kind of urban renaissance. As older buildings are re-envisioned for new use, there is a corresponding realization that other issues should be addressed: green space and energy efficiency, transportation and recreation needs, safety and security.
When approached with local needs in mind, ideas that create alternative reuse of older buildings and distressed properties become creative solutions that breathe new life into counties like Pipestone, strengthening the economy and adding immense benefit to local citizens.