For all sites, there is a need to understand the life story of the land and the buildings and calculate any expenses associated with that. So says Holly Neber, CEO of AEI Consultants, who recently chatted with about adaptive reuse, issues with Opportunity Zones, what developers should know when approaching them, as well as repurposing industrial space and more. What trends are you seeing when it comes to the repositioning and repurposing of older properties? Do you anticipate any changes next year, as competition continues to increase?

Holly Neber: We are observing a high amount of repurposing activity in the industrial space, as developers seek opportunities to reposition older industrial sites where demographics create demand for new uses, such as data centers or last-mile distribution.

As the face of retail continues to change, we will also see more projects that seek to transform traditional shopping malls into community centers incorporating more events and entertainment. In some cases, developers are incorporating other uses, including housing – which can require extensive property and land assessments. However, with the right submarket fundamentals, this can be well worth the return on investment, especially as multifamily asset and developable land availability tightens.

An increasing number of investors are also beginning to explore and understand the complexities of the Opportunity Zones created with the Tax Cuts and Jobs Act in December 2017. More than two-thirds of these areas contain EPA-designated brownfields, properties and sites with potential contamination.

While some investors are deterred by the requirement to double the value of a property, both remediation and renovation costs can be used to meet this goal. We anticipate that this could drive assessment and repositioning activity as these properties are revitalized. What unique environmental challenges do these projects present?

Neber: All redevelopment projects require that the ‘ghosts’ of a property’s past must be identified and addressed as needed. That said, the degree to which a site must be assessed and remediated or mitigated can vary greatly.

For example, long-term industrial use can present some of the more complex challenges, as it can result in asbestos, lead, or PCBs in the building materials, as well as subsurface contamination, tanks, and other pieces of equipment that need to be decommissioned.

Demolition and facility decommissioning can be expensive to undertake, so the financial math must make sense. Fortunately, the high demand for these sites often supports these repositioning activities. These types of redevelopments are becoming increasingly prevalent in both urban and suburban markets. How do these projects differ?

Neber: For all sites, there is a need to understand the life story of the land and the buildings and calculate any expenses associated with that. Beyond dealing with legacy environmental issues, infrastructure upgrades must also be considered. In urban areas, aging municipal infrastructure may represent a larger challenge than suburban markets.

For instance, Kansas City’s West Bottoms district was revitalized only after local and federal grants provided funding for area-wide improvements to the sewer system and improved flood control.

That said, even for suburban sites, upgrades such as those to wastewater management may be necessary in order to support new uses.

While the process of coordinating with municipalities and fitting together all the pieces may sound daunting, there are consultants that are experts in these issues and enjoy coming up with creative and strategic solutions. A team experienced in these projects brings a competitive advantage to developers. What should investors know when approaching repositioning and repurposing?

Neber: Developers looking to approach these projects can find the deepest value in identifying opportunities where they can fulfill the needs an area’s existing demographics and work within its fundamentals and infrastructure.

Now more than ever, developers should not be afraid to be creative. As competition for developable land and value-add assets increases, each area offers more unique opportunities to reconfigure old uses into completely new ones – whether it’s education, medical facilities, data centers, warehouse/distribution facilities, or housing.

Developers and investors who fill an existing demand by creatively matching location with unmet needs can profit from the investment and benefit the community.