Teaching an Old Box New Tricks
Two stories of big-box adaptive reuse demonstrate its growing appeal.
Most parents are familiar with the experience of purchasing an expensive gift for their young child, only to find that he or she would rather play with the empty box than the toy inside. It can take a child's imagination to see the potential of what isn't there. Similarly, vacant big-box stores offer communities the opportunity to reimagine and repurpose empty space to fill needs that are going unmet or to create a more dynamic presence in the existing environment. This trend, known as adaptive reuse, or AdRu, has enjoyed particular success when applied to abandoned big-box buildings.
Big Box and Adaptive Reuse
Big-box properties generally are identified as large, single-tenant, warehouse-style retailers such as Walmart, Target, and Costco. They often are freestanding buildings over 80,000 square feet, constructed on eight to 12 acres or more to accommodate outsized parking demands. For maximum visibility and connectivity, most are along major arterial roadways or highways.
Adapting a big-box structure can help mitigate sprawl and provide an attractive location for many users because of its superior location close to roads and distribution networks. Complicated assemblage or right-of-way is not necessary when a big-box site is used; access points already are constructed from the roads, and traffic patterns have adjusted to the access characteristics of the site.
Structurally, big-box buildings provide a blank slate to architects. Since these properties are never designated as historic buildings, no special restrictions apply to modifications, and they don't have to preserve facades (although occasionally some are within shopping centers with rigorous covenants, conditions, and restrictions, including façade requirements.) Additionally, neighbors generally do not object to a developer changing the character of the building. As most big-boxes were constructed in the past 30 years and are simple designs, structural flaws or layers of old build-outs to correct are rare. Accommodating for Americans with Disabilities Act compliance is much easier, too. There are no narrow corridors to widen, no second or third stories that necessitate elevators, and doorways are at street-grade, making ramps generally unnecessary.
On the flip side, one challenge in re-tenanting a vacant big box is that former users often impose restrictions in the deeds against similar use. For example, Lowe's Home Improvement regularly prevents other similar retail users from operating at any store that the company sells. Grocers often use similar deed restrictions to prevent competition from occupying their sites. Fortunately, because AdRu implies a change in use, deed restrictions are less likely to impact value.
Two recent success stories illustrate some of the attractive features that vacant big boxes offer.
Adapting a big-box structure can help mitigate sprawl and provide an attractive location for many users because of its superior location close to roads and distribution networks.
From Big Box to Megacenter
A current project in Houston is transforming a vacant Walmart Supercenter, purchased for about $7 million, into a mixed-use megacenter. Once the estimated $6 million renovation is completed, the property will feature a gym, self-storage units, office/warehouse units, and an auto repair center. The site was attractive to the buyer, Chile-based company Red Megacentro, because of the sound structure, some arterial frontage, and proximity to a major highway. Simply replacing the retail tenant wasn't a suitable solution for the vacant building as it was set back considerably from the road, and mature landscaping and pad sites obscured some of the visibility.
One of the pleasant surprises of the project was the excess land that was discovered on the site as a result of the alternative uses, such as office and self-storage, having lower parking requirements. That excess land helped create more equity in the property, acting as a hedge against some of the risk of developing a new and innovative property type in the market.
A challenge to this and many other AdRu projects is completing the financial analysis. Lenders want to know when the property will be economically viable, and unknown construction costs and timelines can throw off even conservative budget and time estimates. Big-box projects are insulated from some construction uncertainties, and the mixed-use component often makes these projects especially attractive to lenders. In this case, because the gym had signed a lease for a large portion of the building, the site was already generating income. This cash flow helped to mitigate the time needed to finish the build-out on the self-storage units and the office/warehouse units, where each had unknown lease-up timelines. The different components essentially created a property that could be viably constructed and financed in phases.
Under Armour Headquarters
More than 1,500 miles away in Baltimore, Under Armour is constructing a corporate campus in Port Covington. The project includes the renovation and repurposing of several buildings on a 58-acre site, including a former Sam's Club, which has been converted into a new office space. The building's original footprint was 130,000 sf, and after closing in 2008, it sat vacant until purchased in 2014 by Under Armour CEO Kevin Plank's private development firm, Sagamore Development, as part of a larger property. Acquisition was $35 million, which included the vacant Sam's Club building and an operating Walmart store on 58.7 acres of land. Under Armour spent $23.6 million on the renovation and conversion of the Sam's Club, which included adding 40,000 sf of mezzanine.
The building can hold up to 600 employees, having added the 40,000-sf mezzanine and a 350-seat auditorium, a fitness center, office space, a mezzanine floor for conference rooms and corporate offices, a coffee shop, and an organic cafeteria. Though the building is part of a larger campus vision that is still underway, the AdRu is a stand-alone success, and the architectural firm, Bholin Cywinski Jackson, won an award in 2016 for the interior space design from the Pittsburgh Chapter of the American Institute of Architects.
A New Gift
Not all vacant buildings can be saved and adapted to new uses, but many big-box stores are constructed in locations and with specifications that make them especially attractive for AdRu projects. Property owners, developers, users, and communities all benefit when viewing the empty box as an opportunity to present a new gift to the built environment.
For more information on the growing trend of adaptive reuse in CRE, read CCIM Institute's 3Q18 Commercial Real Estate Insights report, "Adaptive Reuse: Turning Blight into Bright."