Pandemic-Induced Development Challenges Could Push More Developers To Adaptive Reuse

In a city with such history, it comes as no surprise that repurposing older buildings is more popular with residents in Philadelphia than demolishing and replacing. That dynamic has only become more stark since the outbreak of the coronavirus pandemic, and development difficulties driven by the pandemic may help more residents get their wish.

All types of public meetings in the city, from Civic Design Review and Zoning Board of Adjustment hearings to developer interactions with registered community organizations, have gone virtual through Zoom or a similar service for the past year, which in most neighborhoods has made it easier for interested parties to participate.

“Now that everyone is working from home, they’re much more involved in land decisions across the city,” Philadelphia Housing Development Corp. Senior Vice President Angel Hernandez, who runs the city’s land bank, said during Bisnow’s Philadelphia Construction and Development Digital Summit on Wednesday.

Even though ZBA, CDR and RCO meetings are all legally required to be in-person, the virtual meetings that arose out of Gov. Tom Wolf declaring a state of emergency last year may very well become permanent based on their success, Hernandez said. Developers will have to get used to the community engagement process becoming even more involved.

Meanwhile, prices for construction materials have skyrocketed to a degree that has stunned the event’s panelists and meaningfully altered the financials for any project that requires such materials, especially ground-up development. Lumber, the material that allows for the cheapest and fastest construction, has seen the most intense price jump.

“With lumber, it’s hard to even know what to do, as the price has doubled in the past two or three months,” Streamline Group CEO Mike Stillwell said. “So what do you do? Do you just wait, or change your plans?”

The international supply chain has not had the time or ability to overcome shipping backlogs that started during the initial lockdown phase last spring. For developers who want to pivot to a material like concrete that has a little more price certainty and is slightly easier to obtain, the base cost is still too high to make anything but the highest-priced residences profitable, Post Brothers Vice President Sarina Rose said.

Compared to new construction, adaptive reuse requires less in the way of raw materials to execute, making it more appealing than ever, Rose said. In neighborhoods like Fishtown, Brewerytown, Northern Liberties and others, former factories have been fodder for loft-style apartments since the 10-year tax abatement jump-started construction at the start of the 21st century, meaning a further increase in popularity is significantly affecting supply — but that may be a good thing.

“We’re fortunately starting to whittle down the list of available properties out there,” Philly Office Retail CEO Ken Weinstein said. “So we’re starting to see price increases for raw, existing buildings as people renovate them. I never thought I’d see the day, but we’re slowly starting to catch up to the supply of vacant buildings out there.”

Land has been steadily getting costlier in the Philadelphia area for years now, panelists agreed, but repositioning opportunities growing in price will eventually lead to higher rents, which in turn will make more developers consider adaptive reuse viable in comparison to demolition and new construction, Weinstein said. If density and project size is an issue in making the numbers pencil, then overbuilds can split the difference between adaptive reuse and new construction — and are growing more common, Weinstein said.

Even with all of those factors swinging the needle more toward adaptive reuse, many developers balk at the challenges of adapting older buildings to safety standards from the Department of Licensing and Inspections that have grown more stringent over the years. Weinstein echoed a common request from developers to ease restrictions, arguing they incentivize teardowns. Philly’s patchwork zoning code and the ZBA’s reputation for capriciousness similarly affect potential redevelopment projects.

“Zoning hasn’t kept pace with the trends of development and where they’re going, and [the ZBA] also don’t respond well to community concerns,” KSS Architects principal Sven Schroeter said.

One potential area where adaptive reuse is underutilized is in historically protected buildings, which may seem counterintuitive to those familiar with the Philadelphia Historical Commission’s slow pace of approval and seemingly byzantine regulations. A proactive approach can make the commission seem much more welcoming, Weinstein said.

“Yes, [the Historical Commission] throws up roadblocks, but they’re a phone call away if you need help navigating it,” Weinstein said. “People run away from historically protected buildings, and they should be running towards them.”

In a city where public opinion can seemingly be stridently opposed to any proposal that doesn’t guarantee parking for everyone and the approvals process can seem opaque, developers can be forgiven for wanting to avoid another series of meetings, proposals and negotiations. But when every other avenue for development seems to be getting tougher, the real estate community could be better served by trusting the process.

“It’s more of a collaboration than an adversarial relationship,” JL Architects founding principal John Lister said.