Commercial Real Estate Conversion
Key Takeaways
- Early assessments prevent costly surprises during conversions.
- Balancing costs with structural preservation ensures project success.
- Older buildings require expert analysis for modern feasibility.
- Reusing structures reduces embodied carbon and enhances sustainability.
Overview
Unlocking the maximum value of a building conversion by first understanding its hidden costs.
With office vacancy rates at all-time highs across the U.S., converting an underutilized commercial property to new uses increasingly presents the best opportunity to enhance its value. A transformation can revitalize the property, making it more appealing to potential tenants or buyers by aligning with current market demands and trends, including lingering housing shortages and the continued prevalence of remote work. Prices are coming down, too. 28% of this year’s office building sales went for a lower price than the previously recorded sale—up from 18% of last year’s transactions—giving real estate investors an extra incentive.
Making an older building functional and marketable in the modern era is not, however, a quick and easy fix. Unforeseen conditions hidden within the existing structures of older buildings can present significant challenges and risks for owners, especially if these unknowns are left hidden until the construction phase. Correcting for these conditions so late in the project’s implementation can add significant expense for the client, and costly delays.
Building owners as well as prospective investors who are evaluating the future of existing assets must take a holistic approach and consider many factors, including:
- The era in which the original property was built, and the systems, building codes and construction methods that were typical of that time;
- Previous uses of the property, and how they align with (or differ from) anticipated short- and long-term uses;
- Current conditions of the property and its systems, especially the structure and the building enclosure.
- Local market needs and demands.
Understanding the history, context and condition of the property is crucial.
Assessing and analyzing existing buildings in the earliest stages of a conversion project—even before a real estate purchase—can inform and ease owners’ decisions about the best path forward. It’s common, though, that documentation of the as-built conditions will not be accurate nor complete. And most buildings will have finishes in place that conceal the structure and other important systems. So it’s critical to work with partners who have an experienced understanding of the way buildings are constructed and the tools to investigate, clarify and confirm onsite.
Structures and systems differ from era to era, and there are nuances to this that go beyond the typical evolution of construction practices through the decades—shifts that we’ve experienced first-hand since Walter P Moore’s founding in 1931. Consider the financial context, too. If the building was constructed during a down market, for example, might shortcuts have been taken to reduce costs or timelines? Having direct knowledge of structural systems in a wide variety of building typologies, including those designed and built to meet prior building codes, enables us to work with building owners to come up with multiple forward-looking modification options.
Balancing each modification’s costs with its impact ensures overall project feasibility.
Our consistent goal is to maximize existing space for long-term leasability and highest client value, typically achieved by minimizing the impact of modifications. In many renovation and conversion projects, the upfront assumption is that the building’s structure and skin are assets—that the building has “good bones.” But the more that structure and/or enclosure must be adapted, whether for repair or strengthening, or for shifts in space planning and occupancy, or aesthetics, the more they become a liability instead of an asset.
Converting a building from office to residential, for example, is a valuable consideration. Many U.S. cities have significant housing shortages as well as an abundance of vacant commercial space, and today’s increasingly common assessment tools suggest that many buildings are good targets for conversion based on their location, amenities and aesthetics. But owners and investors don’t really get the full picture unless they also analyze the building systems that could comprise a significant percentage of the project cost. Residential buildings require access to natural light and ventilation, so older office buildings with large floor plates often need to have lightwells added, which comes at a cost. Pools, fitness rooms and other important amenities also require structural adjustments.
It’s important to look at the impact of each design decision on the upfront cost, on constructability, on marketability, and on user experience. 3D modeling and other digital tools facilitate this, by illustrating each option and the impact of each choice. And for conversions, we go even deeper to verify if and how existing structural systems must be adapted. Our Structural Engineering team works in close collaboration with our Diagnostics team on targeted tests of existing conditions that not only inform and ease the design process, these tests can also result in substantial reductions in added structural strengthening. Ultimately, having a thorough understanding of project goals and constraints empowers the team to recommend and implement effective structural solutions that preserve as much of the existing “bones” as possible and reduce unknown conditions and costs.
Conversion—and conservation—contributes to priceless places and experiences.
Conserving existing components can be cost-effective and also contributes to creating spaces that are distinct, showcasing the history of a place and drawing people in to experience its unique character and charm. While this kind of restoration and renewal can add tremendous value to real estate, the costs are high too. The demolition and construction process will require precision, often working with limited space for equipment, or necessitating temporary structures to shore up the permanent ones. In some cases, structural components that could otherwise remain need to be demolished to facilitate the construction of new structural members. Developing unique approaches to minimize these constructability challenges can significantly reduce the cost of adaptive reuse.
Finally, conserving a building and converting it for long-term use contributes to the Architecture 2030 challenge for all new buildings and major renovations to be carbon neutral by 2030. It is projected that embodied carbon will make up to 49% of the total carbon associated with new construction between now and 2050. Adaptive reuse is an effective approach to significantly reduce emissions associated with material, fabrication and end-of-life deconstruction and demolition.
The success of a commercial office building conversion relies on identifying and addressing hidden issues early in the project, ultimately preventing costly surprises and delays during construction. This process not only ensures that the building’s structural integrity and systems are thoroughly assessed, enabling informed decisions about necessary modifications. It also helps to maximize the property’s value by preserving as much of the existing structure as possible and optimizing each space for its best, most marketable purpose.
