Adaptive reuse projects are a popular way to revitalize communities and cater to a new generation of consumers but there are factors to consider that may not be present in traditional ground up development projects. Here is what you should consider when evaluating whether or not your project is financially feasible.
What are the factors that will ensure a financially feasible adaptive reuse project?
Investors and developers are always looking for new ways to entice this new generation of consumers who desire to ‘live, work, and play’ in already developed urban areas. One way that they are accomplishing this is through adaptive reuse. Adaptive reuse has been a large part of urban revitalization, especially in the northeast, where there is a large inventory of abandoned or poorly maintained buildings (industrial plants, factories, warehouses, refineries and ‘downtowns’ etc.) whose initial purpose has become obsolete.
Statistics show that 90 percent of U.S. construction will occur on existing buildings (whether it be the renovation of existing spaces and the adaptive reuse of an existing building). This can be due, in part, to the fact that adaptive reuse is generally faster, more cost effective and more sustainable than a new ground up building. By repurposing an existing building, risk adverse developers and building owners are seeing the financial and intrinsic value that comes with retrofitting a building rather than a knock down/rebuild redevelopment. With this vast inventory, you need to do your due diligence and determine if the project makes sense not only developmentally but financially.
Building Condition and Existing Capacity
By preserving the majority of the building’s structure, you can significantly save on the design, material and construction costs. Generally, these buildings have great bones-strong foundations, compliant and visually pleasing facades, and structurally sound cores which can be preserved while containing an abundance of existing open space and interior walls that can quickly and cost effectively be reconfigured to suit an alternate purpose and tenant type. The addition of steel reinforcement beams, ties, or connections to supporting beams and foundation can be a significant cost so finding a building that is a structurally adaptable fit for your final use is ideal. Now that you’ve checked all the boxes for the internal framework of your building, it’s time to look inside of the walls at your wiring, plumbing, ventilation, and other infrastructure systems. Some systems are eligible to have portions replaced at a minimal cost but there is always the chance that everything will have to be completely torn out and re-installed to meet current codes, which is a huge drain on your project budget. In some cases, this single factor can determine the financial feasibility of your project. Thorough inspection and testing is required at the due diligence level to ensure that an adaptive reuse is a viable option.
Possible Funding Opportunities and Tax Credits
Part of your due diligence should be investigating the availability of grants, funding, and tax incentives that can come with adaptive reuse projects. Federal and local incentives are made to make adaptive reuse projects more attractive and advantageous to developers and investors in comparison to developing a green field. Some of these grants and credits include historical preservation, brownfields if the site is found to be contaminated, urban enterprise zone program (available in New Jersey), federal rehabilitation credits, and state and local tax credits. These alone can make a daunting project a worthwhile investment.
Location, Location, Location!
While it may seem like a cliché, your project’s financial feasibility also relies heavily on its location. Urban blight can be seen in many areas but not all of them are in desirable neighborhoods that are capable of widespread revitalization. Attracting the population to move back into a formerly depressed area requires incentives like proximity to transit, ample parking, access to retail, restaurants, and attractions within walking distance from residences, and a general movement towards continued sustainable development combined with old world charm. Realizing that the repurposing of one building can springboard additional rehabilitations and have a positive impact on the entire community, will increase tenant retention and return on your original investment.
There is a vast opportunity at our finger tips with the existing inventory of buildings in this country. The appeal of historic personality and aesthetic charm behind adaptive reuse projects may be a worthwhile investment, but developers must be sure to watch out for potentially deal breaking obstacles that cannot be easily overcome. A thorough due diligence before the planning stages of a project are essential to ensuring that your project is financially and logistically feasible.