Chicago's Adaptive Reuse Kings On What Makes Old Buildings Attractive
There's something that makes us smile when we look at Soho House Chicago, a FLATS Chicago apartment building or Groupon's HQ—knowing those buildings were on life support, but rose like a phoenix thanks to developers who saw uses for them others didn't. What challenges did they face breathing that new life into them, and how do those lessons inform their current projects?
A crowd of 265 guests filled the Trump International Hotel and Tower ballroom to hear what our adaptive reuse rock stars and property management royalty had to say about the advantages and obstacles of repurposing old buildings, and how the challenges of property management have grown in modern real estate.
CEDARSt Cos CEO Alex Samoylovich (left, chatting with Booth Hansen principal George Halik) says speed to market is great with repurposing old buildings, but CEDARSt would rather do its due diligence to perfect the finished product, since developers want to utilize every inch of an older building to maximize revenue. One advantage to adaptive reuse is a part of the building code called legal nonconfoming, which allows developers repurposing an older building to avoid things like ADA compliance that ground-up projects need to include in their plans. Legal nonconforming was how CEDARSt was able to build 344 micro-apartments at 800 North Clark St, with an average size of 250 to 300 SF.
Evergreen Real Estate director of development David Block says one of the most exciting draws to adaptive reuse is the competitive advantage a developer has in the historic character of an older building. Evergreen, which focuses on building low-income housing, is able to take features like high ceilings, terrazo and stone floors, and terra cotta façades that would be expensive in new construction projects, and restore them at a fraction of the cost. David says it bakes a level of design into a project that is difficult to replicate, and that's important to tenants looking to move into Evergreen's assets. A couple of projects Evergreen has in the works: converting an old hospital in Aurora into multifamily, and a former hand lotion factory in the northwest suburbs into apartments.
Avison Young principal Randy Waites says the owners of older buildings face several challenges in re-energizing their stock, especially with sustainability and greenscape, antiquated HVAC systems that can't accommodate the density demands of today's workforce, and its flexible, longer workweeks. With cap rates compressing to a degree, Randy says property managers can maximize NOI by streamlining and refining services and embracing tech. One example: retrofitting older buildings with ID tech, such as facial recognition software, and emailing guest passes to visitors so all they need to do is scan a code from their phones for entry.
Snapped: the property management panel of NAI Hiffman managing director Bob Assoian, JLL SVP Sylvia Payette, Avison Young principal Randy Waites and MB Real Estate SVP/GM Steve Hennessy. We asked Sylvia about the ongoing issue of vacant former Dominick's supermarkets in the suburbs and if they would be ideal locations for Mariano's Fresh Markets as anchors. Sylvia says that it appears that Kroger, which bought Mariano's parent company Roundy's last year in an $800M deal, is in the process of learning how Mariano's works. She believes that once Kroger has a handle on what to do with Mariano's we may see future activity on those dark spaces from Mariano's and other supermarket brands.
Here's our adaptive reuse dream panel of Shapack Partners CEO Jeff Shapack, Merit Partners partner Paul Fishbein, Evergreen Real Estate Group director of development David Block, CEDARSt Cos CEO Alex Samoylovich and ESD SVP Randy Ehret. Paul says the biggest deficiency with downtown buildings today is power density. As companies fill tighter spaces in some downtown offices, they're finding the HVAC load isn't enough to keep their workers cool, and the electrical load in insufficient to meet their power needs. The problem building owners are finding is that tenants don't want to pay for modern upgrades. This is why acquiring a building for a low price is essential, because then a developer can transfer the money saved to its retrofit costs. Paul says Merit purchased both 600 West Chicago and The Fields for under $5/SF.