MIAMI—Post Brothers Apartments knows a thing or two about multifamily adaptive reuse projects. Post is working on four Northeast developments: Goldtex, Rittenhouse, 260 South Broad, and Presidential City.

Of course, all of these adaptive reuse multifamily projects came with opportunities and challenges. GlobeSt.com caught up with Matt Pestronk, president of Post, to discuss his views on those opportunities and challenges in this exclusive interview.

GlobeSt.com: How are adaptive reuse projects creating opportunities for developers?

Pestronk: Adaptive reuse, to me, means substantially changing an existing structure through major construction where the highest and best use of a property is realized. For Post Brothers, that means either the conversion of commercial buildings to multifamily or the gut renovation of existing high-rise multifamily to a class A-plus standard.

We think adaptive reuse projects always have a good story because the fundamental trait amongst all attractive potential adaptive reuse property is that there is substantial upside if you are willing to invest capital. The reason that most sellers dispose of adaptive reuse properties is because they don't want to invest the capital or lack the vision or desire to reap the full potential of an asset.

GlobeSt.com: When does the adaptive reuse strategy work? When does it not work? What factors help you decide whether to pursue the opportunity?

Pestronk: Generally, we purchase assets in negotiated transactions on an off-market basis. One of the things we look for is a "story" around a property: why it cannot be easily marketed and readily financed. We like overcoming those types of challenges to build successful projects.

The investment sales brokerage community prefers to deal with commercially reasonable, legitimate buyers such as Post on a buyer-representation basis as the typically non-cash flowing, complex rundown properties we like to buy do not lend themselves to running an auction for a seller. Running exclusive sales auctions is the bread-and-butter of the sales brokerage community, as it should be, due to widely available financing for cash flowing assets of all profiles and property types.

GlobeSt.com: Does adaptive reuse tend to work better in some markets than others?

Pestronk: Adaptive reuse works better in a market where construction costs are high, land is scarce and expensive and regulatory barriers to entry are difficult. Infill and particularly urban Infill markets, which are already densely populated nearly everywhere are gentrifying rapidly due to demographic shifts in the US population, and so adaptive reuse is becoming a more viable strategy for obsolescent assets, particularly in markets where land prices are rising rapidly.

Be sure to come back this afternoon to read part two of this exclusive interview in which Pestronk will discuss how his firm used creativity to overcome adaptive reuse challenges on multifamily development projects.