Commercial redevelopment, or the repurposing of existing improvements on a previously developed site, can produce highly desirable results, depending on the circumstances. Some advantages that differ from typical ground up development may include an appreciation increase, higher occupancy from surrounding commercial buildings, and contribute to environmental protection along with reducing economic blight efforts.
However, going down this road may also present its fair share of challenges.
So, before you dive into a redevelopment or adaptive reuse project, you should be aware of some common hidden costs.
Unexpected Work to Add to Scope
There are many items that could lead to extra work to add to the scope such as having to meet current code compliance for Americans with Disabilities Act (ADA), energy systems, fire/installing sprinklers, or seismic compliance for the roof, structure, and walls.
A specific instance of unforeseen, added work could be major issues uncovered after demolition that end up requiring environmental remediation of contaminated land.
Avoid by: Certain discoveries may always be unavoidable, but one way to help cushion the blow is to add a contingency cost buffer to the budget of about 8-10% of the total project cost. You should also examine all previous uses of that property early in the due diligence, especially if it had ever been something requiring more extensive remediation such as a dry cleaners, gas station, former train station, or other industrial manufacturing former uses.
Unknown Construction Regulations
Zoning issues, for example, could arise since you are now doing far more extensive renovations to the building. This makes you subject to current development standards of that municipality requiring you to upgrade off-site improvements, such as bus pads and shelters; pedestrian connections to the sidewalk; adding sidewalks; or ADA ramps if none are present.
In the case of a former restaurant, you may think the equipment is already in place and ready to be used again — but you would actually not be grandfathered into the existing conditions and need to meet current conditions.
Avoid by: Be thorough in your project planning even if it is not your first one. Do so by researching the construction codes and planning ordinances of that municipality. You may also want to explore potential avenues of redevelopment grants or funds that might be available.
New Development Trends
Much like any industry, commercial real estate goes through its fair share of development trends year after year, causing developers to decide whether to follow the fad or predict it won’t last long enough.
Take an increased emphasis on the pedestrian walkability and visibility into a building located in an urban area, for example. To promote this walkability effort and establish a “downtown style” presence, this could mean adding increased glass glazing to the building storefront; shading from the sun or elements; increased landscaping on sidewalks; or adding a decorative paver-style pedestrian path connection. However, this can get costly very quickly and sometimes that is unknown until a pre-application with a municipality occurs and a municipal planner chimes in on required development standards.
Avoid by: Research zoning ordinances and redevelopment standards, along with getting a “pre-app” early on in your due diligence process. Also, you may need to request a variance hardship if your building cannot obtain the required redevelopment standards, which then could become a public process for approval. Consider trusting a professional developer for the best chance of avoiding an expensive fad that could fade quickly.
These are just some examples of unanticipated costs that could arise during the commercial redevelopment process of your location. As much as you research and prepare, some added costs may be inevitable. Consider partnering with a preferred developer for your best chance at a cost-effective option that keeps your rent down.