Transwestern has released a report examining a number of creative office projects that have generated substantial returns for investors upon completion. The adaptive reuse developments span Boston, Chicago, Los Angeles, New York, Phoenix, San Francisco, and Austin, Texas. The report also highlights 20 additional large creative office projects currently underway across the country.
Michael Soto, Director of Research in Southern California and co-author of the report, explains that while creative office conversions are not new, what is different this cycle is the sheer volume of creative office exits nationally at core/core-plus pricing that have occurred during the past five years – with the buyers being major institutional investors or well-known owner/users.
“The conversion of a property from industrial or retail use to creative office has become an increasingly popular value-add strategy for investors,” Soto says in a release. “Two trends are fueling demand for this type of differentiated office product: One, technology, advertising, media and other companies trying to attract millennials are interested in the characteristic features of creative office space – open floor plans, natural lighting, common spaces and amenities such as cafés and rec rooms. And two, tenants are returning to cities, where they can take advantage of live/work/play environments.”
Based on favorable exit pricing of some major creative office projects around the country, this type of value-add strategy, on this large scale, is now being considered by developers, either via direct investment or joint-venture partnerships with equity partners. Conversely, stabilized creative office properties are on the radar of many national and international institutional buyers that are paying traditional trophy Class A pricing for these types of properties, usually based on the credit-worthiness of the tenant, as well as the location of the project.
The report cautions, however, that many of these projects were acquired and developed under very different economic conditions than exist today.
“Rising land, building and construction costs – especially in hot neighborhoods – may add more risk when compared to a few years ago, when we were at a different point in the real estate cycle,” said Sandy McDonald, Director of Research in Chicago and co-author of the report. “In addition, adaptive reuse often comes with hidden costs and potentially expensive future property modifications.”
Moreover, the popularity of the creative office concept means that there is more inventory in the market today. Landlords that own existing office buildings or are doing ground-up development are realizing that they must consider strategic property enhancements and creative office-associated tenant amenities to stay competitive in the marketplace.
To view the complete report, titled Creative Office Projects: Adaptive Reuse Generates Staggering Returns for Investors, click here.
Related Stories
| Oct 13, 2010
Editorial
The AEC industry shares a widespread obsession with the new. New is fresh. New is youthful. New is cool. But “old” or “slightly used” can be financially profitable and professionally rewarding, too.
| Oct 13, 2010
Modern office design accentuates skyline views
Intercontinental|Exchange, a Chicago-based financial firm, hired design/engineering firm Epstein to create a modern, new 31st-floor headquarters.
| Oct 13, 2010
HQ renovations aim for modern look
Gerner Kronick + Valcarcel Architects’ renovations to the Commonwealth Bank of Australia’s New York City headquarters will feature a reworked reception lobby with back-painted glass, silk-screened logos, and a video wall.
| Oct 13, 2010
County building aims for the sun, shade
The 187,032-sf East County Hall of Justice in Dublin, Calif., will be oriented to take advantage of daylighting, with exterior sunshades preventing unwanted heat gain and glare. The building is targeting LEED Silver. Strong horizontal massing helps both buildings better match their low-rise and residential neighbors.
| Oct 12, 2010
Guardian Building, Detroit, Mich.
27th Annual Reconstruction Awards—Special Recognition. The relocation and consolidation of hundreds of employees from seven departments of Wayne County, Mich., into the historic Guardian Building in downtown Detroit is a refreshing tale of smart government planning and clever financial management that will benefit taxpayers in the economically distressed region for years to come.
| Oct 12, 2010
The Watch Factory, Waltham, Mass.
27th Annual Reconstruction Awards — Gold Award. When the Boston Watch Company opened its factory in 1854 on the banks of the Charles River in Waltham, Mass., the area was far enough away from the dust, dirt, and grime of Boston to safely assemble delicate watch parts.
| Oct 12, 2010
Building 13 Naval Station, Great Lakes, Ill.
27th Annual Reconstruction Awards—Gold Award. Designed by Chicago architect Jarvis Hunt and constructed in 1903, Building 13 is one of 39 structures within the Great Lakes Historic District at Naval Station Great Lakes, Ill.
| Oct 12, 2010
From ‘Plain Box’ to Community Asset
The Mid-Ohio Foodbank helps provide 55,000 meals a day to the hungry. Who would guess that it was once a nondescript mattress factory?
| Oct 11, 2010
HGA wins 25-Year Award from AIA Minnesota
HGA Architects and Engineers won a 25-Year Award from AIA Minnesota for the Willow Lake Laboratory.
| Oct 8, 2010
Union Bank’S San Diego HQ awarded LEED Gold
Union Bank’s San Diego headquarters building located at 530 B Street has been awarded LEED Gold certification from the Green Building Certification Institute under the standards established by the U.S. Green Building Council. Gold status was awarded to six buildings across the United States in the most recent certification and Union Bank’s San Diego headquarters building is one of only two in California.