Adaptive Reuse Opportunities

Developers Are Increasingly Pursuing Adaptive Reuse Opportunities

First Hospitality transformed a historic building in Indianapolis into a Hilton Garden Inn

The appearance of a new tower that alters a familiar skyline is always going to garner a lot of attention. In fact, one mark of boom times is the race to build the tallest, biggest or most expensive project.

In contrast, in normal recessions development takes a dip. But the recent recession was far deeper and more severe than normal. As a result, new development remains dormant. Instead, as the recovery continues to take shape, developers are finding work increasingly in the form of adaptive reuse.

"During a recession, when real estate is slow, investors will sit on a greenfield site longer than an existing building,” says First Hospitality Group’s Bob Habeeb. “A building cries out: ‘I’m built. I’m here. I’m lonely. Do something with me."

Cities across the nation are littered with projects that failed during the downturn as well as half-built projects in need of a new vision. Moreover, many boast historic downtown districts—areas that once hosted businesses that eventually left, but are now being reborn.

There are many reasons why developers are attracted to adaptive reuse today. There is an increased demand from cities, residents and tenants for renewed urban cores. Americans are regaining a taste for urban living and moving from suburbs back to redeveloped cities.

“Adaptive reuse is becoming more and more popular, and it has a lot to do with re-energizing historic downtowns from coast to coast,” says Claire DeBriere, executive vice president and COO of the Ratkovich Co., a Los Angeles-based company that has worked on adaptive reuse projects. “A lot of cities are pursuing preservation and adaptive reuse projects aggressively. And they’ve been very thoughtful in how they can encourage development and rehabilitation of their cores into something that is new, different and engaging.”

Something new
A lot of creative projects are in the works across the nation. For example, Ratkovich is spearheading the adaptive reuse of the Hercules Campus at Playa Vista in Southern California.

The landmark property is comprised of 11 historic buildings totaling 537,130 sq. ft. on more than 1.2 million sq. ft. of land. The campus includes the hangar where Howard Hughes built his legendary flying boat, the Spruce Goose. “We’re able to tell a story about a place that is rich and unique that you just don’t get out of a new building,” DeBriere says.

Revived historic downtowns have also become popular. “When talking to people young and old, we hear that they want to experience dense environments,” says Brandon Raney, CEO of BC Lynd, an Austin, Texas-based hospitality development and management company. “The focus is moving away from suburban development and shifting to downtown and adaptive reuse.”

Indeed, some studies show that migration patterns to urban cores increased during the 2000s and that trend is expected to continue. According to a report by the World Bank, the percentage of the U.S. population that lives in urban areas has grown about 1 percent per year in recent years and reached 82 percent in 2010, the last year for which data is available.

Buildings with a rich history and unique architecture have proven to be a huge draw. In downtown Cleveland, for example, a number of historic office buildings have found new life as apartments.

Jack Waldeck, a partner at Walter & Haverfield in Cleveland who specializes in real estate law, represents MRN Limited Partners, the development company that has transformed the National City Bank building at 629 Euclid in downtown Cleveland into a mixed-use complex that will eventually include office space, a hotel and multifamily units. Over the past several years, and using a mix of historic and New Market tax credits, the firm updated the 1890s-era office building with new office suites and converted part of it into a Holiday Inn Express.

The top stories of the building were set aside for apartments, and MRN Limited Partners will begin work on that component this spring. The firm will finance the rehabilitation with conventional construction debt, Waldeck says. “Lenders are willing to finance the project because of the demand for apartments in downtown Cleveland,” he explains.

In addition, suburban residents also make their way downtown to take advantage of dining and entertainment options. In fact, many employers who moved their operations to the suburbs are moving back to the urban core because of the amenity base that downtowns provide.

Google recently purchased one of the largest office buildings in Manhattan, a beaux arts building in central Paris, a historic warehouse in downtown Pittsburgh, and a property anchoring the pedestrian mall in Boulder.

Companies pay to be close to knowledge, so as to reap the benefits of learning and collaboration. Biogen Inc. recently decided to leave its Weston, Conn., headquarters after only one year to return to Cambridge, Mass. This situates the company near Harvard University, MIT and a quickly growing cluster of pharmaceutical companies.

When it comes to hotels, providing an authentic experience in an historic setting can be a great selling point.

First Hospitality Group, a Rosemont, Ill.-based firm, is involved in transforming a Milwaukee, Wis., landmark—the Loyalty Building—into a 128-room Hilton Garden Inn.

The building was constructed in 1886 and served as the original headquarters of Northwestern Mutual Life. It is a Milwaukee and Wisconsin Landmark, and is listed on the National Register of Historic Places. It features a four-story atrium, original granite and limestone floors and façades, and one of the best-preserved and most celebrated 19th-century commercial interiors in the state. In addition to the hotel, the property will house 4,500 sq. ft. of ground floor retail space.

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By Jennifer Popovec for http://nreionline.com/