Is Your Building a Candidate for Adaptive Reuse?
Campbell, Jan, Journal of Property Management
Adaptive reuse - converting an existing building to suit the needs of a new tenant or a new use - offers renewed vitality to tired, outmoded structures. Close-in industrial and warehouse space may be obsolete for manufacturers, but may offer prime locations for office or office-showroom space. B and C office properties that no longer satisfy the technology or floorplan needs of large corporations may be re-created as small-tenant offices, training centers, and retail/service space.
Conventional wisdom holds that reuse makes the most sense when new use is close to the original one. Yet, in some cases, the most successful adaptive reuse projects are the most radical ones. "The key is to remember that a building has a life; one always wants to retain enough of the original to reflect that past," says Candace Schafer, director of corporate marketing for O'Donnell Wicklund Pigozzi and Peterson Architects (OWP&P).
A key reason for choosing adaptive reuse is money. An unmarketable older building may have little or no value in its current condition. According to J. Thomas Black, writing in Reinventing Real Estate, published by the Urban Land Institute, major renovation of an existing office will cost between $35 and $75 per square foot. The structural integrity of the exterior, the presence of asbestos, and the suitability of the floorplate all influence the cost. Shafer notes that according to Donovan Rypkema, principal of The Real Estate Services Group, a total building rehab will cost approximately 16 percent less in construction costs and 18 percent less in construction time than comparable new construction even if asbestos is present.
Rehabilitating older buildings may also qualify owners for tax deduction of a percentage of construction costs - 20 percent for buildings on the National Register of Historic Places or in a designated historic district, or 10 percent for any building built prior to 1936. Renovations of industrial buildings for a new industrial use qualify for a 30-percent credit. Legislation is also pending in Congress to expand favorable tax treatments for renovation and reuse of historic buildings. (Note the deductibility of costs is limited by passive loss rules for individuals and partnerships; corporations may take the full deduction.)
Not every property is a good candidate for adaptive reuse. But with a few simple guidelines and the creativity to turn a negative into a unique feature, you can give new value to a declining asset. Several factors influence how quickly and economically a building may be re-adapted/renovated for modern office use.
The Physical Structure
The greatest physical asset offered by most older buildings is location. In many major cities, older buildings occupy prime downtown locations while vacant industrial space near the CBD offers excellent opportunities for conversion to office or retail use. Even misplaced retail can take on a second life; the former Goldblatt's department store on Chicago's State Street has re-emerged as a classroom space for DePaul University and office floors for government agencies.
Not every tenant can or wants to do business from a suburban office park. Attorneys who must regularly file briefs and consulting and service firms that must quickly respond to clients will find central, smaller-scale space attractive. Rising rents for Class A space in many markets also makes adaptive reuse of less expensive buildings more viable.
Conversely, the conversion of outdated industrial space in suburban areas may help satisfy the growing demand for suburban office space. Ameritech's transformation of a truck maintenance building to a suburban learning institute adjacent to the company's office offers a prime example of this trend.
Adaptive reuse may also exert a strong emotional appeal, especially if the building is a local landmark. The idea of replacing a beautiful, historic building with another glass and steel high-rise may raise opposition from neighborhood and preservationist groups.
The high-quality architectural detail and taller ceiling heights often found in older buildings may also aid leasing. After a full restoration, Chicago's historic Rookery building is commanding near-top rents of approximately $30 per square foot. Tenants at all rent points appreciate a property that does not just provide plain vanilla space.
At the same time, older buildings do present some physical challenges for adaptive reuse. The closely spaced exterior support columns found in many concrete buildings create small bay sizes that are difficult to configure. "A new office building typically has a module of 30 feet by 30 feet or 20 feet by 30 feet, while an older office may have modules of 18 feet by 20 feet. This can make space use less efficient," says Angelina Lee-Fasiang, AIA, director of interiors for OWP&P.
More interior support columns in older properties also make build-out more difficult. Older industrial buildings typically do not have as many interior columns, so conversions to office go more smoothly. However, in industrial space, ceiling height may be lost to accommodate lighting and electrical drops.
Sufficient washroom facilities, especially for women, are another feature often lacking in older C office structures. "I worked in an older building with only one women's washroom - on the 17th floor," says Lee-Fasiang. "More importantly, without a major renovation, there was no space to add more." Both building codes and tenant needs require prescribed washroom availability.
Smaller window-to-wall ratios in older office buildings also make them more difficult to adapt for modern open-plan designs. "Typically the depths in older buildings lend themselves well to firms with intensive private office needs," says Lee-Fasiang. "Whole-floor tenants are also suitable because space is not lost to a five-foot access corridor around the central core."
Zoning and restrictive covenants are other major hurdles in a successful adaptive reuse project. "Changes of use in suburban settings are usually more difficult," says Joel Stauber, director of planning with OWP&P. "In downtowns, several uses already coexist together, whereas a change of use in the suburbs will almost certainly require rezoning."
Stauber also cites parking requirements as a barrier to suburban adaptive reuse. In Chicago's suburbs, for example, office buildings must provide three spaces for every 1,000 square feet. "Retail is the only other use with similar parking availability," notes Stauber, "but because the typology of retail and office buildings is so different, this is not usually a good conversion option."
Environmental issues may also have a major impact on the feasibility of adaptive reuse, especially when converting from industrial uses. Stauber suggests a Phase I audit with particular attention paid to underground tanks, hazardous wastes, and asbestos. "Floor tile and pipe wrap are the most commonly encountered forms of asbestos in older office and industrial buildings," says Scott Franzen, an associate and project manager with OWP&P. "Tiles can be floored over, but because most adaptive reuse projects completely replace electrical and HVAC systems, any asbestos in the ceiling will probably have to be removed."
Federal wetlands and local storm-water ordinances also play a key role in reuse projects. "Wetlands and storm-water requirements have become more stringent in recent years," says Stauber, "and an upgrade or rezoning of a building may make it necessary to bring the site into current compliance."
Similarly, renovation or adaptive reuse triggers further compliance with the Americans with Disabilities Act. According to ADA, alterations that affect usability must provide accessibility to the "maximum extent possible." Thus, commercial buildings undergoing major renovations would almost certainly have to install accessible entrances, corridors, and washrooms. However, exceptions are made in bringing all pathways into compliance with ADA if the cost would exceed 20 percent of the entire renovation. Buildings listed on the National Register of Historic Places or in other historic categories may be exempt from alterations that affect their architectural character.
Likewise, buildings will be required to bring all systems up to local building codes. "This is usually less of a problem," says Stauber, "because most adaptive reuse projects are gut jobs." Impact fees will also add to the cost of renovation or reuse construction, but Stauber suggests that municipalities may be more flexible in adaptive reuse negotiations than they would be with new construction.
Whether it is upgrading your C building to compete or adding value to obsolete industrial space, adaptive reuse provides a cost-effective, time-efficient alternative to new construction. While reuse projects require the flexibility and creativity to deal with unexpected conditions during construction, the benefits in speed, money, and a continued sense of history often far outweigh the potential drawbacks.
Jan Campbell is a freelance writer In Chicago.…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: Is Your Building a Candidate for Adaptive Reuse?. Contributors: Campbell, Jan - Author. Magazine title: Journal of Property Management. Volume: 61. Issue: 1 Publication date: January-February 1996. Page number: 26+. © 1999 National Association of Realtors. COPYRIGHT 1996 Gale Group.
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