Adaptive Reuse Case Study Project:
Foch Street Properties

I.  Executive Summary: 

A developer in possession of three buildings on Foch Street in Fort Worth seeks advice regarding the highest, best and most profitable use for the properties.  These vintage concrete buildings date to the 1940s.  The project would be an urban infill redevelopment.  The questions that enter into this analysis are numerous, and include the following: 1) What, if anything, should be developed?  2) Are tax credits available, and if so, should they be utilized? 3) Is it prudent to demolish one, or more, buildings to create additional parking? 4) Should development be mothballed? 

 The district surrounding these buildings on Foch Street began booming around 2007.  Foch Street is in the center of Fort Worth's new major regional retail destination: the Cultural District/ West 7th Street Corridor. This is a vibrant, rapidly urbanizing district between Downtown and the Cultural District. Very close to the city's best neighborhoods, TCU, and the University of North Texas medical school. Major mixed use projects surround the Foch Street Warehouses. More than 2,000 new residential condos and apartments have been built in this district in the last few years and 1,000 more units are scheduled for delivery in the next 5 years.

 Cypress Equities' W 7th Project was built immediately west of Foch Street, had leased to approx 12 restaurants, a movie theater, a gym, and some clothing boutiques. The W 7^th project was generating significant visitor traffic to the neighborhood and the initial 345 apartments in the project leased up immediately and had awaiting list upon opening.

Evaluation and analysis of the challenges and opportunities these properties provide yield the following recommendations: Maintain Building #1 and lease it up; Demolish Building #2; and Continue current operations for Building #3.

II.  Salient Property Facts:

Subject properties are owned by two separate partnerships and are actually a collection of two different parcels containing 3 buildings at 821-1059 Foch Street, Fort Worth, TX. According to Tarrant County Tax District, Building 1 is situated on 2.82 acres and is its own partnership. Buildings 2 & 3 are situated on 3.53 acres and are held together by the other partnership. Building one is approximately 68K s/f, Building two is approximately 80K s/f, and Building 3 is approximately 14,300 s/f.

III.  Property History and Current Conditions:

Building one was purchased in 2001. Buildings two & three were purchased in 2004. Building one was redeveloped from 2002-2003. Building three was redeveloped from 2004-05 and building two was already 100% leased to an industrial user through 12.31.10 at $2.5 s/f gross on the entire space. As of January 1, 2011, Building two was vacated and empty. The roof required replacement if another tenant were to take the space. Building three was fully leased with one restaurant/bar tenant and seven office tenants. Building one was 60% leased with in place rents of $14.50 NNN. Typical size was 4K s/f with restrooms in the rear of the spaces. Typical dimensions were 27.5x145 s/f demised spaces.

At this point the two partnerships are effectively at break even cash flow. Tenants of buildings three and buildings one are covering their portion of taxes and insurance and their rents are covering the debt service. However, the property taxes on the unoccupied space and building two would require a capital call to fund the balance at year’s end. The partnerships were not interested in funding the delta.

IV.  Analysis:

     The subject property lies within the very popular West 7^th area of Fort Worth. New retail and multifamily projects have been developed up and down the 7^th street corridor in the last 5 years. MF in the area may be close to the point of saturation with 2,000 new units recently added to the market and another 1,000 planned for the next 5 years. Retail seems to be the highest and best use for the subject property as evidence by the retailers currently leasing the property.

     However, neither building one nor two work for traditional retailers. The buildings are too deep at approximately 180’ in total depth. Existing tenants are only utilizing 145’ of depth leaving 35’ unused at the rear of building one. Further, retail parking at this site is a nightmare. You can’t park building one retail as is. Building two won’t work as retail.

     Further, in order to get building two in a leasable condition, it appears that the partnership would need to replace the roof. The cost of replacing the roof - approx $400K (80K s/f @ $5) would make the project cost prohibitive. It is important to note that the assessed improvement value for each of these two buildings is $1.934MM for building one (valued on income) and $124K for building two (valued on a per lb basis). It’s hard to justify a speculative roof cap-ex project that costs approximately 3x the vacated assessed value of building two. It’s even harder to justify when the parking situation at buildings one and two are placed into the context of the decision.



