Overcoming Challenges to Building Rehablitation

Larisa Ortiz is co-author of “Real Estate Redevelopment & Reuse, An Economic Development Practitioner’s Guide” [2000: out of print]. She has also authored articles and policy briefs on the topic of building rehabilitation, including “The Politics of Rehabilitation” [2004] published by the Rappaport Institute at the Harvard Kennedy School of Government.

Many commercial districts face similar challenges when considering the reuse of historic buildings in their commercial districts. Originally, I got my start in this field because of a deep concern for historic buildings and a deep desire to see historic buildings successfully incorporated into commercial district revitalization strategies.

Zoning

A recent New York Times article entitled “The Use Changes; the Look Stays” articulates the challenges of using historic buildings quite clearly – zoning laws that are often antiquated and do not allow for a mix of uses (mostly residential) on upper-floors.

In the case of Ossining, the New York Times noted that the mixed-use rehabilitation that allowed for the rehab of this beautiful bank building resulted, in part, from Village rezoning efforts that allowed for residential uses above commercial uses within downtown commercial district.

Zoning and building codes that prevent or discourage rehab projects are actually not all that uncommon. Some states have gone so far as to create a distinct set of codes that apply to building rehabs. See more on New Jersey’s Rehabilitation Subcode which is a national best practice in how zoning can help facilitate rehab, rather than impede rehab. The subcode creates a set of rehabilitation requirements distinct and separate from those for new construction. The reason why this is important is because often times, upgrading an older building to meet building code requirements for new buildings is impossible without starting from scratch. So what typically happens is that building codes are applied and changed on a case by case basis - which can add significant and unknown costs to a project - costs that cannot be defined at the outset of a project. This kind of risk is one that many developers will avoid - choosing instead to work on buildings and new construction where building codes and expectations are more clear cut. By clearly defining buildig code upgrades and expectations for older buildings, the building can be rehabbed in a way that ensures user safety, but that takes the guesswork out of how much these upgrades will cost, thereby removing some of the risk to the developer.

Another issue that frequently comes up is the need, although not always the requirement, for parking. In many communities, the marketability of residential apartments mean meeting the parking needs of prospective residents. Sometimes we forget this, but not every market allows for living without a car – so developers need to incorporate parking in one way, shape or form.

Financing: Not all Funding for Rehabilitation is Created Alike

As valuable as the Historic Tax Credit may be, the credit places a number of restrictions on rehabilitation, and sometimes makes a project financially unfeasible. In the case of a project I worked on in Boston many years ago that involved a former convent, the space as originally configured included a great deal of communal space for the nuns. A historic rehab would have to maintain the integrity of this communal space, i.e. leave it open, thus reducing the net leasable area and subsequently the level of debt service the project can carry.

In the case of the buildings profiled in the Times article, funding came through a variety of sources. Interestingly enough, none included the Historic Tax Credit. Instead, funding came from “$1.2 million from Westchester County, $480,000 from the New York State Affordable Housing Corporation, a traditional $2.6 million mortgage and the firm’s own equity.” I honestly don’t find it particularly surprising that Historic Tax Credits were not used for this project. Adding that layer of oversight might have further complicated the project for the developer – who indicated that it was in fact a more complicated project than they typically tackle.

In my experience, I have found that it is not uncommon for rehab projects to incorporate a mix of federal and state funds for affordable housing. Most common among this is the Low-Income Housing Tax Credit. The renovation of older buildings for the purposes of affordable housing is often the first step towards developing downtown market demand – and I have seen it serve as an effective catalyst for market rate development along commercial districts as well.

Overcoming the challenges associated with building rehab is not easy – and it does take a developer willing and able to tackle challenges and obstacles – but it is not without its rewards. The return of these iconic buildings to the housing and retail stock can be a wonderful stepping stone for overall commercial revitalization.

Retail Insights, Fall 2009: Not all Recoveries are Created Equal

As economic experts begin to suggest that the recession is over, we know that the recovery is not yet an ‘equal opportunity recovery’ for all commercial district retailers. Our commercial districts continue to see higher vacancies and our merchants continue to face challenges. The good news is that some retail sectors are beginning to see a rebound as consumer confidence has increased. As a commercial district manager, you are in a good position to help both merchants who are benefiting from this new found increased demand, as well as those merchants looking for ways to reduce costs as demand for their merchandise continues to fall or remain stagnant.

Necessities are Where It's At
Consumers do seem to be ramping up purchases, but they continue to focus their spending on goods and services that can be justified as ‘necessities’, like shoes. According to this New York Times article, "A Not-So-Guilty Pleasure", people are spending money on moderately priced shoes in part because it is a less conspicuous splurge, and certainly a more affordable one, than other kinds of splurges. And as folks decide to spend more time close to home engaged in low cost activities like hiking, walking, sports – they need more rugged shoes. This trend means that the local shoe store in your district, whether a locally-owned shoe store or a Payless, is likely poised to benefit from increased consumer spending. A targeted marketing campaign to help retailers who sell these moderately priced necessities would be well suited to today’s economic reality.

Still Not Much Good News for Stores Selling Discretionary Goods
Jewelry stores, on the other hand, are suffering, according to this Wall Street Journal article, "Jeweler's Outlook Lackluster". To survive, many stores are changing their product mix to meet demand on the lower end of the spectrum. Instead of costly jewelry, consumers are purchasing less expensive sterling silver, for instance. Jewelry remains for many a luxury or discretionary item that can be cut from the budget. Unfortunately, as the WSJ article points out, jewelry vendors that are making it are, in some cases, succeeding in part because they are closing down their storefront shops and selling entirely over the internet. Not good news for commercial districts. But this move allows them to cut operating costs dramatically, both in terms of occupancy costs and staffing.

So, keeping a jeweler in your district may mean helping them reduce their footprint and operating costs. One option that might entice some merchants to stick around is figuring out ways for them to rent counter space within other establishments. In my community of Jackson Heights, Queens, a very nice local jeweler/gift shop is located within an art gallery/frame store. The merchandise mix is actually quite complimentary. As customers wait for their order, they can peruse the store for framed art, gifts and antique jewelry. A great way to help two business owners reduce their occupancy costs – while also ensuring your district retains a healthy and balanced retail mix.