Adaptive Reuse of Commercial Properties

July 20, 2016
Written by: Debbie Heslop, CREW Tucson

Adaptive reuse is that phenomenon in commercial real estate when a property is re-purposed for another use. In Tucson, Ariz., we have experienced a fair amount of adaptive reuse.

For adaptive reuse to work, the basics have to be in place or have to be attainable: zoning, sufficient parking for the new use, access, visibility, and if the building is to be repurposed not razed, then the building “bones” have to be right (clear height, column spacing, sufficient storefront, etc.).\

The more interesting aspect behind the adaptive reuse phenomenon is “what’s driving these changes?” In Tucson, we had a number of market pressures that brought out adaptive reuse opportunities.

Convenience Store Competition

As our community approached the 1 million population mark, new opportunities emerged in our commercial real estate scene. Tucson came to the attention of national firms looking to expand, and finding few opportunities in the gateway markets, the secondary and tertiary markets like Tucson became popular. QuikTrip and Circle K battled over key sites for their convenience stores and fuel stations. This battle for key sites put tremendous pressure on the independent gas station owners. As a result, many independent gas stations succumbed to the pressure, and Tucson was blighted with vacant gas stations.

Fortunately, there were other uses that appeared, and these retailers were attracted to the sites given their prominence at major intersections and full access to drive-by traffic. One example is the former gas station at Swan and Sunrise that was redeveloped for Bisbee Breakfast Club, an established local restaurant in a growth mode looking to open additional sites. The site developer had already removed the gas tanks and lines (a $26,000 cost), paving the way for a smooth re-development of the property for the next tenant.

The gas station fuel canopy was kept and repurposed as a patio shade canopy – an essential in sunny Arizona. The restaurant was able to reuse the walk-in cooler from the former convenience store inside, another major plus. It wasn’t a case of “major surgery,” but a fairly straight-forward conversion. The leasehold improvements totaled $400,000, of which $100,000 was the landlord’s contribution.

Dining and Entertainment Shifts

During the 2008-09 Recession, Tucson saw many of the larger restaurants close. No longer could a restaurant of 6,000-8,000 square feet support the overhead and labor costs in a time when restaurant volumes were down. Luby’s Buffet went bankrupt, and the building sold to a medical group. The building was redeveloped into Desert Sun Gastroenterology. Parking is often the limiting factor in transforming a building to another use. Restaurants have parking fields to accommodate heavy demand that was an asset for the imaging center who needed to park for a medical use.

Cuvee Restaurant was locked out for failure to pay rent. They had a choice endcap next to a Whole Foods grocer, the darling of the grocery store category. During the Recession, no restaurants were interested in the 6,000 square foot space. Restaurants just weren’t that large anymore. So, the owner gutted the space and offered a “premier” endcap next to Whole Foods. Voila. Along came Mattress Firm, and the space was leased to them long-term.

Another example of a dining/entertainment shift came from local property owners of Grant Road Lumber, who were ready to retire and cash out. With Home Depot and Lowe’s as competitors, Grant Road Lumber’s time had passed. Ultimately, Fox Restaurants purchased the property and has plans to redevelop the lumberyard into a restaurant and conference venue fittingly called “The Yard.”

When Fox Restaurants started scouting for sites for a proposed dining/conference/entertainment venue, they first looked at options in downtown Tucson. Given the steady stream of re-development opportunities in the downtown area, it seemed like a good option. Once Fox drilled down into the market data, they concluded that a downtown location would attract college students at night but probably wouldn’t attract older demographics for lunch or dinner in any significant numbers.

Fox selected the Grant Road Lumber site given its proximity to the University of Arizona crowd and its more central location on Tucson Boulevard. Fox believes the location will draw customers from a large, diverse population because it’s an easy-to-get-to site for everyone. Fox plans to keep the original lumber yard monument sign.

In conclusion, adaptive reuse is an opportunity to put a vacant building back into service on the municipality’s tax roll, and an opportunity to pull in new users to your real estate market. To find these opportunities, step back and assess the market pressures. Ask yourself, is it a “one-off” situation, or is this a sign of a coming trend? Those commercial real estate practitioners who figure it out will be ahead of the curve and in a position to take advantage of market changes.

Debbie Heslop has over 25 years of experience in the commercial real estate industry in both the brokerage and corporate real estate arenas. Debbie’s brokerage business in Tucson is focused on the retail sector and encompasses all manner of leasing/sales assignments: leasing/sale of shopping centers and strip retail; pre-leasing of new retail developments; build-to-suit or reverse built-to-suit leases; sales of retail land parcels and pads; sales of freestanding buildings and triple net investments.