Much has been discussed about renovating empty and distressed office buildings into viable multifamily dwellings. But successful adaptive reuse is more than targeting an empty office building and commencing renovations. Recently, Waterton’s David Schwartz spoke in depth about the realities of these renovations, as well as his take on the multifamily sector, in general. Schwartz will be a keynote presenter at the upcoming Connect Midwest: Multifamily & Adaptive Reuse Trends conference .
When it comes to effective adaptive reuse, two main challenges exist: not all buildings work for this purpose due to their floorplates or mechanical infrastructure; and location may lack residential amenities like parks or schools that are necessary for urban living. To encourage developers to go in and change use of these properties municipalities may create incentives such as accelerated entitlements or tax abatements/TIF districts which are currently being discussed by cities such as New York City, Chicago San Francisco and Los Angeles where sales have occurred at material discounts from previous prices of assets creating opportunity for investors interested in this type of activity given current distress levels within the office space market.
When asked about his outlook on multifamily values David Schwartz noted that they had peaked around Q1 2022 with values declining anywhere from 15-20% due to cap rate expansion resulting from less debt capital available with higher rates leading fewer transactions while seller cap rates move up slightly while buyer cap rates remain even higher causing a classic bid ask spread between buyers & sellers creating uncertainty regarding deceleration of strong fundamentals seen coming out post pandemic when some markets experienced negative base rents putting upward pressure on cap rates exacerbating bid-ask spread however there still remains equity capital available so profoundly distressed deals aren’t expected although good investment opportunities should become available through sale stressed assets over next three years given loan maturities occurring during same period within sector itself..
Meet David Schwartz alongside other experts June 13th 2023 at W Chicago City Center during Connect Midwest: Multifamily & Adaptive Reuse Trends Conference – click here for more information/registration details!
