“Today we’re going to talk about land-constrained East Coast markets and the fact that creativity is becoming a major competitive advantage,” began Mark Levy, chief investment officer, FRP Holdings, Inc., the moderator of a panel this week at I.CON East in Jersey City, New Jersey. “If you don’t have the ability to bring creative solutions to identifying sites and future development opportunities, you’re certainly going to find that you are left behind.”
The panel included Michael Bennett, managing director and head of development, Kadima Industrial Partners; Dale Koch, PE, principal, Bohler; and Scot Murdoch, AIA, partner, KSS Architects.
When we talk about creative reinvention in today’s industrial market, what’s really driving the trend?
“At least in our recent time here, doing a lot of work in the [New York City] boroughs, it really comes down to location, location, location – then fundamentals,” Murdoch said. “If the environment is solid and there’s a huge population center, then you look at whether an asset has good skin, good bones, good strength and can, with minor intervention, be actually repurposed.”
“I would [say] land scarcity and maybe one step further to zoning scarcity,” Bennett said. “A lot of what we work with is diminishing industrial-zoned land.”
Koch agreed that location and land scarcity are key drivers. His company has found opportunities in New York, with “a lot of aging assets where the structures and the buildings have really good bones, and they’re in a great location.”
“Your opportunity there is to go in and find something that could be reused and push yourself through the entitlement process without sitting for years trying to get something approved through the local municipality,” Koch said.
Which projects are ripe for redevelopment? Which are more trouble than they’re worth?
“Define ‘more trouble than they’re worth,’” said Bennett, noting that it depends on how much time and effort someone is willing to spend. He said some potential redevelopment projects are the usual suspects, like old manufacturing facilities and suburban offices. He also mentioned older retail strip malls or super centers, along with old airport sites that no longer support that business.
“The entitlement environment doesn’t have a linear path oftentimes,” Bennett said. He shared a story of trying to entitle a project in the same town as a competitor’s project; both were obsolete office properties. Bennett’s project was approved, while the competitor’s was rejected. “The difference was less than half a mile, so it’s hard to predict.”
“Things that were built years ago still need new driveway access, new utilities, new infrastructure, changes to the building,” Koch said. When evaluating a project, running numbers and trying to see how viable it is, developers should stop and think, “Yeah, you could save a few dollars to reinvest and repurpose something, but does it make sense for [the] end user?”
“The adaptive reuse idea is very complicated; people think you can take an old, obsolete industrial building and just raise the roof and reskin it, and all of a sudden you’ve got a functional asset,” Levy said. “But there are hundreds of considerations,” including whether it ultimately makes more sense to take a building down and completely redevelop the property.
“The other thing that strikes me is having a really strong point of view on who your market and audience is, because you can do all the analysis on whether an asset in its place should be saved, preserved or rebuilt, but if you don’t know who you’re doing it for, you could get the equation wrong,” Murdoch said.
He shared an example of a successful project in South Brunswick, New Jersey, in an area where the building had a firewall down the center of it, with a great base and great walls, and clear heights of 20 feet.
“We ultimately analyzed a lot of different ways to raise the roof, made it almost a 40-foot-clear building – ahead of its time – and were able to then create a masonry base with tons of clerestory glazing in it, and got rid of the firewall because we were putting in a new [Seismic Force-Resisting System (SFRS)].”
“So, we had the space; we could reclassify the building; and it took very little investment to create a completely brand-new building,” he said.
Are municipalities in general becoming more favorably predisposed to these kinds of projects?
“I do believe that municipalities are getting smarter. They’re learning how to review some of this stuff and hire the right professionals to assist them on a consulting basis,” Koch said. “We’ve [experienced] a lot of situations where we’ve had great dialogue.”
“There have been challenges, but because of the understanding of what the economic impacts of redeveloping a project like that are, they’re working with us and saying, ‘OK, we know this is a problem because we understand that when the building was occupied, this user had this issue. Let’s try and work together and make it work because we really want to see this become something that’s successful,’” Koch said.
Particularly in highly developed areas, municipalities understand the long-term impact of redeveloping empty buildings or underperforming assets, he added.
“One of the things that we’re doing is economic analysis and consulting,” Levy said. “We’re hiring people to come in and demonstrate to these various jurisdictions the benefit of the project.” Towns that may have received federal funding from the government during the COVID-19 era are now trying to balance their budgets and looking at these projects in a new light, with the potential to transform underused or vacant assets into tax revenue for their jurisdictions.
Koch added his perspective as chair of the local planning board in his town.
“From a local planning standpoint, you want the development there; you want to have a tenant, you want the tax ratables,” he said. “It’s important for the economic success of the town.”
People outside of industrial real estate do not always understand what “industrial” means; it evokes 1960s Cleveland, Levy said. Framing a project in terms of “logistics” resonates in a much different way, with people viewing it as high-tech and scientific.
Industrial real estate is ultimately about the movement of goods and power; at its core, industrial is infrastructure, Murdoch said. “You have to create a narrative that touches people’s hearts as well as make financial sense for development; it’s a both/and equation, not an either/or.”
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