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Adaptive Reuse: New Relevance for Old Buildings

As markets evolve, in response to changes in business form and economics, they leave countless structures in their wake as one manner of doing business gives way to another. Consequently, the built environment must make changes to accommodate these changes. The great question of our time is what to do with obsolete buildings—especially so many office buildings. Tall and boxy, they do not tend to be architecturally memorable, but to replace them would be wasteful—and in many cases cost-prohibitive. That is where the multi-family industry is stepping in.

Over the past three years, Hartman Design Group (HDG) has teamed with developers to convert aging office buildings in DC and Baltimore into Class A apartments, and this experience is part of a sweeping national trend. In the past 10 years, 18.1 million square feet of office space in New York and L.A. have been converted to residential units 1/. The DC region is following suit: The Downtown DC Business Improvement District released a 10-year forecast report in 2017 that includes a goal of encouraging the residential redevelopment of at least 400,000 square feet in outdated office buildings, 2/. and DC City Council members are considering legislation to provide tax abatements for developers to move in this direction. In Baltimore, The New York Times reported that 1.9 million square feet of office space has been converted to residential use just since 2013.

1. Case Study: The Historic Adaptive Reuse of 2Hopkins Apartments, Baltimore, MD

“I’d love to see the development community do more projects like this,” says Kevin Berman, the partner in charge of development for Berman Enterprises, which had the vision to convert the midcentury Mercantile Bank and Trust Building in Baltimore’s Charles Center into 2Hopkins, a Class A multi-family high-rise apartment building. The historic society required that the outside of the building and certain public-space features retain the original design, yet the design team (BCT Architects and HDG) had a free hand in the unit designs and the newly built amenities, such as laptop-friendly co-working spaces in the lobby and clubroom, electronic storage lockers for package deliveries, and a pet spa and indoor dog walk.

The lobby in particular helped set the tone for our team. “It was a tremendous architectural statement with this two-story volume with a coffered ceiling,” BCT architect Scot Foster says. HDG used that envelope to inform a newly multifunctional space with a concierge desk, coffee bar, and lounge/work area under dramatic custom chandeliers. The design team sourced furnishings for the lobby and 21st-floor clubroom in a palette of neutrals with accents of orange and turquoise—midcentury hues that hearken back to the building’s origins. A vintage 1960s clock display is another pleasant nod to the past in the thoroughly modern fitness area.

Many office buildings pose challenges for adaption to residential apartments, especially unit layouts, but 2Hopkins offered the perfect footprint for this endeavor. The floor-to-ceiling windows on all sides of the building, paired with 10-foot ceiling heights on every floor, created views of Baltimore that would be difficult to attain in a new-construction high-rise.

2. Case Study: The Non-historic Office Conversion at Legacy West End Apartments, Washington, D.C.

Many office buildings pose challenges for adaption to residential apartments, especially unit layouts, but 2Hopkins offered the perfect footprint for this endeavor. The floor-to-ceiling windows on all sides of the building, paired with 10-foot ceiling heights on every floor, created views of Baltimore that would be difficult to attain in a new-construction high-rise.

The Legacy West End at 1255 22nd Street NW is an example of a past-its-prime office building perfectly located for residential conversion. The existing, late-70s-era office building would not qualify as Class A office space today, says architect Michael Foster of MTFA Architecture, who drafted the Legacy’s new plans. Its interior spaces are smaller than modern office buildings, but those smaller dimensions are preferable for a residential setting, and its location between Washington and DuPont circles makes it an ideal place to live. MTFA gave it a stunning modern facade, plus three upper floors and a rooftop pool.

A new wing was added to increase the unit count. Yet the original structure, parking garage, and elevator core remain intact. As the HDG design team sought to transform the interior, we had to get creative with elements that could not be changed such as the elevator-core location and a slab that lowered a portion of the ceiling in the lobby.

The two-story lobby required significant renovation to transform the stark “office” feel into a residential vibe that expresses its luxurious address in the thriving West End. Lacking the expansive amenity space found in newly constructed residential properties, the design team looked for opportunities in every nook and cranny to add new features, like the open second-floor elevator lobby that we enclosed to create booths, small conference rooms, and co-working spaces. The main lobby area was too small to carve out an enclosed leasing office, so we designed a communal table where agents work by day that converts to a coworking area for residents after hours. The rest of the space is devoted to comfortable seating areas around a linear-flame fireplace, while broad window seats offer views of the streetscape. The top-floor addition—a glass box in the sky— offers a clubroom on one end and a library and outdoor terrace on the other. The sun-filled clubroom, which connects to the pool deck, enjoys sweeping views of the city, the National Cathedral, and Rock Creek Park.

Conclusion:

Due to changes in the way tenants use office space, some traditional office buildings are becoming obsolete. In some cases, this situation is incurable, and owners face a tear-down or conversion decision. A building in the right location with the right footprint offers an excellent opportunity for conversion to a multi-family residential property. A qualified design team will ensure success.

