Propmodo, the digital publication that explores the intersection of technical innovation, real estate, technology, and construction, recently discussed the trends in adaptive reuse development, the financial considerations that landlords and developers have to take into account, and why some are opting for “the wrecking ball instead of conversions.”
which can be as high as $450 per sq. ft., so they opt for demolition, which can be done for
around $8 per sq. ft.
Why Demo an Office Space?
The average age of an office building in the U.S. is 50 years, which means that unless owners have invested in MRO (maintenance, repairs, and operations) on an ongoing basis, the up-front cost to adapt a building from the 1970s or older, can be prohibitive. Meeting current regulatory requirements, following sustainable building practices, and changing climate considerations make repurposing corporate or industrial spaces into multi-family residences a non-starter for smaller portfolios.
“Small landlords needing more capital or knowledge to complete conversion projects face more challenges. Some are turning to the wrecking ball instead.” – Propmodo
Market experts, like Corian Enterprises’ CEO Fred Cordova, see real estate’s number one axiom, “location, location, location” as one of the deciding factors. “There will be a bifurcation,” he told Fortune in February of 2024. “The product in a good location with a good, safe environment will recover… And then you have the others that are basically worth nothing – the D class. Those just have to be torn down. That’s probably at least 30% of all offices in the country.”
Commercial real estate, like office buildings, is categorized into classes: A, B, C, and D. As the naming convention suggests, Class A buildings are the newest, outfitted with the latest materials, HVAC & MEP systems, and design features, and are considered the most desirable by commercial real estate investors. While Class D buildings are 30 years old or older with few to no upgrades/renovations, in areas often lacking retail, restaurants, transportation, and are the least desirable for financing.
So, is adaptive reuse a fad whose time is coming to an end? Not at all. In fact, more developers and building owners are opting for adaptive reuse than ever before.
Saving Iconic Buildings with Adaptive Reuse is a Large Developer Game
Propmodo notes that large developers, like SL Green, Silverstein Properties, and RXR Realty gather “splashy” headlines for their adaptive reuse projects due to their deep pockets and experience. GPRS recently reported on the adaptive reuse development taking place at New York’s iconic Flatiron Building, which is another example of a large developer taking advantage of prime location and famous architecture to convert offices into housing.
However, an architectural landmark in the middle of America’s prairie – Frank Lloyd Wright’s only skyscraper, Price Tower, in Bartlesville, Oklahoma – may be demolished, depending on the outcome of a now-postponed auction and a lawsuit filed by a potential purchaser. The Frank Lloyd Wright Conservancy has also filed suit against the current owners.
Existing Conditions’ President, Jared Curtis, who is an expert in adaptive reuse for historical buildings, shared his thoughts on Price Tower’s precarious position.
“Adaptive reuse or significant investment in Price Tower is objectively less viable compared to many other properties in more strategically positioned urban centers. Unfortunately, regardless of its architectural significance, this results in the possibility of demolition because its location in Bartlesville, Oklahoma, is economically and geographically challenging.”
Adapt, Deconstruct, or Demolish – Which Choice is Right for You?
Trends tracked by Axios before, during, and after the pandemic demonstrated a significant spike in demolitions through the middle of 2023, with more than 20 million sq. ft. demoed in 2022, and 14.7 million sq. ft. demoed in just the first half of 2023, outpacing pre-Covid annual demolitions by more than double.
For those who do choose demolition, there may be more profitable and sustainable choices than simply blowing a building up or knocking it down.
The first step is to determine your objective with the demolition. The basic questions to ask as you consider demo vs. deconstruction are:
• Are you simply clearing way for new construction?
• What is the time frame in which you need to demo the property?
• What is your budget for the demo?
If you are in search of a “quick and dirty” solution, demolition may be your answer. Even with this method, however, you must do your due diligence with site preparation, like finding all the public and private buried utility lines, assessing the impact of the demolition on surrounding properties, and taking steps to mitigate environmental impacts.
If, however, you can take the time to salvage whole materials, you can realize significant tax write-offs for donating the salvage, or you can resell it outright for profit. The up-front cost will be higher than a straight demo, but the “use impact,” can be slashed to as much as 12 times lower than demolition by providing construction material reuse.
According to 2020’s Global Status Report for Buildings and Construction, the civil construction sector alone produces 38% of global CO2 emissions. Cutting emissions is an emerging focus of commercial construction in the U.S., as the nation pushes toward a more sustainable future, while helping companies and facilities meet their ESG goals.
How Much Does Commercial Building Demolition Cost?
According to industry sources, straight demolition – just knocking down a building – is much faster than deconstruction. However, it will still cost $8 per sq. ft. or more for commercial space, and an estimated $25,000 total for a single-family home, and that’s if you’re keeping the foundation intact.
By comparison, adaptive reuse developers like Corian’s Cordova are spending as much as $450 per sq. ft. to convert offices spaces.
“[We used to be involved with] conversions that cost $75 to $150 a foot. Now the market rate is $350. For high-end luxury, it’s $450. The economic model is very challenging for conversion.”
However, local, state, and federal adaptive reuse programs are providing grants and subsidies to offset conversion costs, whether they come in the form of tax credits, outright grants, or the $35 billion earmarked by the Biden administration for commercial loans well below market rate for developers.
Regardless of which path you choose, site preparation, existing conditions documentation, and project data management are vital to a safe and successful project. GPRS Intelligently Visualizes The Built World® for customers nationwide. What can we help you visualize?
Frequently Asked Questions
What is involved in site preparation before demolition?
It is important to create a plan for your demolition to ensure a safe, efficient demo. Some of the information you need to create that plan include a comprehensive subsurface utility map, deciding how you will handle the impact on neighboring properties, a full-site scan or building survey to assess the materials and structural stability of the building you plan to demo, and a plan for how you will remove structural demolition waste, along with acquiring the proper permitting for your demolition project.