     Finally please consider the assessed land value of the subject properties. Since 2008 the land on which building two & three are situated has appreciated from $770K to $2MM. Further, in 2008 the improvements were valued at $1.6MM (based on income), but today are again only valued at $124K. It’s clear, with all the new development in the surrounding area, the value is in the land. The current improvements are functionally obsolete. The partnerships need to utilize a land bank strategy that allows them to hold for an additional 36-60months without funding the deal and let the land appreciate closer to the high water mark levels of 2008. How do you get there?

V.  Recomendations:

Recommendation #1: Demolish Building Two And Utilize Area For Parking

     Because of the costs associated with repairing building #2 and the need for additional parking in the general area, we recommend demolishing this building.

Reasoning behind recommendation:

1.  Support building one as retail, there is still some value there. The location is incredible, but the building won’t park well for most retailers. Level building two and utilize the space as parking that supports retail during the day and perhaps generates some income at night by providing a pay lot for the surrounding nightlife.

2.  Lower the property tax basis to save on tax bill.

3.  Avoid the $400K roof expense and any further TI dollars for prospective tenants

Recommendation #2 – Lease up Building One

     Building #1 has solid potential for increase cashflow.  Indeed, in the recent past, this building was nearly fully occupied with paying tenants.  Since the economy has stabilized and this area has been rejuvenated, the time is ripe to find additional tenants.

Reasoning behind recommendation:

1.  Building one is already 60% leased at $14.50 NNN

2.  Additional parking should help positively impact leasing effort

3.  Sign short term NNN leases and avoid the estimated $5 TI expense with rent abatement

4.  Lease the unutilized space at the back(35’x500’) as storage space

5.  Retail market rents for the area are $13 - $14, this space is irregular, so go below market at $12 and fill the space!

6.  The intent is to have the tenants float your insurance and property taxes – break even while the partnership banks the land

     Building One occupants include the Bikram Yoga Studio, the Greener Good (retailer of sustainable products for the home/ office/ children), Red Productions (film production), La Familia (award-winning local Tex-Mex), Chimy's Cerveceria (popular patio bar/cafe), Bess & Evie's Vintage Clothing.

Ideal prospective tenants would include exceptional quality restaurants and retail shops such as: cafe/coffee bar; gourmet casual restaurants; Spanish restaurant; Thai or other Asian restaurant; active/athletic-oriented retail and apparel; fashion retail (various prices); top quality tailor; and a top quality dry cleaner.

Recommendation #3 – Leave Building Three Alone

     Building #3 is fully leased and performing like a champ!  We recommend maintaining current operational strategy in place for this building.



Reasoning behind recommendation:

1.  Building is 100% occupied; it works

2.  Overall location is great

3.  Location and visibility relative to the rest of the site is terrible, but it works because it parks and rent is cheap (assuming same $14.50 NNN).

4.  Leave it alone!

VI. Conclusion

     The West 7th area has quickly become a European urban village, nestled between downtown, the cultural district and Trinity Park. The city of Fort Worth says it has added millions in property value and sales taxes.  All this momentum bodes well for recently completed developments and for the prospects of development projects scheduled to occur in the foreseeable future.

Live Oak Bar and Grill --

Eclectic Adaptive Reuse:

To witness adaptive reuse in action, we visited the site of the soon to open Live Oak Bar & Grill in Near Southside Fort Worth.  For years, this building located on Lipscomb Street, served as a Lion's Club Hall.  Now, it is being redeveloped by Bill Smith into a multi-purpose building that may well become the revitalized heart of this sleepy district in Cowtown.

     The Vision:  The Live Oak Lounge will offer up a savory menu in a comfortable and cozy setting reminiscent of the historic building's 1950s founding.

Complete with full lunch and dinner menus, the lounge is only to be challenged by the brilliance of its adjacent bar offering assorted cocktails and lined with over 80 domestic, imported and craft beers.

