Increasing ROI Through Adaptive Reuse

By Michael McCormick, President & CEO, McCormick Construction

Promising higher profitability and returns, owners and investors alike are increasingly turning to adaptive reuse concepts in an effort to boost the efficiency, profitability and overall market value of their assets. Underutilized properties are meeting stronger demands, yielding better ROIs compared to new construction outside of traditionally buoyant city districts. Additionally, adaptive reuse methods are helping to meet the needs of regional submarket demands for creative office space in prime historic and downtown locations.

Although adaptive reuse concepts offer a wide variety of economic and environmental benefits, one must take into account the challenges that come along with these projects. In order to address the implications of adaptive reuse projects properly—while adequately assessing all the upsides—an owner or investor should consider several key points.

Project Considerations

Adaptive reuse can be a highly cost-efficient strategy for “filling in the gaps” in densely built areas, such as historic city centers and adjacent districts; however, current regulations might hinder the reuse of certain existing on-site buildings, since older structures might contain lead or be insufficiently earthquake-resistant, requiring seismic retrofitting.

For example, during the redevelopment of Element: LA, a 12-acre creative campus centrally located in West Los Angeles, McCormick Construction completed a structural retrofit to repair and fortify the original bow-truss ceilings, along with additional structural upgrades, which included seismic retrofitting, new steel bracing, shotcrete strengthening of existing walls and new concrete masonry unit shear walls, in order to bring the 1949-built campus up to code and preserve its historical authenticity.

Additional concerns might include access to transit, traffic and project parking demands, addressing community needs and availability of nearby infrastructure, which can all affect potential costs of the project.

Given that adaptive reuse projects are often aimed at reducing development costs and are motivated by earning a healthy ROI, other considerations must be taken into account prior to the development process:

• Project timeline: Unlike most new construction, adaptive reuse projects often require a shorter amount of time to deliver a new product, particularly in current redevelopment zones or by reusing existing structures that require minimal entitlement work. As such, the overall construction timeline is reduced and project efficiency is increased.
• Long-term savings: Cost savings that accrue from the reuse of an existing building can be used to invest in highly efficient and environmentally friendly HVAC systems, which can also create long-term operational cost savings.
• Promoting sustainability: By reusing vintage structures, adaptive reuse projects minimize the development’s carbon footprint and help improve the area’s overall living environment. McCormick recently completed LINQ Phase II, an 80,000-square-foot creative office campus located in Redondo Beach, which was redesigned to incorporate more sustainable elements such as skylights, high-performance glass roll-up doors and drought-tolerant landscaping.
• Market trends: Historic manufacturing facilities, such as old warehouses, allow for adaptive redevelopment into trendy and in-demand creative office space, generating significant interest from today’s creative workforce. For example, McCormick has started preconstruction on 440 Seaton, a seismic upgrade project located in the heart of downtown Los Angeles’ arts district. Due to the building’s 100-year history, the project will feature base building improvements to the existing three-story warehouse, bringing it up to code while preserving the vintage aesthetic for today’s design-oriented consumers. When complete, 440 Seaton will be a mixed-use building with creative offices and retail.

Finding the Right Balance

The most successful adaptive reuse projects combine historical authenticity with commercial feasibility and innovative “new consumer” appeal, rooted in technology, entertainment and lifestyle. The redevelopment should reflect the lifestyle tendencies and identity of the local community, appealing to the needs of the local business landscape.