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What To Know About Adaptive Reuse in Commercial Real Estate?

Are you a commercial real estate investor looking for innovative ways to maximize your property’s potential? One strategy gaining popularity is adaptive reuse, where a property is repurposed for a different use while retaining any historic structures or features of the original building.

For instance, an investor could transform an old church into a trendy restaurant, convert a school into a museum, or renovate a dilapidated factory into multifamily housing. Learn why adaptive reuse might be the key to unlocking your property’s maximum value.

Examples of Adaptive Reuse in Commercial Real Estate

Since the pandemic, multifamily construction projects have grown to meet the work-from-home demand. This trend has piqued interest in transforming office buildings into multifamily housing to keep up with consumers’ requests. Repurposing is also occurring in retail and office buildings. Here’s a closer look at adaptive reuse in each asset class.

Adaptive Reuse in Multifamily Properties

South Side on Lamar is a registered landmark that was once known in the Dallas commercial real estate market as the Sears Building. In 2000, developers converted it into a multifamily tower that spans 798,163 square feet, with ten floors, first-floor retail space, and 252 parking spaces. This multifamily development also shares a neighborhood with various restaurants and hotels, a movie theater, other residential properties, and Jack Evans Police Headquarters.

Adaptive Reuse in Retail Buildings

One example of adaptive reuse in retail buildings is architectural firm KTGY’s project Re-Habit. KTGY saw an increase in homelessness and retail stores closing and decided to combat both issues by providing a safe environment to live and sleep in. Re-Habit repurposes a vacant big-box store into a co-living area with retail spaces, and resources for long-term self-sufficiency such as job training, sleeping pods, and dining halls.

Adaptive Reuse in Office Buildings

Older office buildings with multiple vacancies may need help attracting tenants if they lack nearby mass transportation or if the building requires a large amount of money for renovations. The modern-day workplace has changed from the cubicle setup to a more spacious layout, making warehouses and old factories great contenders for adaptive reuse.

Behr Paint Company recently did this in Santa Ana, CA, when they converted a 30-year-old commercial building into their headquarters. By the time the project was finished in 2018, 230,000 SF of existing space was renovated, combining five separate units to create their headquarters. This project also incorporated sustainability by reducing negative impacts and encouraging ideas that produced a positive environmental impact.

Advantages and Challenges of CRE Adaptive Reuse

There are plenty of advantages that pair with reusing commercial real estate properties. One perk is that most CRE buildings are in high-traffic areas with access to public transportation. Adaptive reuse is also economically sustainable, as utilizing a pre-existing structure minimizes waste and materials while simultaneously cutting down on emissions.

In densely populated areas, converting from a commercial to a residential property can decrease traffic and parking requirements. New, converted multifamily spaces can motivate others to convert more buildings into mixed-use properties, creating a stronger, more walkable community. Repurposing a building also preserves any cultural history the property may have, which brings interest and diversity to the community.

Challenges include getting the building up to code during the design and construction process. You may need to invest more money first to bring the property up to modern standards to meet energy and accessibility requirements. Code requirements can also get complex when dealing with federal historic tax incentives, which may require keeping specific structures, even if they don’t measure up to code.

Another consideration is that since you aren’t working with a new building, you must work around the existing building’s conditions. With an older building, you may also run into hazardous materials such as asbestos and lead paint, which will need to be inspected and removed. This can add both cost and time to your construction timeline.

As we continue to develop economically sustainable and resourceful construction methods in the commercial real estate industry, opportunities will open for more adaptive reuse projects. The most popular option for pre-existing office space is converting it into a multifamily residential. As the demand for apartments grows, so will the incentives to convert empty office space into residential units.

Reusing old structures for new purposes is a sustainable method as it repurposes the construction and materials that are already in place. This real estate investment strategy is becoming more popular as it preserves architectural history while lessening the effects on the environment rather than purchasing a new development.

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