From David Wilson, President, CCIM Institute:
“In this report, CCIM Institute Chief Economist K.C. Conway tackles adaptive reuse – an increasingly common but misunderstood and under-analyzed property segment. As I’ve had the privilege of traveling around the world on behalf of CCIM, I’ve witnessed this as a global phenomenon; from turn-of-the-century warehouses to castles to train stations, developers and investors have untapped enormous value from obsolete building stock. This report represents the first step in the Alabama Center for Real Estate’s effort to redefine and quantify adaptive reuse, elevating it as a distinct product category within commercial real estate. We expect their efforts to result in increased adaptive reuse investment and development activity, and ultimately a stronger, more resilient commercial real estate industry.”
Four elements necessary for a project to qualify as adaptive reuse.
Existing structure: While adaptive reuse projects may involve some level of new construction or an expansion/addition of space, they always start with an existing structure.
Functional and/or economic obsolescence: All adaptive reuse projects commence with a property in a state of disrepair, high rate of vacancy, or with highest and best use in transition. In essence, the old use is no longer productive or economically viable, and the tenants have left.
Change of use: The project/property must involve a repurposing of a prior structure and use, not a mere re- tenanting with tenant improvements. This key point distinguishes our methodology from other industry research on AdRu.
Economic viability: The new project/ property must pass the ultimate test of highest and best use. Not only does the reuse need to be physically possible and legally permissible; it also has to be economically viable. Local government incentives are sometimes necessary to make a project economically viable due to the cost of assemblage, higher repurposing costs with a greater cost-overrun risk factor than new construction, and speculative lease-up risks.
Download report and read in detail.
