Published on September 29th, 2017 |0
Transit-oriented, adaptive-reuse developments: fringe or the future?
Is it fringe or the future? That is just one of the many questions facing developers and their financial partners as they select buildings for rehab or renovation and turn them into vibrant developments.
That issue was the topic of a Sept. 27 Bisnow presentation: “Atlanta: TOD & Adaptive Reuse, Building Creatively for Atlanta’s Future.” TOD stands for “transit oriented development.”
In the first panel discussion, “Adaptive Reuse, Buildings Redefined,” Moderator Mark Elliot, a partner with Troutman Sanders, defined adaptive reuse as “Taking an old-style building and turning it into something other than its original purpose.” He noted that, generally, there were three reasons for adaptive reuse: environmental responsibility, preventing urban sprawl and a sense of authenticity (tenants tired of glass and steel.)
While such adaptive reuse projects have some challenges — and advantages — over building from the ground up, all agreed that the most eligible buildings are those inside the city, preferably on or near the BeltLine and close to neighborhoods and transportation.
“It needs to be part of an urban community where people can walk, live, eat, shop and work,” says Dennis Hertlein, a principal with Surber Barber Choate, whose resume boasts the adaptive reuse of Ponce City Market.
These buildings were the “economic generators in their time and then they fell into disrepair and now not only is the reuse breathing new life into the buildings but into the land around them,” says Chris Faussemagne, a principal with Wentbridge Partners, a real estate developer whose projects include the Stockyards, White Provisions and Westside Provisions.
It is, after all, real estate. The market is changing as to what businesses, housing and retail need and want. While, the creative class was the first to jump on the adaptive reuse trend and exposed bricks and pipes lofts, it is going much more mainstream now, including with financing.
“There are always cycles in real estate and this is one we’re going through now,” says Hank Farmer, co-founder of Third & Urban, who is turning a 105,000 square foot former warehouse into COMPLEX West Midtown, a mixed use complex on the corner of Chattahoochee Avenue and Ellsworth Industrial Boulevard.
“Everyone is scouring the city for new properties but the challenge is keeping the projects authentic, such as Briarcliff Plaza on Ponce,” Farmer explained. “But you also find people scouring the city for properties in emerging areas but it’s a matter timing. You don’t want to go into these areas too soon and be the fringe element.”
While creative and hi-tech companies, as well as mom and pop shops, were drawn to the adaptive reuse buildings and might use 10,000 square feet, now large companies are signing leases for 100,000 square feet.
“It’s no pioneers,” says Faussemagne. “It’s mainstream. Look at the space MailChimp is taking at Ponce. [MailChimp recently announced it would add 18,000 square feet to the already 115,000 it already leases.] You have to adjust how we look at a building and think about restaurants, housing, retail and the whole package. And, that’s what private equity is now looking at and getting involved in.”
Farmer said that institutional investors are starting to be involved in adaptive reuse. “They’re seeing the trend and the tenant base. It’s becoming part of their overall investment strategy.” Adds Farmer “Its bizarro. No one wants to be the first [investor] but they saw what Jamestown did (with Ponce City Market) and what the market could be.”
Gene Kansas, owner of Gene Kansas Commercial Real Estate, whose work includes the Clermont Hotel, Atlanta Daily World Building and Amsterdam Walk, understands the beauty — and bottom line — of these properties. “Our investors want a return on their money,” he says “but they also want to feel good about their investment, give back to the community and pay it forward. And, make a profit.”
In terms of the nuts and bolts of the renovation and repurpose, the consensus was to do strong due diligence at the beginning so there are few “surprises.” “You want to de-risk it and find as much as you can ahead of time and then assemble the right team to make it clean and safe,” says Faussemagne.
As to how to shape the new building, the panel almost became Zen-like. “You have to understand the building,” says Hertlein. “You have to have the building tell you what it wants to be and then make it happen. You have to be flexible.”
Exactly, says Faussemagne. “No one planned the rooftop at Ponce but they knew it was a good opportunity to do something and put the infrastructure in upfront,” he says. “They knew it could become something. They just didn’t know what — but they knew it would be cool.”
Also on the program was another panel discussion: Transit-Oriented Development, Density & Connectivity, which focused on developing projects around MARTA stations to encourage the work-live environment that Millennials say they want.
Mayoral Candidate John Eaves defined the problem. There are two million cars on Atlanta streets each day; MARTA has 450,000 rides, he says. Of those, 70 percent are going inside the city to work and they are clogging the streets. “We have to come up with solutions,” he added.
Originally MARTA planned for people to drive their cars to the rail stations and come into the city but plan wasn’t truly realized. So MARTA decided to make use of the largely unused parking spaces and develop housing projects that would increase MARTA’s use and bring in revenue, says Amanda Hein, senior director, TOD & real estate for MARTA.
Among projects underway or in consideration include Chamblee, H.H. Homes, King Memorial Center, Avondale, and East Lake.
Among the issues are not displacing homeowners for large projects, affordability, tax cuts to developers and residents.
“We don’t want to become San Francisco,” Eaves says “Where no one but the one percent can afford to live in the city.”