As the world has become more and more technologically advanced, so too has the demand for updated industrial buildings and properties. Rather than upgrade existing facilities, some businesses have opted to move operations to a new location in order to develop entirely new facilities, resulting in an unfortunate plethora of vacant industrial properties and buildings in cities across the country.
Fortunately, as construction costs continue to escalate and real estate developers look to revitalize historic buildings and older industrial areas within cities across the nation, the adaptive reuse of existing, vacant and historic industrial properties and buildings is becoming more common.
The term "adaptive reuse" can best be defined as transforming or modifying an existing property or building into a particular use different from the property's original intention. The benefits of the adaptive reuse of industrial buildings range from minimizing the impact on the environment's carbon footprint by recycling existing structures to the reduction in building material costs.
In addition, there are several federal and state tax incentives available to developers and businesses that elect to redevelop existing industrial properties. Although there are numerous potential benefits associated with the adaptive reuse of industrial properties, there are also legal and practical challenges and pitfalls that may arise. Those challenges include zoning and environmental issues as well as certain building regulations and requirements.
Zoning
Zoning is one of the first legal considerations that must be explored and addressed when redeveloping an existing industrial property for a new or unrelated use. Most municipalities have zoning ordinances in effect that dictate a property's permitted uses, bulk requirements, and other development requirements and restrictions.
It's important to research all of these zoning items at the outset of any adaptive reuse project as they present challenges that may affect how the property is redeveloped and whether the project is viable. For example, some industrial adaptive reuse projects may envision a particular use that isn't contemplated or permitted within the property's designated zoning district. In that instance, the project may not be worth pursuing as the cost and time required to obtain the necessary zoning amendments, variances or approvals may be too high or time consuming.
The same may be true with respect to certain bulk (or site) requirements imposed by the local zoning ordinance. It's becoming increasingly common for industrial properties to be converted into residential, office or retail developments, which often require more green space and parking than what the zoning ordinance required when the industrial property was originally developed. Unfortunately, it may not be practical or feasible to satisfy all of the updated zoning requirements associated with the new use or applicable zoning district due to certain site constraints, such as the existing footprint of the building or the necessary points of access into the property.
Accordingly, if those particular issues arise, the project may not be able to move forward without obtaining certain zoning variances from the local municipality. Inevitably, this process also results in additional costs and time that a developer should consider prior to moving forward with any adaptive reuse project.
Environmental
Older industrial properties may present certain environmental issues that may not otherwise exist with newer undeveloped properties. Depending on the property's original use and the type of materials used in the construction of the original improvements, there may be hazardous materials and substances present at the property that require removal and remediation before the project can move forward.
Generally, it's best to avoid these particular properties, as the cost to remove the hazardous substances and complete any necessary remediation are usually very high and sometimes prohibitive. A developer may also be taking on certain environmental liability that could have been avoided by selecting a different property. Accordingly, before selecting or acquiring any industrial property for an adaptive reuse project, it's always prudent to hire an environmental consultant to perform a site assessment of the property to determine if any of these environmental issues exist.
Building Regulations and Requirements
Another challenge to consider when determining the feasibility of an adaptive reuse project is bringing the property into compliance with current building codes and regulations. In addition to local municipal requirements, the property will also need to be updated to comply with accessibility and safety standards found in federal statutes like the Americans with Disabilities Act and the Occupational Safety and Health Act standards. Depending on its location, the redeveloped property may also be required to conform to specific energy efficiency standards, the extent and severity of which can vary widely from jurisdiction to jurisdiction.
The age of the subject property can be a deciding factor whether updating the property to adhere to current regulations and laws will be cost prohibitive—the older the property, typically the more costly it will be to bring the property into compliance with current requirements. While utilizing an existing property rather than constructing a new building can reduce the costs of building materials, it can commonly result in higher labor costs, since specialized workers may be needed to renovate historic properties. If the property has reached a certain age, regulations in connection with historic preservation can also come into play—at both the state and federal level—adding a new layer of regulatory complexity to renovating the property.
Conclusion
Before deciding to rehabilitate and renovate an existing industrial property, developers should weigh the unique pros and cons of engaging in adaptive reuse versus new construction. The pitfalls of adaptive reuse include potential zoning issues, the possibility of existing environmental issues related to the prior use of the industrial property, and the challenges of bringing an existing building into compliance with current laws and regulations. Depending on the age of the property, additional challenges like historical preservation requirements and specialized construction requirements may apply.
However, the advantages of adapting an existing property—including saving on the costs of raw materials for construction, reducing demolition costs, available tax incentives, and finding prime locations—may outweigh these pitfalls. An essential key to redeveloping an industrial property for adaptive reuse is performing the necessary diligence at the outset of the project, the scope of which will vary based on the unique characteristics of the property.
Originally published by BUILDINGS, 17 July 2024
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