Renovation Nation?

Uncertain markets may spur a restoration renaissance

Although the amount of private renovation work in the U.S. has declined with the economy, some projects, including government work, keep moving forward.

By Debra Wood

Increasingly, developers and government officials are recognizing the value of restoring and reusing existing building stock, yet with the faltering financial sector, money for private projects has just about stalled.

“Money in the pipeline has dried up,” says Joel Zingeser, director of corporate development for Grunley Construction in Washington, D.C. “The banks are not lending to anybody for anything.”

Lou Coletti, president of the Building Trades Employers’ Association in New York, adds, “The current financial crisis has affected every market, and renovation is no different. Activity of all kinds is at a stop.”

Things seem no better on the West Coast.

“With the market the way it is, nobody is building anything,” says Wade Killefer, founder of Killefer Flammang Architects in Santa Monica, Calif.

Still, some projects are moving forward.

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Killefer says his company has 400 units of adaptive reuse for affordable housing under design, including renovation of the Ford Hotel in Los Angeles, compared with 2,000 units of condominiums last year. The rehabs are for nonprofit organizations that own rundown buildings and are converting them.

Al Gogolin, vice president of Skanska USA Building in Atlanta, says that developers holding an older building or able to buy one at a good price, present opportunities.

“While [renovation] is slow, it’s not as slow as the ground-up, green-site development,” he says.

Gogolin’s firm just completed a $65 >> million renovation of the Marriott Marquis in Atlanta in 2008 and is working on a phased renovation of the Milliken & Company headquarters in Spartanburg, S.C.

John Lawson, president of W.M. Jordan Co. of Newport News, Va., says renovation is still a growing part of his company’s business. About a third of the 50 projects the firm has under way are renovation, a mix of historic restorations and brownfield work

Gilbane Building Group is renovating and adding on to the H.D. Cooke Elementary School in Washington, D.C.

W.M. Jordan is gutting—and building back with new mechanical and electrical—three six-story bachelor enlisted housing towers at Naval Station Norfolk in Virginia. The $27 million project will finish in May. Also in Virginia, the company is starting a $20 million renovation of and addition to William Small Hall at the College of William & Mary in Williamsburg and is working on a $20 million renovation of the Westminster Canterbury Richmond retirement community.

Gilbane Building Group in Laurel, Md., in a joint venture with The Christman Co. of Alexandria, Va., the company will begin this spring a $50 million restoration of the 150,000-sq-ft National Academy of Sciences Building in Washington, D.C., and Gilbane began $45 million in renovation work and an addition to the 200,000-sq-ft Towson Center Arena at Towson University in Maryland.

“Nationally, in every market sector, we have renovation work,” and a big part of it is government work, says Martin Sharpless, Gilbane’s vice president.

Incentives and rejuvenation Government plays a role rehabilitating public buildings and offering tax credits on private projects. James Peters, president of Landmark Illinois in Chicago, says economic incentives tied to rehabilitation of historically significant buildings can enhance their renovation prospects.

“As the market tightens up, these incentives become even more valuable as a way to finance building rehabilitation,” Peters says.

Peters offered as an example the $80 million renovation of the 1920s-era Lake Shore Athletic Club in Chicago and conversion of the 17-story building by Chicago developer Integrated Development Group to a luxury senior living community. A prior developer planned to demolish the structure to build a condominium.

“By doing it as an adaptive-reuse project, they were able to go in and get some financial incentives and the financing, and now the project is under way,” says Peters, adding that an adaptive reuse is often not as costly as new construction.

In Dallas, $12 million in tax increment finance funding and other incentives should help move forward the $80 million conversion of the 1930s-era Art Deco Tower Petroleum Building by developer The Pillar Group of Dallas.

“Historic tax credits do not just help renovate an old building, they are a tool for urban regentrification,” says Chris Pfaeffle, founder of Baltimore-based architects, Parameter, Inc. of Baltimore. He designed the $150 million Silo Point condominium project in Baltimore, an adaptive reuse of and addition to a former grain elevator.

“[Using existing buildings] is an important part of the transformation of the urban landscape,” Pfaeffle says.

John O. Norquist, president and CEO of the Congress for the New Urbanism, a Chicago-based organization promoting neighborhood-based development, adds that the first thing that helps a neighborhood turn around is the adaptive reuse of a building. He calls it “a good way to generate growth in other real estate around it.”

