Featured Article | CCIM’s Commercial Investment Real Estate Magazine | Summer 2022
By Jeffrey A. Gould, CCIM, CPM, LEED AP, Michael J. Gion
Adaptive reuse projects are all the buzz in the commercial real estate sector these days. Repurposing underutilized property is an excellent strategy for many CRE owners to maximize value. States like California and cities like Los Angeles are working to implement adaptive reuse ordinances that allow for by-right adaptive reuse conversions with more flexible building codes for existing properties. Municipalities increasingly see adaptive reuse as a method to convert underutilized commercial buildings into housing so that they can more efficiently meet housing needs outside of ground-up development. According to Yardi Matrix, developers nationwide converted 151 commercial buildings into residential apartments that totaled 20,100 rooms.
“So far, through adaptive reuse alone, this new decade has already created nearly 32,000 apartments, 41 percent of which are in former office buildings,” according to a recent Yardi Matrix report.
However, the process and costs of adaptively reusing commercial buildings into housing can be ripe with challenges. It is critical for CRE owners who are considering adaptive reuse to perform the appropriate up-front due diligence — including land use, design, engineering, construction, rent studies, and financial analysis — to determine the feasibility and risks of these projects. Developers must also understand the jurisdictional landscape to determine the best path for any entitlements needed to support a use change.
One successful project in Santa Ana, Calif., provides a case study for those interested in adaptive reuse. 888 On Main is a 148-unit workforce housing property located within a qualified opportunity zone. One of the first adaptive reuse projects that was approved under Santa Ana’s Adaptive Reuse Ordinance (which was adopted in 2014), this property was built and used as a 10-story high-rise office tower in the heart of Santa Ana’s downtown in the finance and government services district. The property was constructed in 1967 with Welton Becket & Associates (the designer of the iconic Capital Records building in Hollywood) as the original architect. Initially, the building served as the Orange County headquarters for Security Bank and later for the Social Security Administration, which vacated it in 2014. This unique midcentury poured-in-place structure totals 133,083 SF of gross building area with underground parking.
888 On Main presented the architect, developer, contractors, investors, advisers, and managers of this project with unique opportunities and challenges in converting a 55-year-old office building into multi-family housing.
Lineage Asset Advisors is your resource for developing transition plans with your commercial real estate portfolio that is mindful of the family and portfolio dynamics. Our team works with owners on establishing their commercial real estate portfolio goals and helps them implement those goals for the benefit of current and future generations.