  1. https://www.nytimes.com/2018/01/16/realestate/commercial/washington-dc-real-estate.html
  2. https://www.downtowndc.org/wp-content/uploads/2017/12/Downtown-2027-Vision-for-the-Future-Web.pdf
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Budgeting Your Multi-Family Renovation

360 State Street Lobby After RenovationIn the previous issue, we discussed how to know when your multifamily property should be renovated and what level of renovation was appropriate.  Once you have determined this, you will need to set a budget.

How much should you budget for your renovation?

Too often the renovation budget is set by an underfunded escrow account or is a result of mere guesswork.  If the budget is set prior to a comprehensive understanding of the building’s existing conditions, the amount of space to be renovated, and the marketing challenges, the number will be inaccurate.  Either method can set the owner up for disappointment.

Determining a budget is a task that should take place long before the renovation is to begin. The budget for repositioning a property is frequently determined in the year preceding the expected renovation.  Depending on the level of the renovation planned, the budget may need to be determined farther out and the dollars allocated across multiple years. Collaborative discussions to prioritize the work will provide the best possibility for accurately setting the budget and obtaining future ROI. To assess the market, understand the conditions of the building, and develop a budget that is based upon real conditions, consider a team approach from the beginning.  Involving your design professional, management/marketing consultant, building engineer and asset manager before the budget is set will help to alleviate unrealistic expectations.

Depending on many factors that cannot be controlled for your plans, construction pricing can vary from year to year.   Even with the best planning, actual bids may come in higher than anticipated.  It is best to have a phasing and VE plan in place in the event that this occurs.

Phasing of the construction can be a great way to manage a budget that needs to be spread over a few years.  However, it is important to consider that there usually is a premium cost to phasing which will need to be considered in the budget.

360 State Street Before Renovation

Renovation Funding

Many owners frown at earmarking funding for renovation projects. They require management to meet the funding requirements from operational cash flow. This can be problematic for a variety of reasons.   The cash flow requirements for renovation projects are frequently substantial, and the funds are, in most instances, required at the early stages.  Professional and permitting fees, deposits, and advances need to be paid out before materials are procured and the contractor begins work.  Additionally, during the renovation process, the property will not show at its best.  This creates a tough selling situation for the marketing staff, which could mean a decline in revenue during construction.  This will further limit the operational cash flow available for the renovation.  To successfully meet your budgetary needs, you should consider setting aside funding specifically for the renovation.  A well-thought-out budget that includes a construction timeline will help to manage funding and decrease strain on operational cash flow.

360 State Street Lobby After Renovation

Realizing ROI

A cosmetic renovation may be considered an expense as it will serve to refresh and to maintain the look of the building for a period of time.  A more comprehensive renovation will actually increase the life of the asset, so it would generally be considered a capital expenditure.

Keeping in mind that the core purpose of renovation is to improve revenue streams, it is important to consider that this will happen effectively only when the life of an asset is increased.

Owners and stakeholders will demand bang for their buck. Any renovation project is going to be tough to sell if there is uncertainty related to the return for the investment.  Consequently, part of planning a renovation includes doing the math to obtain the estimated ROI.

So many variables impact rents – such as the age of the building, its location, the surrounding competition, and the tenant profile – that ROI will vary widely from market to market and from property to property within the same market.  As a result, nationwide data is difficult to come by for multifamily housing renovations.[1]  However, skilled property owners say it’s reasonable to expect a 10 to 30% ROI on their renovation projects, with wood floors, kitchen upgrades, and improved interior lighting as some of the top ROI generators.[2]  For purely cosmetic renovations, a 25 to 30% return should be the target.[3]  It is important to analyze typical ROIs in your market before setting a budget and determining what upgrades to include in your renovation.  The life span of your renovation will also have an impact on your ROI, so be sure to include this in your calculations.[4]

By addressing these considerations, you can have a successful renovation that will increase the life and profitability of your property.

360 State Street Lobby After Renovation

[1] Jason Van Steenwyk, Rental Property Renovations that Pay Off, (Sep. 2, 2015), http://www.allpropertymanagement.com/blog/2015/09/02/rental-property-renovations-and-improvements-that-pay-off/.

[2] John Caulfield, Rehab ROI: Which Upgrades Cause the Biggest Rent Bumps?, (May 28, 2014), Multifamily Executive, http://www.multifamilyexecutive.com/design-development/renovations/rehab-roi-which-upgrades-cause-the-biggest-rent-bumps_o.

[3] Harrison Willis, Repositioning a Multifamily Asset, (2016), Cornell Real Estate Review, 14(1), 62-69,  http://scholarship.sha.cornell.edu/crer/vol14/iss1/12.

[4] Donald M. Davidoff, Rehab ROI: Do the Math, (Oct. 28, 2014), Multifamily Executive, http://www.multifamilyexecutive.com/business-finance/commentary/rehab-roi-do-the-math_o.

 

Check out the full renovation of Park Bethesda here: http://www.hartmandesigngroup.com/renovations/Residences-at-Capital-Crescent-Trail/

Written by Phyllis Hartman, ASID, LEED AP

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