There’s a sense of despair with vacant properties. We stare at them when they first wind up empty. Hoping someone comes along. Daydreaming of what it might be. As time goes on we find ourselves ignoring more and daydreaming less. People grumble that some properties are cursed or that despite the location, nothing survives there. In my small rustbelt hometown, vacant buildings litter the downtown, dominate the neighborhood business districts, and speckle the hundred-year-old neighborhoods.
What happens when the population shrinks? What happens when industry dynamics in our community change? When lumber towns built on grit and sawdust’s economic backbones are stripped? When manufacturing regresses and tech takes over? When cloud servers replace file cabinets? When working from home is a luxury compared to having a corner office?
The way we use space has changed dramatically in the last 20 years. Our economic production in a post-industrial economy has left buildings and towns to reimagine themselves. It’s not uncommon for me to walk into buildings relatively untouched in 50 years. Portals to the past waiting for a new life. There’s a familiar feeling that washes over me in those spaces. A deep respect for the past that’s shaped it. Despair knowing it’s forgotten.
As a developer, I specialize in adaptive reuse. Converting a newspaper building into lofts. A commercial banking beacon into a mixed-use mainstay. Even attempting to transform a dry goods store into a boutique hotel. The number of barriers to overcome in retrofitting a historic property into something new will bring you to your knees some days. Bring you to tears when the lights are back on after years of darkness. Fill you with an unbelievable sense of joy to see new life inside spaces.
After redeveloping a building bound for the wrecking ball, I became friends with a resident who was new to the area and living with her husband in my building. One day I was in a business meeting touring someone through the property and I see my friend’s children in their walkers with their sitter roaming the hallway. These beautiful babies had been at my home a few weeks prior but it hit me like a tidal wave at that moment. I fought back the tears until I was alone in my car and broke down in a big ugly cry. Some of the happiest tears I’ve ever shed. New life. Babies roaming the halls I walked in the cold dread feeling like I was the only one who cared years prior. All of the times I wanted to give up and walk away. Every time someone looked me in the eye and said no one would want to live there or they didn’t think it could be done. Every sleepless night. Every time I chose to stick with it and keep trying.
Breaking buildings out of the vacancy vortex may be insanely challenging but it’s also one of the most emotionally rewarding experiences. A gift of giving a piece of my town another 100 years to impact lives. To avoid dormancy or demolition. What I’m about to tell you on how to make it happen may be overwhelming. I am sorry. Great endeavors are hard work and I promise you it is worthwhile.
- Research. Collect and record information on the property. The total square footage, market rents in the neighborhood, building code issues, sprinkler systems, elevators, year last occupied, zoning, walk score and even check out Sanborn maps through the library of congress to know what it was 100 years ago and what the dynamics of the neighborhood were then.
- Envision the Possibilities. Walk through the property to get an idea of two different potential building programs (a building program is simply the new use). Can it become a 2-unit residential rental based on the size and plumbing locations to support at least 2 bathrooms and 2 kitchens? Can it be a live-work with a small commercial space in the front (check zoning)? The goal here is to understand the way the property functions and combine that with the market and your research.
- Reality Check It. This is where your daydreams meet the reality of code requirements and cost. Team walkthrough with building code & contractor. Now you’re running your two potential building programs, past key stakeholders. The building inspector is there to tell you what upgrades and work is required in order to meet the building code for both your potential building programs. Your contractor will tell you how elaborate
- Synthesize It. Build out a financial model and see if the investment makes sense. Put numbers to all of the feedback and cost estimates into a preliminary financial analysis and brief business plan.
- Sleep on It. Go back and check assumptions. Question your decisions on the operating costs of the building. Make sure you’re conservative on the revenue it will generate. Should you do it all at once or in phases? Do not over-leverage it. Run a cap rate analysis to see the future value and compare it to your costs.
- Stress It. Test the assumptions and find out how low a threshold the rents can be at, how many vacancies, how the loan amount affects the property, and what happens if the construction costs are more? Test it for both your plan A and plan B. When you know the ins and outs of it, talk to investors, an architect, and a building engineer if possible for their input and feedback. Do you need to stress it more or make adjustments based on their feedback? Does one scenario get a better response than the other?
- Create deadlines. You cannot always control costs to get a building to code but you can control the timeline to an extent. Would you get better pricing if you start at a time that’s a good fit for your contractor? Would you get a better team if you’re able to start during their slow season? Establish a project schedule and include it in your business plan for the building.
- Team Build. Expand the team of key partners to include future commercial tenants if needed and start talking to lenders as well as investors if needed.
- Finalize the Plan. At this point, you’ve done all of the elements of having a business plan for your project so it’s time to pull it all together. A simple 3-5 pages with sections is helpful. A cover letter to your bank and a separate one for investors if needed will help you get the financing to make the vacant building vibrant once again.
- This is where deals die. This is rip tide dragging you back to a vacancy if you don’t swim sideways. You’re going to face major challenges in getting financing, tenants, good cost estimates, schedule changes, and investor buy-in. This is where you make the appropriate changes to strengthen the plans. Where you amend the team as needed to ensure it’s collaborative and enduring. Convert every no to a yes. Keep working toward the goal even though you feel like you’re getting sidelined. Use feedback to strengthen your plan until you can start implementing it.