Repurposing Your Office Space? Know The Ropes
5.19.22 | Industry Insights
Has the Great Reset also spawned the Great Conversion? Only time will tell. One thing that is certain is that the idea of repurposing office space is, at the very least, embedded in the collective vocabulary of the commercial real estate profession today. The concept of adapting property from its originally intended use into something unplanned or unexpected is not new. Some may recall that in the 1980s, New York passed its “loft law,” which paved the way for the loft living concept that continues to this day.1 In a very real sense, the idea of repurposing a space allows you to step back, clear your head from the restraints of conventional thinking, and ask yourself: What if?
With the ongoing uncertainty over the future of office space in the Metropolitan Area, repurposing and repositioning your property may be a valid and even attractive proposition.2 If so, you need to be prepared to face some important issues.
Considerations When Repurposing Commercial Space
You must expect some delays as bureaucracies tend to move slowly, and it will take time to revise the structure’s zoning designation. Petitioning the municipal zoning board will, of course, come with some necessary legal costs. Any property that is essentially being re-born will also have to meet updated codes. Consider the Uniform Land Use Review Procedure (ULURP) – a standardized procedure where applications affecting the land use in New York City are publicly reviewed. The ULURP process can be a time consuming hurdle that some may not wish to undertake.
Of course, a major renovation or property repositioning, say a conversion for medical use, will require that you look into any recent ordinance upgrades. Be aware that such upgrades may be more onerous than those required for the original structure. Upgrades must be factored into your cost considerations.
You will need to absorb the costs – which will vary depending upon your plans for the property – for adapting the structure. These costs could include:
- Adding more contemporary lighting,
- Improving the HVAC systems,
- Upgrading security with, perhaps, 24-hour surveillance,
- Introducing attractive amenities – exercise rooms and expanded refreshment areas, among others – that appeal to younger generations
- Adopting the latest technology upgrades, and
- Developing layouts that allow for easy adaptability to changing needs.
Take the time to research the expectations of businesses in the sectors you are targeting to know where to best use your available dollars. Before moving ahead, weigh the cost/benefit of these expenses.
There may be insurance considerations if your property is vacant and has been for some time, which means you probably reduced your insurance coverage. You may find it challenging to get new coverage for your re-envisioned property until the vacancy is cleared. It is prudent to contact your insurance broker for an indication of what your prospective insurance costs and requirements will be. Some carriers specialize in different types of property coverage. It may be necessary for you to change your provider depending on the new purpose of the property.
The Trend is Widespread
With the ongoing and sweeping changes in our culture and business environment, the trend of repurposing properties cuts across many sectors. Some real estate organizations, particularly in New York City, have targeted technology and life sciences start-ups and are busy repositioning properties to fit their unique need. To learn about the steps they are taking, see: Shaping Up Your Space To Attract Tech Tenants. The travails of the American mall, hit by both the rise of e-commerce and the wrath of the pandemic, are well known. Yet there is a movement that includes repurposing that will shape a different future. For more on this evolution, see: Is This The End Of The American Mall As We Know It?
Understanding Your New Industry and Risk Profile
By choosing to repurpose, you and your building may be entering a new world with different legal liabilities. The liabilities will vary depending on the industry you plan to serve and may require a liability policy tailored to the industry. Within this consideration is your risk profile. If you are entering a new business sector, are you aware of the inherent risks and, more importantly, are you willing to take them? If you are willing and take active steps to mitigate the risks, you will become more attractive to underwriters.
A repurposed property could set you on a different road to success but planning and addressing important considerations are essential to avoid the bumps and potholes on that very road.
Berdon LLP New York Accountants