You may have heard to pass on the low-hanging fruit, but what if you could visualize the potential value of redeveloping a commercial real estate property that others may not be seeing?
The psychological phenomenon “groupthink” describes the situation when a desire for the same opinion supersedes an individual thinking outside-of-the-box.
“If fifty million people believe a false idea, it’s still false.”
– Paraphrased from Anatole France’s, “If fifty million people
say a foolish thing, it is still a foolish thing.”
This can apply to a redevelopment opportunity in the sense that just because others don’t immediately recognize the potential of the property, doesn't mean there is none. But before you start on a commercial redevelopment project, consider these guidelines to determine whether it will be as fruitful as you are anticipating.
What to Consider
If the area is not currently highly desired, or is even filled with blight, how do you know it will improve?
To answer the question above, check out the current rents for an indication of the demand of that area. Also, find out whether the land transaction annual volume for that market has been increasing.
Some other questions to find out are: Does the area’s infrastructure accommodate an increased demand? Or, are there any planned public improvements by jurisdiction? Are there any economic redevelopment incentives available by the municipality that help make development work easier?
The cliche but true saying, “rooftops follows retail” should be applied because it’s important to remember development almost always attracts other new development. For example, if new multifamily units are announced to be coming to an area, a developer should be more motivated to add a nearby retail center there due to the now-increased projection of foot traffic and population increase. This scenario could make sense the other way around, too, with the multifamily following the retail once established instead.
Are you aware of all the current construction regulations?
When it comes to redevelopment, zoning entitlement issues are highly common. You need to ensure you are up-to-date on the construction codes and planning ordinances of that municipality beforehand. For example, sometimes jurisdictions enact temporary moratoriums on development while the zoning code is being changed for redevelopment adoption that can delay or change your projects significantly. Getting through the approval process, without fail or delays, will depend on your knowledge of that area’s regulations.
Consider partnering with an experienced developer who is already familiar with that municipality and has many existing relationships with the right people.
Here are some questions to help you determine whether hiring a developer for your redevelopment is the route to take.
How much unexpected work to add to scope can you anticipate?
You can’t anticipate everything, but one red flag could be if you discover a former use was a gas station, dry cleaner, or industrial manufacturer.
Here are some other hidden costs that can either be avoidable if you’re aware, or help you reach your decision of whether to take on the redevelopment project.
SimonCRE had picked the “right” redevelopment when it came to a ±36,000-square-foot adaptive reuse project for the “adaptive foam” online mattress retailer, Tuft & Needle. At the time, it was taking a big chance on a historic building in the Lower Grand Avenue Business District in Phoenix.
The finished product, Tuft & Needle headquarters, sold in 2018 as a stable adaptive reuse property in a neighborhood that had become a lively, artsy area, attracting similar businesses.
For more details on how we jumped over these hurdles and other tips, check out the case study HERE.