LAS VEGAS-According to Area Development Online,30% of the US commercial andindustrial space lies vacant, and some corporateusers report that the cost to maintain that fallow space approaches$15 million annually.

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Last year the Society of Industrial & OfficeRealtors and the Industrial Asset ManagementCouncil joined forces in a groundbreaking study on there-use of that space, and found much untapped return potential. Theresults of that survey, ofmore than 60 corporate real estate executives in global firms, wasthe focus of a major event at SIOR's Spring World Conferencehere.

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The study revealed that 70% of respondents held assets on thebooks that were 11 years old at least. “The lease value of some ofthose assets drops 77 cents per square foot per year,” statedKevin McGowan of McGowan Corporate RealEstate Advisors, one of the SIOR project team members.

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Not surprisingly, the cost to repurpose is much less than theprice tag of a new build. But the refurbish costs can creep up,depending on the current state of the facility and the intendeduse. In fact, the rehab costs can stretch from $2 a foot to as highas $750.

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Also no surprise was the report that warehousespaces—essentially big open boxes—were the most common repurposetargets (by 60% of respondents). Obviously, as the complexity ofthe project grows, the volume of adaptations drops.

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But straight across the board, the ROI is impressive, andRon Grossman of NovartisPharmaceuticals, one of the study's co-chairs, told theattendees that “for 46% of the respondents, the ROI was one tothree years.” Another 30% reported returns within three tofive.

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The other incentive to tackling an adaptive re-use was, well,incentives. Mark Beattie of consultancyHickey & Associates explained that suchprojects are open to federal, state, regional and local grants andtax breaks. “But,” he warned, “it's important to obtain the buy-inof all involved partners,” and in that list he included not onlythe obvious investors and owners but the local community andspecial interest groups as well.

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Of course, not all vacant spaces are prime candidates forrebirth, and 85% of respondents cited work process, technologicalinfrastructure, facility layout and geography as the biggestbarriers to re-entry.

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Finally, the report team explained that there are a number ofways to maximize flexibility in the newly created space to extendthe life of the facility. These include clustering building-coreoperations, creating a modular design and planning for redundantpower.

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Also, and this is key, as McGowan said, “Have an exitstrategy.”

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John Salustri

John Salustri has covered the commercial real estate industry for nearly 25 years. He was the founding editor of GlobeSt.com, and is a four-time recipient of the Excellence in Journalism award from the National Association of Real Estate Editors.