Converting Downtown Buildings
In Part 1 of this series, we highlighted, with Real Projectives’® Project Specialist Anne Pierce, several due diligence items that real estate investors should undertake to understand and plan for when acquiring older buildings. This post focuses deeper, with Pierce, into the particular challenges of converting older (more than 50 years) downtown properties to a different use. And in Part III, we’ll take a look at considerations for historical and cultural properties and their unique challenges.
All points in Part 1 apply, plus you’ll likely face more extreme issues in older downtown buildings. As previously mentioned, a change of use (i.e., commercial to residential or apartment to industrial) generally requires the entire building be brought up to current building codes and standards. Five categories of work may be involved, which we highlight as follows.
Fire and Life Safety
With all projects, you must take the lives and safety of the users of the building into consideration. That might mean changing exit stairs—separation may not be adequate, treads and risers may not meet modern requirements, or there could be winders. Winder staircases are known to be problematic.
Increasingly, you may have fire alarm systems that have reached the end of their life and can’t be updated. Those systems tend to go obsolete quickly—particularly the newer, computer dependent systems—and finding parts for old systems can be tricky. Effective lifespans of these systems tend to be around 15 years. And even though devices might last longer, you may not be able to get parts to properly service the equipment. Newer systems add sophistication and do a lot more, but they may not last as long.
Elevators are their own, multi-disciplinary element in a building. They have power hook-ups and interact with almost every other building system. A traditional hydraulic elevator lasts about 25 years and then needs replacing, while a traditional traction elevator could possibly go 50 years before it needs to be replaced. Elevator upgrades and modernizations are quite expensive and could approach the price of replacing with a new, often more energy efficient, elevator. Whether modernizing or replacing, you can normally use the existing shaft and door openings, but they are still a significant undertaking with several logistical elements to coordinate if the building will remain open and in use.
The US has only four primary elevator manufacturers and few authorized service providers. Some big cities also have independent elevator service companies that perform upgrades and replacements with both proprietary and more open systems. If you only need cosmetic refresh, there are several independent cab interior retrofit companies that will make a kit of panels that can be brought to the site and installed within each elevator cab within a few days. The need to add elevators for accessibility reasons to older buildings that don’t have them continues to be a serious business. Sometimes when it’s hard to fit an elevator within the footprint of an existing building, a new shaft and elevator system must be installed onto the exterior requiring multiple permit approvals and may not look great.
Energy conservation involves multiple related building elements—roofing, siding, insulation, windows (replacing functioning windows with more energy efficient ones), mechanical and electrical equipment, etc… These systems adequately separate the conditioned indoor environment from the outdoor environment while leveraging passive techniques and addressing the efficient function and indoor air quality of the spaces.
Water conservation also plays a role, as modern plumbing fixtures are required and designed to use a lot less water. There are advantages to upgrading fixtures and energy conservation items; these upgrades initially cost more yet save you money over time.
Some components of buildings have long life spans, like heating systems with metal ducts. Others, such as the furnace, not so much. Again, newer furnaces are more efficient, so it is not a bad idea to replace it. Larger centralized systems (boilers and chillers) have longer life spans, but newer equipment still has a higher efficiency.
If the building envelope is upgraded to be more energy-efficient, replacement HVAC equipment may be able to be downsized for both heating and cooling, saving money on the initial purchase and ongoing electric and gas consumption. And correctly sized HVAC equipment operates more efficiently and provides better comfort than oversized equipment.
Investors and developers can’t overlook utilities. “We’ve run into cases on some [manufactured housing] projects where water lines were very small to begin with.” Pierce recalled, “They were made of steel or other metallic materials, and they corroded (rusted) on the inside, leading to a significantly smaller effective diameter; sometimes becoming so small you couldn’t fit your little finger into it anymore. People’s water pressure at their sinks and showers was just awful. Replacing that kind of thing [underground pipes] is very expensive and very disruptive.”
Pierce continued, “During due diligence, it’s important to check on-site utilities: the condition of the sanitary sewer, the storm drainage, and the adequacy of the electrical supply. The latter point is frequently an issue in detached housing projects. They often put in undersized electrical panels that no longer meet current code and aren’t adequate [amperage] for what people are expecting, like modern air conditioning. Then, you might find that your on-site service [power feeder] is not adequate, and what the power company gives you has to be upgraded.”
“Of course, if you have to change electrical service or a transformer, it’s not only the financial cost that’s a factor,” Anne adds, “it could also cost a significant amount of time and disruption to residents. Public utilities are notoriously slow at providing new service.” As Jonathan Williams, RPL’s owner and principal, claims, “the critical path for a new or significantly modernized building is almost always getting the permanent electrical power in place.” You can never start too early or pay too much attention to understanding, planning and expediting utilities work!
Material Sourcing Challenges in Older Buildings
Older buildings may very well have some materials that are difficult or impossible to find because the original source, such as a particular quarry for natural stone, is worked out or no longer operating. Specialty contractors have more sources of alternate materials than non-specialty contractors do.
Typically, modern dimensions for materials like door frames won’t match old wall thicknesses. Historical buildings tended to be constructed of local materials and have more items, such as windows, fabricated in the field rather than coming from a manufacturer. The result can be a variety of sizes in a component that would be completely uniform in a modern building.
Therefore, owners of older buildings need to be especially thorough about due diligence for hazardous materials and unexpected conditions, share all the information with the contractors, obtain references from owners of similar buildings for any contractors they are considering using, and be clear about the level of craftsmanship they are expecting.
Clearly, there are a bevy of details to consider when investing in an older urban building for renovations, especially if they are also deemed of historical or cultural significance, which we’ll cover more specifically in Rehabbing Old Buildings; Tips for Real Estate Investors: Part III: Historical and Cultural Properties.
From fire and life safety upgrades to the contractors you hire, dealing with them can be an immense undertaking. Taking all this into account, cost and time estimates should be conservative with higher contingencies planned. Renovation costs will affect the price that can safely be offered for the property. Lowering risk through proper due diligence (buyer beware) usually is prudent, particularly in the assessment of the building condition.
If you’re planning a new urban real estate investment, redevelopment, or renovation project, we’d love to discuss the risks and options to help you overcome the inherent challenges. Contact us today or call us at 888.357.7342 to discuss how leveraging our knowledge, expertise, and ambition could drive your next project or portfolio to success.