K.C. Conway
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CHICAGO—From the turn-of-the-century warehouses to old car dealerships, from shuttered malls and decrepit castles to old train stations, investors and developers are increasingly targeting these assets as they move into the adaptive reuse (AdRu) property segment.
“Adaptive reuse is definitely a distinct product category within commercial real estate,” says CCIM Institute Chief Economist K.C. Conway. “We expect that increased adaptive reuse investments and development activities will ultimately result in a stronger, more resilient commercial real estate industry.”
Conway predicts that adaptive reuse projects will make up a greater percentage of investment activity than self-storage and other non-core property types by 2023. As a result, he says, investments and developments may be impeded if the commercial real estate industry’s understanding of this property segment doesn’t keep up with the growth.
Although it’s been garnering headlines for 10+ years, the AdRu niche is not just about repurposing historic properties in primary markets to entice millennials. It is now also about new projects bubbling up in secondary and tertiary markets, where investors and developers see AdRu as a driver of NOI and yield. Diving deeper, it is further about creating affordable housing in or near urban areas, public transportation, education centers and employment hubs.
“We need to look at adaptive reuse multi-dimensionally and not through just one lens,” explains Conway. “Affordable housing is a nationwide problem and it needs to be located in affordable places and not placed 30+ miles out of town where bus service isn’t even available,” says Conway. “Letting the process remain in the hands of bankers and developers is not solving the growing need. We need to think 3D (workforce, senior citizens and millennials/college students) and outside the box of a stick-built apartment to adaptive reuse projects such as new mobile home communities or even tiny-house subdivisions.”
New mobile home communities need to be built near busy areas so that residents can utilize public transportation and eliminate the need for car payments, insurance, gas and tolls. It would also decrease congestion, Conway tells GlobeSt.com.
“Many of the new manufactured home communities have nice garages, nice storage areas, sidewalks and appealing amenities. They can also be delivered for $75-$100,000. There are a lot of stereotypes regarding manufactured housing that needs to be revisited and changed,” observes Conway.
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Tiny home communities are also a solution for affordable housing as millennials and college students are gravitating towards these 250+ square foot structures.
“The millennial population says they don’t need things, including homes. They are minimalists. If they want to golf, they Uber to the golf course and rent golf clubs and golf carts,” explains Conway.
Conway also goes on to explain that affordable housing also includes multifamily student housing and senior housing.
“20-25% of affordable housing includes seniors 65 years and older,” says Conway.
In the search for affordability housing solutions, developers and investors are also looking at converted shipping containers which can be delivered for under $75K, old car dealerships, shuttered malls, abandoned retail boxes, converted alley garages which can be delivered for $100-$200K, former older hotels and old shopping centers and hospitals.
“If we can recognize that the answer to affordable housing is 3D with 3D needs—not just affordable housing but in locations with access to public transit and good schools—we will find the right solutions,” concludes Conway.
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