      Just a quick trip down the hallway, folks will enter into one of the area's most highly advanced listening rooms. The Live Oak’s Music Hall will feature national touring artists, the hottest new acts to hit the scene, as well as D/FW’s bright local talent. With a state of the art sound system in place, the Music Hall promises an ideal setting for a wide range of genres.

 

  The rooftop patio offers a beautiful view of the Fort Worth skyline and a great setting for outside dining. All rooftop patio seating is accessed by an outside staircase.

     The Village on Magnolia:  The Live Oak Bar and Grill has become an anchor for the revitalization of the surrounding blocks.  Indeed, so many additional business are moving in beside and behind the Live Oak Bar and Grill that the area will resemble a small village.  These other complimentary businesses include Ryan's Grocery & Deli; a coffee and beer establishment named "Brewed;" a Latin American Seafood Restaurant, a Home Health Provider, and Hot Damn Tamales.  Collectively, these establishments will be know as "The Village on Magnolia."  When complete the Village should lend a vibrancy to this area that will attract regular patrons and the curious alike.

Ft. Worth South, Inc. & The Near Southside:

    

     On April 7, 2012, Mike Brennan of Fort Worth South, Inc. visited our class to discuss his organization's goals and adaptive reuse in Fort Worth.  The information he provided was interesting and informative.

     Fort Worth South, Inc.:  Fort Worth South, Inc. (FWSI) is a private, member-funded, non-profit 501(c)(4) development company dedicated to the revitalization of Fort Worth’s Near Southside. FWSI began as a small coalition of Near Southside businesses and community leaders and has grown dramatically over the last decade.

This district’s history dates back to the beginning of the 20th century, when it was developed as the city’s first streetcar suburb. Today the Near Southside is an eclectic and diverse mixed-use community and the second largest employment center in Tarrant County, with around 30,000 jobs. The economic anchors for the district are the longstanding institutions and industries that continue to prosper. The most renowned economic engine is the Near Southside’s Medical District, home to Tarrant County’s five major hospitals as well as dozens of independent medical clinics. Other types of businesses, including a concentration of creative firms, are now calling the Near Southside home, diversifying the district’s employment base.  Well known companies that call Southside home include Williamson-Dickey, Dannon, and Vanderborg Dairy.

     "Friday on the Green":  Friday on the Green is a marketing event that allows the Near Southside District to demonstrate its uniqueness and charm.

  

     The focus is on music and street arts.  The event is designed to draw in folks from across the region to the Near Southside for the first time, or the first time in a long-time.  The event is normally attended by hundreds of people, sometimes over a thousand, and generally leaves people with a positive impression of the district as an "up and coming" area of town.

Sources:

http://www.fortworthsouth.org/about-fws/

Transit Oriented Development: 

     A transit-oriented development (TOD) is a mixed-use residential or commercial area designed to maximize access to public transport, and often incorporates features to encourage transit ridership. A TOD neighborhood typically has a center with a transit station or stop (train station, metro station, tram stop, or bus stop), surrounded by relatively high-density development with progressively lower-density development spreading outward from the center. TODs generally are located within a radius of one-quarter to one-half mile from a transit stop, as this is considered to be an appropriate scale for pedestrians.

Benefits:  TODs provide several benefits to the areas where they are located.  For example, they add sustainable density that accommodates expected growth.  Additionally, TODs improve mobility, energy efficiency and provide new retail, entertainment and employment for local neighborhoods.

      TODs & TIFs in Big-D:  The local governments in Dallas County have sought to incentivise the creation of transit focused developments.  To this end, the Transit Oriented Development (TOD) TIF District was created in 2008, to encourage dense, pedestrian friendly transit oriented developments adjacent to DART light rail stations. There are four sub-districts within the District: Lovers Lane/Mockingbird station area, Cedars West, Lancaster Corridor area, and Cedar Crest area. These areas have been developed with varying degrees of success.  However, on balance, the developments have been positive additions to the Dallas metropolitan area. 

