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Adaptive reuse--converting an existing building to suit the needs of a new tenant or a new use--offer renewed vitality to tired, outmoded structures. Close-in industrial and warehouse space may be obsolete for manufacturers, but may offer prime locations for office or office-showroom space. B and C office properties that no longer satisfy the technology or floorplan needs of large corporations may be re-created as small-tenant offices training centers, and retail/service space.
Conventional wisdom holds that reuse makes the most sense when new use is close to the original one. Yet in some cases, the most successful adaptive reuse project are the most radical ones. "The key is to remember that a building has a life; one always wants to retain enough of the original to reflect that past," says Candace Schafer, director of corporate marketing for O'Donnell Wicklund Pigozzi and Peterson Architects (OWP&P).
A key reason for choosing adaptive reuse is money. An unmarketable older building may have little or no value in its current condition. According to J. Thomas Black, writing in Reinventing Real Estate, published by the Urban Land Institute, major renovation of an existing office will cost between $35 and $75 per square foot. The structural integrity of the exterior, the presence of asbestos, and the suitability of the floorplate all influence the cost. Shafer notes hat according to Donovan Rypkema, principal of The Real Estate Services Group, a total building rehab will cost approximately 16 percent less in construction costs and 18 percent less in construction time than comparable new construction even if asbestos is present.
Rehabilitating older buildings may also qualify owners for tax deduction of a percentage of construction costs--20 percent for buildings on the National Register of Historic Places or in a designated historic district, or 10 percent for any building built prior to 1936. Renovations of industrial buildings for a new industrial use qualify for a 30-percent credit. Legislation is also pending in Congress to expand favorable tax treatments for renovation and reuse of historic buildings. (Note the deductibility of costs is limited by passive loss...