For the past two years, Chicago has been going through a mini-boom of new hotels. The city’s hotel capacity in 2013 was 34,000 rooms.  Nate Sahn, CBRE’s hotel practice leader, recently said in Urban Land that he expects that to increase by 15-20 percent by 2016.  While some of this inventory will come from mixed-use new construction, many of these new hotel projects are planned for existing downtown landmark buildings, with developers investing in extensive rehabilitations that convert historic buildings to be used as boutique or chain hotels while retaining significant historic and architectural elements.

Some examples of such adaptive reuse projects in downtown Chicago include: the Burnham hotel in the old Reliance Building and the mysterious new Virgin Hotel project to open in the restored Dearborn Bank Building from 1928.  There is also the vintage office building at 100 Monroe Street that will house the Hyatt Hotel, which is currently undergoing a conversion that will “emphasize Chicago’s architectural history and the hotel’s branding and marketing will play up the 22 story Frank D. Chase-designed building’s past”.  In the Fulton Market district, the trendy Ace hotel chain is opening in an old industrial building; while the iconic Hard Rock Hotel Chicago has taken over the 40 story beaux-arts Carbide and Carbon Building at 230 North Michigan Ave a block away from the Chicago River. 

Redeveloping older buildings – the risks and opportunities

Many developers are turning to redevelopment rather than ground-up construction. Like the high tech industry, the hospitality industry is particularly drawn to the charm and history of old buildings, and adaptive reuse projects that preserve iconic historic features are increasingly popular.

Converting older buildings for another use is much more complicated that simply turning a supermarket in a modern building into medical offices, for example.  In particular, urban sites or sites that have sat vacant for a long time have a high risk of environmental issues being present; and older masonry-exterior also buildings carry specific risks. This means that when taking on such an adaptive reuse project, there are a number of potential issues of concern that an investor/developer should be on the look out for: 

Hazardous materials in Older Buildings

Federal laws have banned the manufacture and use of hazardous materials over time, but they were widely used in the construction of older buildings.  As such, before embarking on the redevelopment of an of old building, a comprehensive Environmental Site Assessment must be conducted in order to identify and plan to mitigate any hazardous materials.  Specifically, issues that may be present in a historic building that should be investigated include:

  • Asbestos containing materials, including fireproofing (which probably won’t show up in the pre-1900 buildings), pipe insulation, electric wiring insulation, wall insulation, electric motors, boiler insulation and gaskets.
  • Lead-based paint, lead in water and in water piping; and lead in exterior window frames.
  • Soil or groundwater contamination and vapor intrusion issues
  • PCBs, which were manufactured from 1929 until they were banned in 1979.  During this time, they were used in hundreds of industrial and commercial applications including electrical transformers and fluorescent light ballasts, as plasticizers in paints, plastics, caulking and many other industrial applications. The most common location in buildings are in electrical transformers and fluorescent light ballasts. While older Electrical transformers have mostly been replaced by the electrical utility companies throughout the US (typically labeled “non-PCB”), the environmental assessor should check whether a risk of PCB exists.
  • Mercury in thermostats and fluorescent bulbs
  • Mold occurs when moisture is present for an extended period of time, which is not uncommon in older buildings, particularly if they have been unoccupied.  The presence of mold can be determined by performing an indoor air quality study.

Building Condition/Design Issues

  • Old buildings have a habit of leaking.  Determining where these leaks occur – at roots, windows, walls or foundations – is part of a full condition assessment. Surveying interiors for moisture intrusion should be part of the condition assessment as the findings may suggest the necessity of an indoor air quality/mold survey.
  • Most older buildings had only heat provided.  Installing new air conditioning and heating can be a significant challenge in older buildings.  Energy efficiency, economy of operation and building-code compliance should be considered when selecting the method of heating/cooling and air distribution and the temperature control system.  A thorough Basis For Design evaluation, where the existing condition and adequacy of MEP systems are evaluated in great detail to determine the extent to which they can be utilized in the new design, will ensure the selection of energy efficient solutions that will not only achieve the best environmental climate conditions, but provide savings on operational costs and ensure compliance with all modern building codes.
  • Older buildings often have lead, iron or galvanized steel water supply piping and cast iron waste piping. The lead, of course, is hazardous and the iron or galvanized steel is subject to leaks after a certain age. Buildings pre-1900 may even have clay waste piping, which could crack at the accidental touch of a hammer.  The property condition assessment should consider these issues. An engineered supply and waste plumbing replacement project should be done. In a complex building like a hotel with a large number of bathrooms, the plumbing design is a critical aspect of the operational systems.  A well-designed plumbing system will be engineered for economy and provide flexibility in future building alterations, and should reduce water usage as much as possible to meet (and exceed) building codes.
  • Old buildings’ electrical loads are much smaller than the modern lighting and HVAC systems required in modern hotels. In order to be sure the building electrical service is sufficient for the new loads (and will continue to be sufficient in the future), the requirements of the building must be calculated, keeping in mind the continuously increasing demands of tomorrow’s technological applications. After establishing the new electrical service with new main switchgear, the next step is to design the new electrical distribution in the building (wiring interior transformers if necessary and distribution panel, outlets and lighting). New hotels need a new IT network. A new Fire Life Safety and Communication system will be required. This should be part of the electrical engineering work.  The electrical components of a building design are key to its operational efficiency. The lighting design should be high-efficiency to meet or exceeding energy standards
  • Masonry wall defects.  Chicago requires an annual inspection for certain types of masonry walls.  Where it exists, the prior year’s inspection report must be provided to the buyer during the condition assessment period, and reviewed by an experienced structural engineer. If no existing reports are available, a structural engineer should be engaged to assess and identify possible defects so the investor can include the repair costs.
  • While this may not apply in Chicago, structural resilience is another critical consideration when redeveloping an old building to be fit for use as a hotel.   In seismically prone areas like California, a structural inspection and seismic risk assessment may indicate a need for strcutural strengthenening or a seismic retrofit. Certain property types, such as a soft-story, are also particularly weak and may require structural upgrades. 

Addressing Issues Early to Maximize Rewards

Repositioning of an existing property into a hotel can be a profitable and satisfying experience; however it is critical that the potential issues listed above are identified early on in the design stage of the rehabilitation project.  The rehabilitation and conversion of a historic building can easily run over budget if issues are not identified before construction work begins, because rectifying missed conditions can be complicated and expensive. A thorough due diligence assessment and smart building design process will reduce risks to the investor/developer by identifying environmental and engineering risks upfront, expose the viability of the proposed adaptive reuse project and provide effective solutions to any issues presented.