In Santa Ana, a once vacant mid-century office building now houses budding artists, a gallery and additional public amenities, serving the community as a whole around it. The building dates back to 1965 and was formerly occupied by First Western Bank and has since been preserved and adapted into the Santa Ana Arts Collective. What was once a drab, dated, unused block of concrete, is now a creative space that reflects the art and culture of the neighborhood and provides affordable housing to the residents that drive the scene.
Back on the east coast, where urban infill is at a premium, downtown Worcester, MA boasts a beautifully renovated mid-rise historic building. The Central Building is now home to workforce housing, serving the mixed-income residents that live and work in the downtown corridor. The circa 1925 revivalist style building is on the National Register for Historic Places and maintains the many ornate details and craftsmanship that can only be preserved, seldom replicated.
These noteworthy examples highlight the creative shift in marrying need and demand with preservation and cost efficiency. Developers and Housing Agencies are not just building housing, but rather homes for residents to live, work, play and thrive in the cities and towns and neighborhoods that rely on them so heavily. While income and wages remain stagnant, inflation continues to rise dramatically, meaning the average American cannot keep pace with the growing costs of living. Ultimately it is not about simply living above the poverty level but enjoying a quality of life many take for granted. Undertaking the redevelopment of a historic property can have many challenges but the benefits make adaptive reuse an attractive option for developers, investors, and/or occupiers wanting to leverage unique financing opportunities and establish ESG priorities.
Impactful Opportunities
Municipalities have taken notice of vacant office, commercial, retail and hotel / motel spaces and now see opportunity to promote programs that address both the preservation of historic properties and the affordable housing crisis. Rewards come to developers that can bring it all together with a vibrant sociable community that serves and supports housing in downtown corridors. Walkable amenities and access to retail, mixed-use amenities, employers, civic centers, and arts and leisure are many of the components naturally provided by downtown districts. Even more impactful is an experience and a story, which many historic neighborhoods and properties can satisfy.
Metro urban growth across the United States means that developers and investors can tap underutilized historic downtown real estate to create these desirable districts by reusing the main streets that many cities and neighborhoods already have. Historic offices, schools, warehouses and industrial facilities can convert well into loft apartments and mixed-use residential /commercial due to their unique character, universal appeal and timeless quality. Downtown locations with flexible open layouts, gritty aesthetic, large storefront windows and open interiors can be ripe for reinvention.
Reviving these spaces can have a significant impact on communities and lead to many potential benefits for low-income families but it also creates opportunity for developers and investors. Bundling tax credits and finding niche projects to develop can be the secret to tax credit awards and meeting (or exceeding) profit yields / margins.
Financial Incentives and Tax Credits
Designated properties in a historic district or individually listed in the National Register of Historic Places (NRHP) are eligible to receive Federal and State Historic Tax Credits. Combining these tax credits allow qualifying rehabilitation work to receive up to 45% towards the cost of qualifying rehabilitation works, a benefit with significant impact in today's increasingly high-cost construction market. In fact, the benefit is great enough that if the property is not already designated on the NRHP, it could be worth seeking designation to create eligibility. A historic preservation consultant can evaluate and submit the property or district to be accepted onto on the National Register, then guide the developer through the Historic Tax Credit process.
Historic Tax Credits can be bundled with other financial incentives such as Low-Income Housing Tax Credits, Opportunity Zones, HOME Funds, local grants and façade improvement schemes, and other programs.
How Historic Buildings Support ESG Goals
Reuse of historic buildings can have significant impact in bringing people together. It can provide a catalyst for economic recovery in areas impacted by recession. Keeping buildings occupied and in use brings economic opportunities and protects them from deterioration and blight. Sensitive rehabilitation of interiors and storefronts can increase foot traffic and provide evidence of a successful district revitalization, lowering/preventing crime and spurring further development in the area. Regeneration of the historic built environment also supports the greater community, tapping into cultural identity and preserving local heritage and the community's sense of place.
The reuse of historic properties to create sustainable spaces may appeal to environmentally- and socially- conscious investors and residents alike, while strengthening a developer's brand identity and loyalty.
Reuse is a tenet of environmental stewardship. Demolishing and rebuilding consumes far more raw materials and energy than rehabilitating and reusing an existing building. Further, once a residential property is initially (re)developed, other than ongoing maintenance, they typically undergo significant renovations on a less regular basis, that could create unnecessary waste. Reusing existing historic elements (or using salvaged materials) and integrating them with modern design on a less frequent cycle is more sustainable, saves money long term, creates unique spaces, and is more historically sensitive.
Historic neighborhoods have an inherent mixed-use community development footprint. Because the various types of real estate in one location provide live, work, eat, shop, worship, and play, this type of business model has been researched and replicated by city planners and real estate developers all around the world. When the planning begins in reusing a historic building, the positive impact could last for many generations.
Overcoming Challenges
In today's competitive real estate market, investors and developers can discover impactful and lucrative opportunities by shifting their focus and tapping into underutilized and neglected buildings in downtown communities. While there can be economic, legal, and physical constraints, a good consultant with expertise in the adaptive reuse of historic properties can be the key to unlocking the growth and potential of historic assets.
A successful and sustainable historic reuse project requires the professional assessment of:
- energy usage
- carbon footprint and emissions
- embodied energy
- financial paybacks
- and the assessment of historic significance to sustain and enhance the qualities of the architecture
In assessing a property, the qualified engineering consultant will be looking at what it will take for the building to be viable and suitable for its proposed use. Factors with historic buildings that the consultant will consider are:
- condition
- structural integrity
- reuse of MEP systems
- design issues unique to residential (accessibility compliance, etc.)
Historic renovation and adaptive reuse projects can seem daunting when there is uncertainty surrounding the process and costs. Engaging a seasoned due diligence consultant that knows the intricacies involved in creating a successful and impactful transformation is the key. With proper risk mitigation, valuable historic properties can be profitable ventures that benefit the developer, property management, residents, and their communities.
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JR Lephew
JR Lephew is a Principal and the Director of Affordable Housing at Partner Engineering and Science, Inc. He has over 20 years of experience in due diligence assessments for a variety of property types and the requirements of reporting standards including HUD, ASTM, Fannie Mae and Freddie Mac, and customized client formats. Mr. Lephew specializes in affordable housing-related environmental and physical due diligence services, including Multifamily Accelerated Processing (MAP), Lean-Office of Residential Care (ORCF), Architectural & Engineering/Cost Reviews (AEC), Low-Income Housing Tax Credits (LIHTC), Rental Assistance Demonstration (RAD), and Permits & Approvals (P&A). Mr. Lephew has facilitated extensive compliance with local and state accessibility standards and laws, as well as federal standards such as the Americans with Disabilities Act (ADA), the Fair Housing Act (FHA), and Section 504-Uniform Federal Accessibility Standards (UFAS) requirements as they pertain to commercial and multifamily residential building standards and practices. Mr. Lephew has a BA in communication from the University of Maryland at College Park and an MS in Real Estate and Infrastructure from Johns Hopkins University.
John Gajewski, MRICS
John Gajewski, MRICS, is the Technical Director of Historic Architecture Solutions at Partner Engineering & Science Inc. He advises commercial and corporate clients on risk management and value optimization of their historic buildings, property transactions, and portfolios. His expertise spans renovation, rehabilitation, enhancement, and repair of buildings of architectural and historic significance, including technical due diligence and construction projects. Highlights of his career include the UK Palace of Westminster and The Parliamentary Estate, The Institution of Civil Engineers, and historic bank branches for the Lloyds Banking Group Ltd, among others.
