Developers Say Money Just One Ingredient In Pulling Off Adaptive Reuse Projects

Not every old building is a good candidate for an adaptive reuse project, and those working in the space say it is vital to gather the right ingredients upfront to make conversions successful.

Funding is always most of the battle. But beyond that, the recipe includes teaming up with the right partners, identifying latent demand, digging into the property's history and thinking outside the box as some DFW developers begin working to turn old office buildings into data centers and storage spaces.

For the conversion of Santander Tower from an office building to multifamily housing, adaptability and collaboration were essential to the downtown Dallas project, according to Mintwood Real Estate principal Katy Slade and Adolfson & Peterson Construction Regional President Will Pender.

“Every member of the team that we had, from the owner of the building to the contractor to the architect, everyone there was looking at it for the best interest of the outcome,” Slade said at the Bisnow Adaptive Reuse, Conversions and Repositioning event Wednesday at The Statler Dallas. “That's not always typical in development projects.”

When so many different teams are working on something at once, it is imperative there is an understanding that they are all partners.

“That's very important, figuring out a better way to do things and just saying, ‘It's not a roadblock. Let's make a freeway,’” Pender said. 

Tapping into latent demand is also a primary ingredient for a successful project, Harrel Group President David Harrel said. Pacific Elm Properties' Santander Tower might not have been a success if it were in a different location, he said.

“Once you identify an area that can come back with a little bit of investment, the right team, the right plan, creating that demand and creating that place is huge,” Harrel said. 

Projects that are tenant-driven also tend to be successful, Harrel said. 

“In a lot of my projects in smaller boutique retail, once you've got that tenant, you realize where they want to be, you identify that right building and rehab [it],” he said. “Then if it does well, the neighbors come in, and next thing you know you've started a chain reaction.”

Once a building is identified as having potential for a reuse project, Merriman Anderson Architects principal Jennifer Picquet-Reyes said it is important to understand its history to pursue historic tax credits and other financial opportunities.

GroundFloor Development CEO Brandon Bolin said he looks for architecturally interesting buildings but noted he took the time to visit the Garland Landmark Society to learn about the historic Garland Bank and Trust building his team is converting into The Draper, a retail, office and residential development.

“I saw what [it] actually looked like in the halcyon days. The lobby was beautiful,” Bolin said. “But one of the bigger opportunities that I saw was this building, which was virtually vacant, was surrounded by a massive parking lot. And if you're an infill developer and you can buy 4 or 5 acres worth of parking lot land, that's something to look at.”

Creativity and having the vision to reimagine a space is also key, especially when it comes to less desirable office space. As of Q1, about 70M SF of office space, or 1.7% of the total U.S. supply, was undergoing conversion, according to CBRE. Office-to-multifamily conversions accounted for 63%, but ideas for repurposing office are growing.

“There's a lot of talk right now about some of these Class-C and D buildings that the debt’s coming up on, of converting them to storage space or, if they have the power capabilities, converting them to data centers,” Pender said. “People are trying to think outside the box of what adaptive reuse really means and not sending these old buildings to the waste stream.”

Pender said he regularly gets calls from office owners in places like Plano asking about potential projects. They often hear disappointing news.

“I get that call every other week,” Pender said. “Not every building in the Metroplex or even in the country can be converted to adaptive reuse.”

Picquet-Reyes said each building is different, so it is important to take it all into account when taking on an adaptive reuse project. A midcentury building has a different structural system than a 1930s building, and developers need to understand how to integrate new plumbing, HVAC and elevators.

“All of those things are pieces that come together when you're even in the very early stages [of] envisioning what can go into a building,” she said.

Being nimble when facing challenges is also an essential ingredient to a project's success, Slade said.

“The most critical thing is executing on the vision and not letting the other components be a distraction,” she said. “When obstacles come up, the hardest thing to do is to not be distracted and to focus on what the mission is.”