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Adaptive Reuse in Commercial Real Estate
In commercial real estate, adaptive reuse occurs when an older building is adapted for a different use than it was originally designed for.
What Is an Adaptive Reuse?
In commercial real estate, adaptive reuse occurs when an older building is adapted for a different use than it was originally designed for. Adaptive reuse can have a variety of advantages for commercial real estate investors and developers.
Primarily, this comes in the form of significant savings; demolition and new building construction can be extremely expensive, and adaptive reuse can lead to substantially lower construction costs. In addition, many buildings targeted for adaptive reuse have a significant historic past and pleasing aesthetic qualities, which can often help attract and retain tenants.
Historic buildings that adapted for new uses can often take advantage of various state and federal tax credit programs, such as the federal Historic Tax Credit (HTC) program. In this article, we’ll take a deeper look at some of the reasons why adaptive reuse is growing increasingly popular in cities across the United States and how developers can use it to their advantage.
Benefits of Adaptive Reuse
Adaptive reuse has a variety of benefits for both investors and developers looking to maximize the potential of their commercial real estate investments. However, to gain the most from an adaptive reuse project, developers must choose projects extremely carefully. Some of the most common benefits of adaptive reuse projects include:
Excellent Locations: Though not always the case, many older commercial buildings are located in highly desirable urban areas, such as city centers. Even if is not located in a city’s urban core, an older building in a neighborhood with rapidly increasing commercial rents may be an excellent candidate for repurposing and rehabilitation.
Superior Building Materials: While older buildings can have a variety of issues, many older structures are built with materials such as stone, which is incredibly sturdy and can lead to significant energy when compared with recently constructed buildings.
Zoning and Permitting Flexibility: Certain cities, such as Los Angeles, have special adaptive reuse incentive programs, which relax density, parking, and accessibility requirements, as well as other zoning ordinances, while also making it easier and faster for developers to obtain permits for adaptive reuse projects.
Historic Tax Credits: The federal Historic Tax Credit (HTC) allows investors who support the rehabilitation of eligible historic structures to deduct 20% of the project’s qualified costs from their federal income tax liability. In addition, many states have similar historic tax credit programs that can be paired with the federal HTC in order to maximize investment returns.
What is adaptive reuse in commercial real estate?
Adaptive reuse in commercial real estate is the process of adapting an older building for a different use than it was originally designed for. This can have a variety of advantages for commercial real estate investors and developers, such as significant savings on demolition and new building construction costs, attractive aesthetics that can help attract and retain tenants, and access to various state and federal tax credit programs, such as the federal Historic Tax Credit (HTC) program. Benefits of adaptive reuse projects include excellent locations, superior building materials, zoning and permitting flexibility, and access to historic tax credits.
What are the benefits of adaptive reuse in commercial real estate?
Adaptive reuse has a variety of benefits for both investors and developers looking to maximize the potential of their commercial real estate investments. Some of the most common benefits of adaptive reuse projects include:
- Excellent Locations: Though not always the case, many older commercial buildings are located in highly desirable urban areas, such as city centers. Even if is not located in a city’s urban core, an older building in a neighborhood with rapidly increasing commercial rents may be an excellent candidate for repurposing and rehabilitation.
- Superior Building Materials: While older buildings can have a variety of issues, many older structures are built with materials such as stone, which is incredibly sturdy and can lead to significant energy when compared with recently constructed buildings.
- Zoning and Permitting Flexibility: Certain cities, such as Los Angeles, have special adaptive reuse incentive programs, which relax density, parking, and accessibility requirements, as well as other zoning ordinances, while also making it easier and faster for developers to obtain permits for adaptive reuse projects.
- Historic Tax Credits: The federal Historic Tax Credit (HTC) allows investors who support the rehabilitation of eligible historic structures to deduct 20% of the project’s qualified costs from their federal income tax liability. In addition, many states have similar historic tax credit programs that can be paired with the federal HTC in order to maximize investment returns.
What are the challenges of adaptive reuse in commercial real estate?
While adaptive reuse projects can have a variety of benefits, they come with certain potential drawbacks, too. When rehabilitating an older structure, it may be extremely difficult to stay in compliance with building codes, especially those regarding safety and accessibility. In particular, older buildings may contain fire safety and life hazards, such as asbestos, and often lack modern fire safety systems and fire-resistant construction features. In addition, older buildings are less likely to have accessibility features such as ramps, elevators, and handicap parking. While it’s true that some cities are willing to relax zoning ordinances for adaptive reuse, investors and developers should still keep these potential challenges in mind when deciding to go forward with an adaptive reuse project.
What are the best practices for adaptive reuse in commercial real estate?
The best practices for adaptive reuse in commercial real estate depend on the specific project and the goals of the investor or developer. Generally, it is important to carefully consider the location of the building, the materials used in its construction, and the zoning and permitting requirements of the area. Additionally, investors and developers should take advantage of any available historic tax credits, such as the federal Historic Tax Credit (HTC) program, in order to maximize their returns on the project.
When considering a potential adaptive reuse project, investors and developers should consider the following best practices:
- Location: Look for buildings located in desirable urban areas, or in neighborhoods with rapidly increasing commercial rents.
- Materials: Look for buildings constructed with sturdy materials, such as stone, which can lead to significant energy savings.
- Zoning and Permitting: Take advantage of any special adaptive reuse incentive programs offered by the city, which can relax density, parking, and accessibility requirements.
- Historic Tax Credits: Take advantage of any available historic tax credits, such as the federal Historic Tax Credit (HTC) program, in order to maximize investment returns.
What are the most common types of adaptive reuse in commercial real estate?
The most common types of adaptive reuse in commercial real estate include converting old factories into office spaces, warehouses into retail stores, and churches into restaurants. Other popular adaptive reuse projects include converting old schools into apartments, theaters into music venues, and abandoned industrial sites into mixed-use developments.
In addition, many developers are also taking advantage of the growing trend of adaptive reuse in order to create unique and attractive commercial spaces. For example, some developers are converting old shipping containers into retail stores, while others are repurposing old warehouses into coworking spaces.
Adaptive reuse projects can also be used to create unique and attractive residential spaces. For example, some developers are converting old factories into loft apartments, while others are repurposing old churches into condominiums.
Challenges of Adaptive Reuse
While adaptive reuse projects can have a variety of benefits, they come with certain potential drawbacks, too.
When rehabilitating an older structure, it may be extremely difficult to stay in compliance with building codes, especially those regarding safety and accessibility. In particular, older buildings may contain fire safety and life hazards, such as asbestos, and often lack modern fire safety systems and fire-resistant construction features.
In addition, older buildings are less likely to have accessibility features such as ramps, elevators, and handicap parking. While it’s true that some cities are willing to relax zoning ordinances for adaptive reuse, investors and developers should still keep these potential challenges in mind when deciding to go forward with an adaptive reuse project.