REVITALIZING, REBUILDING & REPURPOSING

THE BENEFITS AND TECHNIQUES TO MAKE IT HAPPEN

KC Conway’s Adaptive Reuse: Turning Blight into Bright report authored for CCIM, cites five things holding back adaptive reuse:

Five Barriers to Adaptive Reuse (AdRu)

1. An industry-recognized definition:

This would allow data on AdRu activity to be collected and segmented to facilitate the development of metrics, which in turn would help developers and capital sources in underwriting more investment.

2. Collection and reporting of key metrics:

Commercial real estate industry participants need to understand how AdRu activity impacts absorption and vacancy for uses it is displacing and transaction metrics, such as capitalization rates and internal rate of return.

3. Local approval, permitting, and zoning processes and ordinances:

This may be why developers and investors are not undertaking more AdRu projects. A developer can perform all the appropriate due diligence and engineer a compelling design, only to learn half-way into a project that an additional approval or zoning variance is required; such unforeseen events cause time delays and cost overruns that can disrupt construction schedules by months and increase project costs beyond the typical 10-percent budget contingencies.

4. An industry-recognized methodology for underwriting and valuation:

National banks are reluctant to take on large AdRu lending given the dependence on local-market knowledge and the absence of recognized market data for underwriting.

5. Acceptance by institutional capital and investors:

Life insurance companies and other institutional entities have mostly ignored AdRu because of their risk thresholds.