Commercial Real Estate - Repurposing 4 Profit
Over the years I have written on how savvy commercial investors re-purpose their properties to better meet evolving retail and office needs. Which in turn, enables them to keep their vacancy rates down, and demand stronger market rents.
The latest trend -- fueled by market demand for "convenient medical services" -- is vacant storefront space being converted to urgent care centers.
The term is "adaptive reuse." Although the concept has been around for centuries, its popularity has increased over the past few years. Adaptive reuse refers to the reuse of an older site or building for a different purpose than the one for which it was built or designed. Previously, new construction was primarily driven by economic reasons, or reasons of efficiency. More recently, an increased interest in adaptive reuse has emerged as the movement to preserve historical buildings, neighborhoods and structures has become more prevalent.
Sometimes, there are unique factors of a structure that owners recognize can work to entice new or expanding enterprises. The big thing is finding a buyer or tenant so the property can move, or generate income. I have counseled owners on how sometimes this simply means re-thinking the entire building itself. Plus the adjoining land, if there is any.
For example, in Nashville, Tenn., the former headquarters of the Nashville Bridge Co., constructed in 1908, following recent modernization, now serves as a private event venue that affords patrons a fabulous view of the river and the downtown skyline. I have seen former Bally's gyms transformed into spacious, modern churches. Older two- and three-story hotels are being transformed into assisted living centers. Older downtown anchor retail buildings (think a Macy's size building in New York, but its equivalent in Chicago or Columbus or Kansas City) being converted into government offices. Empty big box stores like Best Buy are being converted to activity-based retail like skate parks, firearms ranges and paintball courses.
Get the picture?
I have even seen a former KFC store in north Columbus, Ohio transformed into the offices of the Ohio Cremation and Memorial Society (the imagery of the solemnity of a conversation about cremation taking place where chicken pieces once were fried....I'm trying not to chuckle, but ... you get it.)
The medical marketplace is driving much of current adaptive reuse transformation. Remember the closings of numerous new car dealerships a few years ago? In recent years we've seen in South Florida and some other locations across the U.S. the morphing of these closed dealerships into doctors' offices. Why would a physician seek a car lot to build a practice? Because of the second word in that two-word combo – LOT. The push-through of "Obamacare" is putting pressure on general practitioners and specialists to see more patients.
Growing patient loads waiting to see a physician seem like airplanes stacked over Atlanta waiting to land. And they need places to park. Hence, a new use for former car dealerships, which usually have huge paved areas that work nicely for an anticipated large number of patients coming and going all day long.
Sometimes an entire shopping center is re-purposed. Along the Tamiami Trail (U.S. 41) south of Fort Myers, Fla., is an entire retail strip center that is now entirely medical. Gone are the dress store, the electronics shop, etc. Today, spaces house a large general practitioner, an orthopedics center, a radiology/CT imaging center, a pharmacy, and other related businesses.
The latest move to accommodate medical retail needs is the conversion of vacant retail storefronts into Urgent Care centers. According to Bloomberg News, storefront clinics staffed with doctors and physicians assistants are treating common ailments and minor injuries. Again, the Affordable Care Act, which is designed to get more people access to medical care on a regular basis, is helping fuel this push into what has been coined "retail medicine."
Statistics from the Urgent Care Association of America indicate that the number of walk-in clinics has risen 20 percent since 2009, to 9,400 last year. It is the bellwether in a trend toward "convenient health care services" demanded by more and more consumers.
It's actually a win for all parties. For consumers, the medical clinics fill a gap. Patients who can't get a last-minute appointment with their doc, or don't have a physician, can turn to urgent care instead of overcrowded hospital ERs. For medical tenants, they tend to pay higher rents, usually come with good credit and tend to sign longer leases. Plus, there are nicely appointed vacant spaces everywhere on high-traffic thoroughfares, giving physicians and hospital/medical groups many options.
Finally, for shopping center owners saddled with sudden vacancies caused by the withdrawl of Blockbuster, Best Buy, Radio Shack and other struggling high-profile retailers that are contracting or out of business, it's a huge win. Lessors are eager to work with entities with good credit, are likely to sign a long-term lease, and which will attract a lot of traffic that may well also patronize retailers in other parts of their center.
Best of all? Bloomberg News reports the growth in walk-in clinics still hasn't outpaced demand.
Which is fantastic news for investors in retail commercial real estate willing to re-think the original use of their investment properties.
Brent Greer is a senior investment advisor for Berkshire Hathaway HS COMMERCIAL, and a principal at CRE Resource Advisors, in Columbus, Ohio.