Is Your Building a Candidate for Adaptive Reuse?

By Campbell, Jan | Journal of Property Management, January-February 1996 | Go to article overview

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. …

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