With demand for space increasing and a lack of untouched land available, municipalities are becoming increasingly creative in how they approach “adaptive reuse.” Adaptive reuse allows cities to take a second look at old spaces, especially those that are abandoned or located along struggling, industrial waterfronts, or formerly industrial and manufacturing districts. Adaptive reuse of property is not a new concept, but it is becoming more prevalent in the current commercial real estate market. As governmental entities, financial institutions and capital partners continue to embrace adaptive reuse, commercial property owners have alternatives to consider when a property would otherwise be vacant for an extended period of time or when market demographics change.
With high demand and housing in critical short supply in California and other western states, adaptive reuse is becoming an important pathway to build more housing and mixed-use projects. Everything from underused parking, former car dealerships to former big-box retail is being converted into housing, hotels, and retail. Jurisdictions have been hesitant to convert such land into other uses, but municipalities are changing their outlook to allow for more housing development, as more and more local populations find both home ownership and renting out of reach. As people move farther from jobs or toward more affordable areas, transit-oriented developments also have been increasingly in demand. Tenant demand and a desire to be near transit are driving mixed-use near transit.
Potential Issues in Adaptive Reuse Projects
Cost and building codes are two of the biggest challenges when converting an old building to a new use. It is essential buildings be accessible and safe, which can be a big hurdle to overcome when working with older buildings. Often times, the building’s electrical, plumbing, and HVAC systems need to be gutted and replaced entirely in order to meet current safety and environmental standards. Complying with ADA standards may necessitate additional expense. Other important considerations are the credit quality of the new tenant and the potential liability of the business that tenant will be operating in your client’a repurposed space.
Insuring Your Client’s Adaptive Reuse Project
Novita Insurance Solutions offers a comprehensive Commercial LRO program to cover your client’s adaptive reuse properties, including Open Perils property coverage, no coinsurance and 3-tiered coverage (Base Policy; and Gold and Platinum endorsements with additional eligibility requirements), with individual policy issuance. The company’s multiple loss settlement provisions available include:
• Extended replacement cost (125%; check with us regarding additional eligibility requirements)
• Replacement cost (100% to value)
• Agreed amount
• Actual cash value
Novita’s LRO-specific General Liability at $1M and $2M, and minimum $1,000 retention level. Coverages are available as Mono Line or Package.
Contact Novita for eligibility guidelines; we’ll work with you to structure a program help your clients protect their adaptive reuse property investment. Our Commercial Lessor’s Risk Only policy eligibility guidelines includes up to $20 million TIV per location (we can go higher by request to the underwriter); fire protection classes 1-6; 5-year carrier loss runs; sprinklered, if over three stories high; no age restrictions on building, if there have been major building systems updates; and considers all ISO building construction types.