Recently, Michigan-based developer, Jenifer Acosta, published an article, “Choosing to Redevelop a Vacant Building,” via Proud Places where she unveils the challenges associated with adaptive reuse and emotionally describes the pure joy felt after transforming a vacant property, bringing new life to an abandoned space in one’s community. Apart from sharing redevelopment truths and recounting rewarding experiences, Acosta delves deeper, highlighting how to successfully break buildings out of the vacancy vortex. Check out her top 10 things to consider when seeking to redevelop historic buildings:
- Research: It’s important to collect and record information on the property, i.e. market rents in the neighborhood, building code issues, year last occupied, zoning, historical use, etc.
- Envision the Possibilities: Explore the property and consider several building programs (new uses), while maintaining an adequate understanding of how the property functions. Can the building support residential units and/or small commercial spaces on the ground floor? Consider the market, review current zoning and refer back to your research!
- Reality Check It: Often, our daydreams meet the reality of code requirements and cost. Walk through the building alongside your contractor, and keep the building code handy. Consult the building inspector, asking him or her to tell you what upgrades are needed to meet the building code for your potential new use(s).
- Synthesize It: Build out a financial model to determine whether or not the investment makes sense, putting numbers from feedback and cost estimates received into a preliminary financial analysis and brief business plan.
- Sleep on It: Check your assumptions and question your decisions, regarding the operating costs of the building. Conservatively estimate how much revenue the building will generate, and consider whether or not to redevelop all at once or in phases. Don’t over-leverage, and run a cap rate analysis to view the future value (compare to your costs).
- Stress It: Test your assumptions, and find out how low of a threshold the rents can be, how many vacancies, how the loan amount affects the property, and what happens if the construction costs are higher than anticipated? Consider all of your building programs, and once you know the “ins and outs,” speak with investors, an architect and a building engineer (if able) for their input and feedback. Do you need to stress it more? Does one scenario get a better response?
- Create Deadlines: Controlling costs can be difficult, especially when getting a building to code. But, you can control the timeline to a certain extent. Would you get better pricing if you started at a time that’s a good fit for your contractor? Would you secure a more preferable team if you started during their slow season? Establish a project schedule and include it in your business plan for the building.
- Team Build: Expand the team of key partners to include future commercial tenants (if needed), and start speaking to lenders, as well as investors (if needed).
- Finalize the Plan: At this point, you’ve completed all of the elements of having a business plan for your project. Now, it’s time to pull if all together, creating a 3-5 page document with specific, helpful sections. A cover letter to your bank and a separate one for investors (if needed) will help you get the financing to redevelop the vacant building.
- Where Deals Die: Most likely, you will face major challenges when attempting to secure financing, tenants, decent cost estimates, investor buy-in and more. You need to make the appropriate changes to strengthen plans, amend the team as needed to ensure it’s collaborative and enduring, convert every “no” to a “yes,” and keep working toward your goal even though you may feel like you’re getting sidelined. Use feedback to strengthen your plan!
Click here to view the full article and more helpful insights offered by Jenifer Acosta!
Project Example: Historically known as the Crapo Building (pictured above), this former bank building is in the heart of Bay City, Michigan. After being hidden for a half-century beneath a bland metal façade, renovations were completed in 2019 by Jenifer Acosta Development. The Legacy now features 26 residential apartments, Mi Table Restaurant, and office spaces.
Image Credit (Proud Places Logo): Proud Places
Image Credit (The Legacy): Jenifer Acosta Development