For historic redevelopment to succeed, developers need to rethink their basic approach to projects, three leading experts said during a panel session at the ULI Fall Meeting in San Francisco.
“Preservation is first and foremost a marketing strategy,” said Charles Duff, president of Jubilee Baltimore, a nonprofit developer. “It is a strategy to help people love old buildings.”
Preservationists were once derided as the “paint police,” noted moderator Stephanie Meeks, president and CEO of the National Trust for Historic Preservation. Today, historic restoration is at the center of redevelopment plans across the United States.
“If we had had this panel 30 years ago, there would have been nobody in this room; there was no interest,” said Wayne Ratkovich, president and CEO of Ratkovich Company. “It’s a new world.”
The panelists detailed their strategies and approaches to carrying out historic development, starting with the way they identify potential redevelopment sites.
Trying to restore a neighborhood can be a mistake, Duff said. It is more effective to “find the nearest strong neighborhood and help that neighborhood grow,” he explained. “If you want to climb Everest, you need a base camp.”
California-based Orton Development takes a similar approach to evaluating potential projects, said partner Nick Orton. “We like a neighborhood in the path of growth,” he said. “More than anything, we need to believe in the property, and we need to believe the project will be part of the growth of the neighborhood.”
Trying to be the first to revitalize an area can lead to a long, torturous, and ultimately disappointing experience, Ratkovich said. “I’ve been a pioneer,” he said. “I wish I hadn’t done so.”
All the developers are looking, first and foremost, for value, which means finding property at a decent price.
“We like deals when the big institutional players are not going after them,” Orton said. His company is self-capitalized, which gives it a measure of flexibility most developers cannot afford. “It allows us to enter a project when it has a lot of unknowns,” he said.
In many cases, the best and only deal that works is a deal nobody else wants. In 2010, when Ratkovich bought 11 largely abandoned buildings in the Hughes Aviation complex in Los Angeles, where Howard Hughes built the Spruce Goose, he paid $60 per square foot ($645 per sq m).
“I don’t believe I had a single competitor,” Ratkovich told the audience. “When you buy something, buy it right. You have a much better chance of succeeding.”
Once a developer identifies a site, it is important to dissect the elements that make the community marketable, Duff said. “Find what is interesting and special about that neighborhood,” he said. “Very often it is a historical building, but not always.”
For many projects, history is the most powerful element in the strategy. “It sells like nothing else sells,” Ratkovich said. “Reviving an existing building can be an opportunity to be welcomed in the neighborhood.”
For a project in one of the most run-down sections of Oakland, the key to generating excitement was signing up local fashion retailer Oaklandish as an anchor tenant, Orton said. “We knew what kind of tenant would get the neighborhood behind us,” he said.
Historic preservation can offer some economic advantages for developers, including tax credits provided by many jurisdictions. In California, a historic project may be able to avoid the costly and lengthy California Environmental Quality Act (CEQA) process, Orton noted. But even with tax credits and support of the local government, financing is extraordinarily difficult, he said. “These are not cookie-cutter projects.”
A wide variety of barriers exist to creating a successful project, the developers agreed. A full rehab typically costs more than construction of new building, Duff said. “There is no economy of scale, and there are not necessarily the craft people who are able to do what you want to do,” he said.
Building codes and complexities of the Americans with Disabilities Act issues can easily derail a project, the panelists said.
The three developers also agreed that “going it alone” is a recipe for disaster. “We want to know we have partners,” Duff said. “We want to know we have allies.”
Building community support and identifying trends already in place is better than trying to fit a new idea into a neighborhood, Ratkovich said. He turned the Hughes complex into office and studio space—a natural fit for the historic buildings.
“Don’t try to be the smartest guy in town,” Ratkovich said. “It’s easier to sell as part of a movement and not something out there alone.”
But the process does have its rewards. “It’s fun to go to work every day and find what you find next,” Orton said.
Historic renovations can often offer more long-term satisfaction than the typical developments, panelists agreed.
“The thing I like best about projects are seeing people who are living and working in them,” Duff said. “I think it is much more about people than buildings.”