Formed in 2012, ULI’s Redevelopment and Reuse Council is one of the most recent additions to the Institute’s product councils. Members discuss the increased importance of redevelopment and reuse, useful tools for these kinds of projects, the roles of public/private partnerships and anchor institutions, and other trends.
Why form a separate council dedicated to redevelopment and reuse?
Jeff Kingsbury: In the United States, land has been developed at a rate of roughly three times [the rate of] population growth. The average American uses about five times more land than he or she did 40 years ago. The market also [played] a role as we came out of the recession: new-construction rates slowed to a crawl in most markets, which depressed the pricing of existing real estate. In most cities, these factors created a favorable market for retrofitting and reuse, opening up opportunities for folks who weren’t previously engaged in such activities.
Krista Sprenger: When you consider the aging building stock in the United States from a redevelopment and reuse perspective, the opportunity is staggering. The real estate industry is finally starting to focus on operating buildings more efficiently and cost-effectively. A lot of that has to do with the recession. People are also recognizing the connection between health and productivity. How can we not just make buildings cost less to operate, but also retrofit them to help people be more productive and healthy?
Doug McCoach: There’s a social imperative and an environmental imperative to make unproductive sites more useful. And there’s economic value, because with redevelopment sites, the infrastructure is already in place, and typically they’re already tied into transportation networks. We have all these beautiful locations—waterfronts and downtowns—which offer things you just don’t find in a cornfield. So when you redevelop these sites, the result is more engaging and interesting places than would be possible with greenfield development.
What tools for redevelopment and reuse are particularly helpful?
William Lashbrook: The traditional tool is tax increment financing [TIF], in those states that have authorized it. It’s a great way to bootstrap something, and most lenders treat TIF as an equity source. But you need to have a governmental entity that can make some decisions regarding land, whether it’s disposing of land or helping to get it rezoned. A lot of cities are trying to look at property that has been vacant, or gone fallow, or is now past due for taxes. You need an entity that has enough power and authority to make something happen, a public/private partnership that a developer and a bank can deal with in confidence that they’ll be able to perform and deliver. Newark’s economic development corporation, Brick City Development Corporation, is a great example, and it’s had a lot of success.
Kingsbury: The federal historic tax credits and new markets tax credits are examples of the government taking on an appropriate role in effecting positive change in communities, and they’ve yielded a pretty significant benefit for the amount of dollars that have been invested. For example, the United States has granted about $21 billion in historic tax credits, and that has leveraged about five times that amount in private capital—about $109 billion. That’s a pretty good return on investment. Further, rehabilitation activity from the historic tax credits has generated 2.41 million new jobs. And the demand for new markets tax credits far exceeds the allocations available.
Sprenger: Within the retrofit space, we’ve had energy service company [ESCO] project financing, which has provided capital solutions for municipalities, universities, hospitals, schools, and federal agencies to improve energy efficiency without having to pay upfront capital costs. The ESCO guarantees savings for a certain period of time and is paid back from the savings in energy costs. The problem is that electricity in some states can be as low as 3 cents a kilowatt-hour, and in others, 35-plus cents a kilowatt-hour. The next evolution is to find ways to provide financing that’s not tied to energy savings.
McCoach: This is a casual response to a serious question, but you can’t overrate the importance of a great slice of pizza. I can’t tell you how many neighborhood revitalizations have been sparked by getting a pizza shop in place. Take Baltimore’s North Avenue area, which saw its heyday in the 1940s and 1950s and then went downhill. About a dozen years ago, an art college bought and renovated a firehouse on the street, and the area started to become an artists’ haven, and then a pizza restaurant opened up, and that brought in bands, and suddenly you’ve got a theater opening up and some galleries. There are stories like this all around.
What kinds of public/private partnerships have worked well for redevelopment/reuse?
Sprenger: One example is the Military Housing Privatization Initiative. The U.S. Department of Defense had an aging stock of homes to maintain, so it decided to form 50-year partnerships with the private sector in which Lend Lease and other private companies became responsible for refurbishing existing housing stock, building new homes, and then operating them for 50 years. We are doing the same now with hotels on army bases, where Lend Lease is building or refurbishing 11,600 hotel rooms on 39 military installations.
Kingsbury: The Great Recession forced the public sector to retreat on issues of urban redevelopment. Yet in cities like Detroit, Chicago, Cleveland, and New Orleans, public and private foundations are responding to fill that gap in creative ways. Philanthropic organizations are seeing their role as going beyond funding amenities and capacity-building to taking on roles in property acquisition or taking equity positions in difficult deals. They are leveraging their reputations to attract other stakeholders to the projects. One of the best examples of that is the Kresge Foundation in Detroit and its role in the success and revitalization of midtown Detroit.
