Two case studies on how obsolete industrial buildings have been redeveloped for a new life in the new economy—the focus of this 2016 ULI Fall Meeting session—offered lessons about capitalizing on site location, the buildings’ qualities, and the developers’ visions for creating dynamic mixed-use places that are profitable as well as mission driven.
Howard Kozloff, managing partner of Agora Partners in Los Angeles, said the two fairly large-scale conversions of industrial land, with different approaches on how to structure the capital stack, were visionary projects that offered lessons on “turning an eyesore into a profit and a community asset.”
In central San Antonio, the Pearl Brewery—founded in 1881 and once the largest employer in the city—was shut down in 2001, leaving 18 acres (7.3 ha) with 10 million cubic feet (283,000 cubic m) of historic buildings, train engines, tractor trailer rigs, and other detritus, recalled Bill Shown, managing director of real estate for Silver Ventures. The San Antonio developer wanted to create a destination mixed-use restaurant district. This project, said Shown, “was the kind of thing you run from.” Located on the San Antonio River, the decrepit industrial site had falling-down historic buildings full of asbestos and lead paint, it flooded regularly, and it was frequented by drug users and squatters.
The team took down some of the old structures and restored others. They developed a total of 850,000 square feet (79,000 sq m), including 430 apartments, 50,000 square feet (4,600 sq m) of local retail, and 120,000 square feet (11,000 sq m) of office space. They redeveloped the Second Empire–style brew house into the 146-room Hotel Emma, which readers of Condé Nast Traveler voted the third best in the United States last year. They transformed a 1904 jewel-box building into Cured restaurant, and the stables into an event center. They approached the Culinary Institute of America, based in Hyde Park, New York, to open a campus on the site to focus on Latin American cuisine and to train local Latino youth for work in the food industry. They also began developing restaurants and curating “bright young chefs who’d never had their own restaurants before,” said Shown. Those, he said, are the most popular of the 17 restaurants developed so far as part of Pearl’s “community of chefs.”
“San Antonio is perceived as a visitors’ city, and the central business district is overrun by visitors, but we’d forgotten about doing something for ourselves,” said Shown. “That laser focus on what locals want has been a key to the success of the place.” The firm took advantage of the market it had created to purchase five adjacent sites for up to 1.5 million square feet (139,000 sq m) of development, including 120 high-end residential units. The developer also extended the San Antonio Riverwalk with public amenities as part of a public/private partnership.
“From a capital-stack perspective, this was paid for out of a checkbook,” said Shown. “I can’t tell you how important this was to the success of the project.” Yet what drove the project was not financial success, but the “owner’s passion for food, education, history of place, the brewery, and the city,” he said. Over 14 years, the hardest challenge besides cleaning out the site was “giving myself permission” to deviate from market metrics, he said. Taking those chances requires “patience, some risky capital, and not being bound by conventional thinking. Set that aside.”
Lance Robbins, manager and CEO of Urban Smart Growth in Los Angeles, described 400Westrich in Columbus, Ohio, as a similar project: “Everyone thought I was nuts.” The site of the former circa 1910 drinking-fountain manufacturing plant turned glass factory is located in East Franklinton, west of the Scioto River and downtown Columbus. The site, purchased in 2007, was a floodplain close to three public housing projects. Urban Smart Growth’s vision was to create art and community space to bring economic activity to the low-income neighborhood, to provide studios for artists, and to draw the creative class to live and work in the neighborhood.
Opened in 2011, 400Westrich has become a catalytic development for East Franklinton, helping change the perceptions of the neighborhood. The developer removed some buildings and renovated the 105,000-square-foot (9,800 sq m) brick main building with skylights for studio spaces for 140 local artists, craftsmen, designers, and performers, as well as for live/work retail and coworking spaces. A 15,000-square-foot (1,400 sq m) event and bar space is used for art shows, weddings, corporate meetings, and other events. A restaurant, a farmers market, a food truck hub, and arts festivals activate the interior and exterior spaces.
“We’re cashing out buildings for four times over [the purchase price], but it takes a lot of time and money,” said Robbins. Urban Smart Growth bought 400Westrich for $1.1 million and invested $800,000 in redevelopment. The building assessed recently for over $5.6 million and produces $18 per square foot [$194 per sq m] in rent. Robbins said that he saved hundreds of thousands of dollars by redeveloping the old industrial facility rather than building from scratch because of “all that value in the existing building, the zoning, the water and electricity.” He advised buying older properties with architectural texture, high ceilings, and lots of light.
Urban Smart Growth works in secondary neighborhoods in secondary cities in six states, Robbins said. His formula: “Buy big and cheap, and you create a massive halo effect by buying old real estate around it,” which creates opportunities for jobs and services. His firm will soon begin construction on the 69-unit Lucas Lofts across from new Columbus Metropolitan Housing Authority mixed-use apartments, office, and retail. Nationwide Realty Investors, a subsidiary of Nationwide Mutual Insurance Company, based in Columbus, recently acquired over 70 properties in East Franklinton.
“We’re a family-owned company,” said Robbins. “No outside investors would ever have done this.” He described 400Westrich as “not a quick-return project, and for someone who is in for the long haul.”
Kathleen McCormick, principal of Fountainhead Communications in Boulder, Colorado, writes frequently about healthy, resilient, and sustainable communities.