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Texas Leads the Hit Parade of Adaptive Re-Use as Strong Demand for “Creative Office Space” Transforms Historic Structures

A growing demand for creative office space has prompted redevelopment of old structures, Transwestern reports.

A growing demand for creative office space has prompted redevelopment of old structures, Transwestern reports.

HOUSTON – (By Dale King) – Creative office projects – which typically encompass the conversion of a property from non-office use (i.e., industrial or retail) to office space – are generating big dollars for investors, says a report by Transwestern, a global real estate firm based in Houston.

The study examines 30 developments across the nation, 10 finished, and the other 20 in the works. The overall group includes six conversions in Texas, including the Imperial Market in Houston, the former Imperial Sugar Refinery being renovated for mixed-use retail, creative office, residential use and a hotel.

“The conversion of a property from industrial or retail use to creative office use has become an increasingly popular value-add strategy for investors,” said Michael Soto, director of research for Transwestern in Southern California and co-author of the report.

“While creative office conversions are not new,” he noted, “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.”

“Two trends are fueling demand for this type of differentiated office product,” the research director said. “One, technology, advertising, media and other companies trying to attract millennials 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.”

While pointing out the assets of creative office development, the report also cautioned that many of these projects were acquired and designed 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 for Transwestern in Chicago and co-author of the report. “In addition, adaptive reuse often comes with hidden costs and potentially expensive future property modifications.”

The Transwestern report discusses projects that crisscross the nation, from Dallas to San Francisco, Los Angeles to Boston, New York to San Antonio.

In 2015, the Texas Real Estate Fund (TREF) created and announced a plan to carefully redevelop the original site of the Imperial Sugar Refinery, founded in 1843, in the appropriately named Houston suburb of Sugar Land. The reuse blends history and commerce in a manner that honors this historic site while providing more than 1,000 new jobs in the area. The original sugar refinery was closed in 2003.

Rendering of Imperial Market, a redevelopment of the old Imperial Sugar facility in Sugar Land, southwest of Houston.

Rendering of Imperial Market, a redevelopment of the old Imperial Sugar facility in Sugar Land, southwest of Houston.

Imperial Market, expected to open in mid-2018, is a $200 million project that will offer 850,000-square-feet of mixed-use property on 26 acres along US Highway 90. It will also be the centerpiece of a new, 720-acre master planned community known as Imperial. Geoffrey Jones and James Murnane of Imperial Market, LLC, are the developers.

A group of high-end residential builders is currently constructing homes within Imperial, with prices topping out at $2 million. In the end, the new city will contain nearly 2,000 homes. The developer is Houston-based Johnson Development Corp.

Plans say Imperial Market will be comprised of 258,000-square-feet of upscale retail and restaurant space, 100,000-square-feet of Class A office space and a 274-unit apartment complex.

The 91-year-old, eight-story Char House will be renovated into a 185-room, high-end boutique hotel. The historic structures of the former Imperial Sugar Refinery along Oyster Creek will be preserved and restored.

Other noteworthy adaptive-re-use projects in Texas, include:

Seaholm Power Plant, a $124 million development in Austin. A decommissioned power plant was converted to a mixed-use project, comprising 152,834-square-feet of office space and 56,342-square-feet of retail/restaurant space. The reused low-rise power plant building is 100% leased to AthenaHealth as creative office space. The new high-rise building is residential condominiums with ground-floor retail, including Trader Joe’s and Under Armor. It’s in the central business district, so it is very dense and has a high walkability score and lots of new construction.

Saint Elmo Market District, South Austin, a former school bus warehouse and one-time office furniture store (Office Furniture Now) to be renovated into a mixed-use space with 100,000-square-feet of creative office and a 40,000-square-foot food hall, hotel, apartments, retail and music. Developer is Maker Bros., formerly known as Ground Flood Development. Phase I projected for completion in mid-2018, with the hotel and offices to follow later.

The Brewery Building, Dallas, former brewery being converted to creative office with a new high-rise apartment tower next door. Developer of 180,000-square-foot project is Provident Realty Advisors.

Factory Six03, Dallas, 215,440 square foot project being developed by Granite Properties. Former Brown Cracker & Candy Co., Sunshine Biscuit factory and West End Marketplace building renovated to creative office with 25,000-square-feet leased to Blue Cross Blue Shield Innovation.

The Pearl in San Antonio is a million-square-foot project in the Pearl/Broadway District north of downtown. Silver Ventures is the developer. An additional 350,000 square feet of new office space will break ground at the Pearl in 2017. The Pearl includes San Antonio’s premier restaurants, local retail brands, a coffee shop, ice cream parlor, a bakery and food hall. The property hosts farmers markets on weekends and monthly music and culinary events/competitions. There are contemporary, urban-style apartments at The Can Plant and upscale apartments under construction with concierge services at The Cellars. Hotel Emma, a boutique hotel opened in November 2015 in a building was originally the Pearl’s Brewhouse, built in 1894. The hotel offers on-site library, cocktail bar, upscale restaurant, small grocery store and has 146 rooms with seven top-floor suites and ample public space. The hotel has been featured in Southern Living, Conde Nast Traveler, 10 Best Destinations, Travel + Leisure and tourism is rapidly increasing.

The Pearl’s success has prompted developers to focus on another old gem San Antonio’s foamy history – the Lone Star Brewery.

April 11, 2017 Realty News Report Copyright 2017

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