Lending on Adaptive Reuse Projects: Tips & Examples

Adaptive reuse projects have become a popular development option in recent years, especially with the impacts of COVID-19 making the future of certain property types uncertain. Defined as the process of renovating an existing building to fit a new purpose, adaptive reuse projects can include anything from converting an office building into multifamily to turning a mall into an industrial distribution center.


Adaptive reuse projects can be a good choice for both the environment and for preserving local architecture, but they do present some unique challenges when it comes to commercial real estate financing. In this article, we’ve provided important tips lenders should keep in mind when lending on adaptive reuse projects, as well as a few examples of projects that have been successful.


Tips for Lending On Adaptive Reuse Projects

Aside from the typical due diligence that you would do on any project, adaptive reuse projects require an additional level of analysis to make an educated lending decision. We’ve outlined four tips that lenders should use to successfully lend on an adaptive reuse project.


Understand the Project Through the Developer’s Eyes

Understanding a ground-up development is relatively easy; most projects follow the same basic steps, and it doesn’t take a lot of imagination to imagine a new office building or new apartment complex.


In contrast, adaptive reuse projects require that the lender sees the project through the developer’s eyes and understands the vision the developer has for the end product. It can be difficult to envision an old factory being converted into creative office space, so it’s vital that the lender is on board with not only the financials driving the project but the vision behind it as well.


Look Into Zoning Regulations

Zoning regulations can make or break an adaptive reuse project, so it’s in the lender’s best interest to do their own research and have confirmation that the proposed project will be allowed. Most cities don’t have zoning regulations set up to account for a shopping mall being converted into an industrial distribution center, and even those that do could require months of paperwork before the zoning is changed.


As more adaptive reuse projects are completed successfully this potential issue should become less of a concern but, in the meantime, lenders should pay particular attention to this potential risk.


Account for the Potential Construction Risks

Depending on the type and age of the existing building, construction risk can be a major factor in an adaptive reuse project. If you’ve ever watched one of the many home renovation shows on TV, you know that a lot of unexpected (and often expensive) issues can pop up once you start taking down walls.


To avoid this, lenders should confirm that the developer has done their own due diligence and fully understands the building’s current state. From wiring to water pipes and construction materials, the lender should confirm that every potential problem has been accounted for and has a price associated with it.


Confirm the Numbers Make Sense

Lastly, and perhaps most importantly, lenders should be careful not to be drawn too far into the excitement of an adaptive reuse project. It can be a fun and exciting experience playing a role in the conversion of a historic building into something rejuvenated and useful but, if the numbers don’t make sense, financing shouldn’t be offered.


To help with this, lenders should be asking themselves why adaptive reuse is being pursued rather than ground-up development, whether the project is the highest and best use for the site and how the market will react to the project once it’s complete. If there is any uncertainty around those questions or the financials backing the project, the lender should take a step back and analyze it further.


Examples of Adaptive Reuse Projects

Now that you understand a few of the tips and tricks you should keep in mind when analyzing adaptive reuse projects, we wanted to provide examples of projects that were completed successfully. Below you’ll find a variety of projects across different use cases.


Preserve at 620

Located in Austin, Texas, Preserve at 620 was an adaptive reuse project that converted an old Walmart SuperCenter into 200,000 square feet of creative office space. The project has received several awards, including ULI Austin’s 2021 Best Project Innovation and the Austin Business Journal’s 2020 Rehab Project of the Year.

Source: CoStar


Ponce City Market in Atlanta

Ponce City Market is a mixed-used development that includes retail, restaurant and office space along with high-end apartments. Originally a Sears distribution center built in the 1920’s, the warehouse had been used by the City of Atlanta as a city hall until Jamestown Properties purchased the building in 2011. By 2012 the project had secured its first tenant, and today the developers have plans to add 500,000 square feet to the existing 2.1 million square foot redevelopment.

Source: Jamestown Properties


Wonder Bread Factory in D.C

As the name suggests, the Wonder Bread Factory redevelopment was a project undertaken by Douglas Development to convert an unused factory into high-quality office space. After sitting vacant for more than 20 years, Douglas began work on the project in 2012 and delivered the completed product in June 2013. The project now offers 98,000 sf of loft-style office space.


Source: Douglas Development




Adaptive reuse projects are not a new phenomenon. We’ve seen them happen across the country, from San Francisco to Atlanta and DC. The process of adaptive reuse is dynamic and challenging, but also very rewarding for developers as well as lenders who make solid lending decisions when underwriting a commercial real estate loan..


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October 20, 2021

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