Older buildings tend to be located in good locations, downtown or near transit stops, and offer lower real estate prices, which might make it easier to purchase the structures now for renovation and later resale, Norquist says.

“The market is not good, but there is less price decline in real estate values in more urban, more strategic locations,” he adds.

A range of public projects Governments have embraced renovation.

“Whatever money General Services Administration has had in the last couple of years has been slanted toward renovation,” Grunley’s Zingeser says.

Grunley has about 20 renovation projects under way, including the modernization of two, 1930s-era buildings in the nation’s capital: a $220 million project at the Department of Interior, and, in partnership with Gilbane, the $483 million, 2 million-sq-ft renovation of the Herbert C. Hoover Department of Commerce Building.

Hunt Construction Group of Phoenix continues work under a Jacobsen-Hunt joint venture on the $190 million, 300,000-sq-ft Utah State Capitol Restoration and seismic retrofit and recently finished the $85 million, 200,000-sq-ft Idaho State Capitol renovation. Dennis Sexauer, the firm’s construction manager, says there’s a trend toward restoring significant historic structures and bringing them up to current technical standards, with some governments requiring painstaking attention to preserving architectural details.

School districts also are renovating. Gilbane has a $26 million renovation and addition to H.D. Cooke Elementary in Washington, D.C.

Schmidt Associates in Indianapolis serves as program manager for a $728 million, three-phase, 11-year Indianapolis Public Schools capital improvement renovation program, which upgrades infrastructure at 33 buildings and brings them into compliance with current codes.

Parameter of Baltimore designed the adaptive reuse to condominiums of the former Archer Daniels Midland grain elevator in Baltimore.

“There were a lot of schools built in the baby boom era, and those buildings are coming of age,” says Deb Kunce, an associate with Schmidt. “We’re seeing a trend of a lot of renovation.”

Moss & Associates in Fort Lauderdale, Fla., also is doing school upgrades. The company recently completed a $26 million modernization of Forest Park Elementary in Boynton Beach and a $13.4 million upgrade at Apollo Middle School in Hollywood. It is managing a $13.2 million modernization of Peters Elementary in Plantation.

“We see steady demand for renovations of K-12 school facilities as well as university campuses,” says Scott Moss, senior vice president of Moss. “Today’s school boards expect renovations to offer >> green solutions, whether at the LEED level or in more basic energy savings.”

A green connection Gilbane’s Sharpless calls sustainability inherent in restoration programs. “Through system upgrades, you improve energy efficiency and create the best life-cycle cost,” he says.

Adapting existing building stock can add LEED points to a project and help differentiate the building in the marketplace, Skanska’s Gogolin adds.

“It’s less impact on the environment to take an existing building and make it better or more efficient than to take a greenfield site and build a new building,” says Richard Tilghman, senior vice president of Pepper Construction Co. of Chicago. He adds that projects often include upgrades to the electrical and mechanical systems if the developer expects they will generate a return on investment.

However, going for LEED can add cost to a building.

“With money tight, I’m fearful trying for LEED might not be done,” Parameter’s Pfaeffle says.

Regional differences More renovation takes place in big cities because land is scarce, Gogolin says. But he adds that rural municipalities are starting to create tax incentives to revitalize their downtowns.

Peters of Landmark Illinois says that renovation and conversion of existing downtown buildings to residential uses is happening in smaller cities in the state, such as Champaign and Bloomington.

Still, Pepper Construction’s Tilghman says renovations will remain strong in larger metropolitan areas, where there is a better supply of high-quality older buildings.

His firm is completing a more than $150 million renovation of the 81-year-old Palmer House Hilton in Chicago.

Zingeser says that Mid-Atlantic private developers are dressing up buildings, such as Grunley’s recently completed $9 million recladding at 1401 New York Ave. and a $4.7 million façade replacement at 8315 Lee Highway in Merrifield, Va.

“It will reposition those buildings in the marketplace,” Zingeser says.

Gilbane also is upgrading older buildings to accommodate data centers for financial institutions, including Fidelity Investments and the Bank of America. Sharpless says, even with the economic gyrations, renovation of buildings and infrastructure will continue.

Lawson agrees, adding, “Renovation is not a fad. As an industry, we will see more in the future.”