What role can anchor institutions like universities and health care providers have in spurring redevelopment?
McCoach: A redevelopment project that we’re involved in—the mixed-use Gibbons Commons on the southwest side of Baltimore—is a great example. It’s a 32-acre [13 ha] site that was a Catholic boys’ high school. The Archdiocese of Baltimore surplused the property in 2010, and the adjacent St. Agnes Hospital purchased it. The plan is to maintain the health care–related, infrastructure-heavy functions on the hospital’s existing campus and offload peripheral functions onto this new campus. They have pulled in nongovernmental organizations and nonprofits to help build a development team that focuses on the social mission. The affordable housing development arm of Bon Secours Hospital will be building workforce housing on the site, and Catholic Charities of Baltimore is considering reuse of one of the school facilities to create affordable housing for grandparents raising their grandchildren.
Kingsbury: A lot of the nation’s hospital stock was built in the 1950s and 1960s. Those locations were once suburban but now are really urban and present infill opportunities or have the potential to be repositioned. We’ve been working with a health care system in Fort Wayne, Indiana—Parkview Health—which has a 1950s-era hospital that was designed for an inpatient care model. But these days, the emphasis is more on outpatient care. So we were tasked with looking at how to reposition that campus and came up with the idea of focusing on some key areas of emerging clinical need, including senior care, behavioral health, and rehabilitation. We’ve been able to attract other health care providers and educational institutions to purchase or lease space from the hospital. It’s becoming a campus of mission-aligned partners.
Lashbrook: One thing about anchor institutions is that when universities and health care providers are looking at their facilities and land use, they may not be considering what the city or the town or the surrounding area is looking for. For example, when a university buys a site, it leaves the tax base. So there are examples of municipalities collaborating with anchor institutions on redevelopment, but generally the municipality itself would have to be driving that effort.
What kinds of challenges or solutions are unique to waterfront redevelopment?
McCoach: The rise of sea levels is starting to hit home. We’ve got one project in the Northeast where a five-foot-deep [1.5 m] clean-fill cap is required as a part of the mediation plan; but as it turns out, to rise above the projected flood point, we had to use seven feet [2 m] of fill. That raises interesting questions. Should the owner fill the seven feet and capture the value so he or she can resell it? Does the cap need to be protected, since it’s anticipated to be submerged? These are issues we will be addressing more with waterfront sites.
Lashbrook: In any redevelopment near waterfronts, or in areas susceptible to flooding, we need to be prepared to deal with larger volumes of water than we anticipated in the past. We may need to think about building structures that are going to perform differently. I was on ULI’s Hurricane Sandy advisory panel last summer in New York, and one of the things we postulated was that there should be different land use overlay zones to encourage shifting investment from high-risk areas, where there isn’t a way to defend the infrastructure from flooding, to less vulnerable ones. But there could also be buildings designed to withstand flooding on the lower floors without the foundation being undermined or the upper floors being affected. The lower levels, which are at risk of flooding and are intended to be sacrificial, could still be leased to tenants who understand and accept the risks.
What other trends do you see?
Sprenger: Commercial office buildings offer a lot of potential for redevelopment, especially in our central business districts. The recession taught us that 20 percent of those buildings could be vacant at any time. Instead of creating more single-use property types, we need to reimagine these—what I call vertical brownfields—as a mixed-use offering. The opportunity is there to create complete communities within those central business districts that are now ghost towns on the weekends. Also, we aren’t going to be so tethered to our offices in the future. So what happens when we start reducing people’s need for office space by 30 or 50 percent? We’re going to have lots of good buildings open for reuse.
McCoach: As warehouses continue to evolve, and the buildings require more flexible design standards and greater ceiling heights, an entire generation of warehouses built before 1995 has become obsolete. Do you tear them down? They become a bit of a nuisance for the local jurisdictions. They don’t command the rents they used to, so there is an emerging opportunity for reuse.
Lashbrook: At the Regional Plan Association annual meeting earlier this year in New Jersey, there was a presentation on the way Providence, Rhode Island, brought back the river in downtown, which had been essentially covered over for a long time, and put in a riverwalk. They have an event called WaterFire, with bonfires on the river in the evenings, performances, art—it’s like a giant party down by the water. There were also presentations on similar regenerations in Detroit and Cincinnati. In every one of the cases, all of the initial work started out as a plan for structures, for types of real estate. But what really caused each of these efforts to be successful was connecting the plan to the way people would use the place. Making places successful is not just about connecting people with nature, but connecting people with people.
Ron Nyren is a freelance architecture and urban planning writer based in the San Francisco Bay area.