Preservation Through Transformation: ADAPTIVE REUSE

BY MICHELE LERNER

PHOTOS BY PRISM CAPITAL PARTNERS

The transition from office work to work from anywhere, accelerated by the pandemic, brought new attention to the opportunities for redevelopment of now-obsolete buildings, including offices and shopping malls. But adaptive reuse, which refers to preserving and transforming existing buildings for a new function, is not new. Many former mills, factories, and banks have been revitalized into residences, restaurants, hotels, and mixed-used developments over the past few decades.

“New Jersey is one of the most densely built states in the country, so repurposing existing buildings is extremely common and an important part of maintaining vibrant communities,” said chief real estate development officer for the New Jersey Economic Development Authority Jorge Santos. “The 21st Century Redevelopment Program was created in 2018 to help municipalities repurpose distressed properties, especially vacant malls, and suburban office parks. Now some urban offices may also be repurposed.”

While the simple solution to the housing shortage may seem to convert vacant offices or malls to apartments or condos, there are architectural and financial challenges to adaptive reuse along with the potential need for rezoning.

“When we converted the former Wonder Bread factory to the Wonder Lofts in Hoboken, we were able to add three floors to the top of the building along with an extra internal floor,” said founder of Prism Capital Partners, LLC Eugene Diaz. Diaz’s company developers for multiple adaptive reuse projects. “We’re a vertically integrated company that does all our own construction, which is important when you do adaptive reuse because when you open the walls of a historic building there’s always something unexpected. At the Wonder Lofts, we had over 250 change orders.”

Advantages of Adaptive Reuse

From a historic preservation perspective, adaptive reuse offers the benefit of keeping the character of a community while allowing for revitalization. Typically, historic preservation groups want the exterior of a building to remain intact while the interior is reconfigured for a new use, preferably with references to its previous function and past.

“Adaptive reuse has an environmental benefit simply because the building isn’t being torn down,” said board of directors’ president for Preservation New Jersey and executive director of the Red Mill Museum Village Paul Muir.

“There’s a community benefit, too, to preserve the culture and character of a town for residents and potentially for heritage tourists, too.” Preservation New Jersey is a nonprofit organization that supports historic preservation in the state and the Red Mill Museum is an adaptive reuse project in Clinton.

Adaptive reuse can also be an economic driver for a municipality to attract new businesses and residents, Muir said. For example, Landmark Hospitality, a New Jersey-based restaurant and catering company, specifically looks for old banks or other historic buildings to repurpose into unique restaurants, Muir said.

“Repurposed buildings often have unique features that make them attractive for residents and businesses,” said Santos. “They’re often in denser areas that offer walkability, which is a priority for a lot of people.”

Incentives for Adaptive Reuse

NJEDA offers several programs to encourage communities and developers to find new uses for buildings rather than tear them down or leave them as a blight on the area. The Historic Property Reinvestment Program, which focuses on historic preservation as a component of community redevelopment, is designed to work with the Federal Historic Tax Credit Program for private investment in the rehabilitation of older buildings. In addition, a $25 million Stranded Assets Repositioning Investment program, approved in May 2023, can be used to redevelop vacant or partially vacant shopping malls, healthcare facilities, offices, and similar buildings into commercial, industrial, or mixed-used projects. Grants are also available through the 21st Century Redevelopment Program.

“Each town in New Jersey has an affordable housing requirement, so older buildings can often be reconfigured to support those goals,” said Muir. “Some buildings, like industrial and manufacturing buildings with an open floor plan, are easier to convert to residential use than others.”

Preservation New Jersey has a “top 10” list of buildings throughout the state that the organization identifies as ripe for remodeling.

“Our organization has architects, engineers and city planners on our board, so we have a variety of resources for local preservation groups and developers to help them get started on an adaptive reuse project,” said Muir. “These kinds of projects are often public-private partnerships because of the availability of local and state funds and tax credits.”

Challenges of Adaptive Reuse

Whenever you repurpose a building for a different function than it was originally designed for, you face some challenges, said Diaz.

“You have to start by looking at what you can preserve and then understand the limitations you face, such as ceiling heights and window openings,” said Diaz. “The biggest challenge is that very few residential buildings are made of steel, but most offices are. They have deeper floor plates from the core to the window wall, so you have to cut a hole in the building to get the flow of air and the space needed for an apartment.”

Reconfiguring offices made of concrete can be easier, said Diaz, since they typically have smaller floor plates.

“There’s a proposal for an office in Newark that basically calls for a wedge to be cut out of the middle of the building to allow for enough windows for a residential conversion,” said Santos.

Traditional shopping malls have “an ocean of parking spaces” around them, which can be converted to parks, plazas, and an amenity space if the mall becomes a mixeduse development with a residential component, said Santos.

Regulations can be a challenge for adaptive reuse.

“Most municipalities haven’t felt the pain yet from the lack of tax revenue from offices since the leases haven’t ended yet,” said Diaz. “A lot of towns won’t allow offices to be knocked down or reconfigured for residential use, which delays adaptive reuse.”

Most state programs that support adaptive reuse require some commercial element but also allow a residential component, said Santos.

Realtors® Role in Adaptive Reuse

Whether you’re a commercial or residential real estate agent, Diaz suggests talking to local leaders to advocate for adaptive reuse and to emphasize how the real estate market is changing in favor of walkable, mixed-used development.

“It’s good for agents to be aware of state and local tax credits and investment opportunities so they can share them with potential developers,” said Santos. “Developers can explore the options with these programs even before they own a building so they can structure a deal that includes these incentives.”

Realtors® are plugged into their communities, said Muir, which gives them an important role to play with adaptive reuse.

“Realtors® who understand the availability of tax credits and local grants can connect business owners, residents and developers to funds and they can identify potential projects,” said Muir. “For example, in the town of Clinton, there are grants available to renovate and preserve historic homes that agents could recommend to buyers.”

Santos anticipates more adaptive reuse projects in New Jersey because of government incentives, the continued need for more housing, and the availability of underutilized buildings.

“People sometimes worry that adaptive reuse will change the character of their neighborhood,” said Diaz. “But communities are always evolving.”