Adaptive reuse refers to the process of reusing an existing building for a different purpose than what it was originally built or designed for. Adaptive reuse can be an effective strategy to improve the performance of an existing asset. Certain cities have also implemented Adaptive Reuse incentive programs that provide fee incentives for developers.
Some of the most popular adaptive reuse cases recently are; Malls to Mixed Use, Hotels to Apartments, and Office to Residential.
There are many great benefits to repurposing existing properties. Aside from benefits to the General Partners and Limited Partners, there are also benefits to the city, and environment. Here are a few of the main benefits:
One of the greatest benefits to Adaptive Reuse, is the potential basis of the investment. Not all opportunities are created equal, but in some cases, developers can save 15-20% or more on the development cost by repurposing an existing asset. If a property can be acquired and repurposed with less capital otherwise, then the opportunity speaks for itself.
Time is the ultimate formula in the investment world. If developers can save time by repurposing an existing asset, rather than developing raw land, then gains can potentially be multiplied.
Since land is irreplaceable, if a certain neighborhood or area does not have much raw land available, developers can potentially have a better ability to enter a quality location with adaptive reuse.
Adaptive Reuse also allows for a more sustainable development from its material and waste reduction. Instead of demolishing a building and using new materials to construct a new building, neighborhoods can be revitalized with repurposing existing properties.
Depending on the case, Adaptive Reuse developments can be challenging. Especially when it is a large project, or a historical property. Here are some of the challenges developers face with Adaptive Reuse projects:
Just like most developments, the planning and city approval can be the most challenging part. Adaptive Reuse fits right in line with this process and can potentially be even more challenging to have plans approved as the properties purpose is being changed, possible drastically.
Confined to Space:
As you can imagine, with adaptive reuse, developers are confined to the existing space. This can bring great creativity and incredible transformation, but can also be very challenging, and questionable which is why not all real estate projects are created equal.
Building Code enforcement is another challenge developers face with potential historic properties, outdated records, or potential hazardous material.
Although all opportunities are not created equal, Adaptive Reuse can be a profitable strategy for developers and can provide investors with an opportunistic profile which can be more risk averse than raw land development.
If you are interested in learning more about our investment opportunities, join our investor group.