Sources:

http://en.wikipedia.org/wiki/Transit-oriented_development

http://www.dallas-ecodev.org/redevelopment/tod/

http://www.dallas-ecodev.org/business/tifs/todTIF.htm

Pedestrian Oriented Development:

     Walk to work.  Cycle to the store.  Stroll through an esplanade from your townhome to your favorite restaurant.  Such is the nature of pedestrian oriented developments.  These types of developements are popular with young urban professionals and empty nesters. 

     Considerations for Pedestrian Oriented Development:  The following list includes ten important factors to be addressed in developing a pedestrian oriented area:

     1. The neighborhood has a discernible center. This is often a square or a green and sometimes a busy or memorable street corner. A transit stop would be located at this center.

     2. Most of the dwellings are within a five-minute walk of the center, an average of roughly 2,000 feet.

     3. There are a variety of dwelling types - usually houses, rowhouses and apartments - so that younger and older people, singles and families, the poor and the wealthy may find places to live.

    

     4. At the edge of the neighborhood, there are shops and workplaces (and/or transit stations leading to workplaces) of sufficiently varied types to supply the weekly needs of a household.

     5. An elementary school is close enough so that most children can walk from their home.

     6. There are small playgrounds accessible to every dwelling - not more than a tenth of a mile away.

     7. Streets within the neighborhood form a “connected network, which disperses traffic by providing a variety of pedestrian and vehicular routes to any destination.

     8. The streets are relatively narrow and shaded by rows of trees. This slows traffic, creating an environment suitable for pedestrians and bicycles.

     9. Buildings in the neighborhood center are placed close to the street, creating a well-defined outdoor room.

     10. Parking lots and garage doors rarely front the street. Parking is relegated to the rear of buildings, usually accessed by alleys.

     Implementation & Benefits of Pedestrian Oriented Development: Successful implementation requires a shift from modern, automobile-dependent development toward more traditional design practices that provide safe, convenient opportunities for walking, biking and otherwise accessing key destinations such as school or work. This transition to pedestrian- and public transit-oriented development will help to eliminate quality of life impairments, such as congestion and air pollution, loss of open space, costly road maintenance and public health services, inequitable distribution of economic resources, and loss of a sense of community.

Sources:

http://www.cooltownstudios.com/2005/05/03/the-13-points-of-pedestrian-oriented-development/

https://www.google.com/#hl=en&sclient=psy-ab&q=playground+picture&oq=playground+picture&aq=f&aqi=g8g-m2&aql=&gs_l=serp.3..0l8j0i5l2.4179l9402l1l10801l29l18l0l0l0l4l138l1850l8j10l18l0.frgbld.&bav=on.2,or.r_gc.r_pw.r_qf.,cf.osb&fp=21ba5269d78bca91&biw=1311&bih=625

 http://des.nh.gov/organization/divisions/water/wmb/repp/documents/ilupt_chpt_3.2.pdf

Superfund & Brownfield Grants:  The federal government assists states and communities in cleaning up brownfield sites, which are real property affected by the potential presence of environmental contamination.  These efforts have been an ongoing issue for more than a decade. With the enactment of the Small Business Liability Relief and Brownfields Revitalization Act in 2002, Congress provided specific authority for EPA to address brownfield sites.  In contrast to Superfund sites, environmental contamination present at brownfield sites is typically less of a risk to human health. With the primary motivation to aid cleanup efforts, the 2002 statute, among other things, authorized two grant programs: (1) a competitive grant program to address specific sites; and (2) a non-competitive grant program to support state cleanup programs.

Superfund Sites More Dangerous Than Brownfields:  When compared to a Brownfield site, Superfund sites and their cleanup are considered more carefully, and for good reason. Usually, these sites are not simply abandoned industrial areas but rather have experienced active dumping of dangerous chemicals in the past. These sites usually have unsafe contamination levels of petroleum products, toxic chemicals or both.

This increases the dangers associated with cleanup so the EPA oversees the projects internally. There are, however, some opportunities for communities wishing to get involved in the process in some way.

Sources:

http://www.policyarchive.org/handle/10207/bitstreams/19366.pdf

http://www.oicnorthhempsteadny.net/pdf/GillibrandBrownfields&SuperfundCleanupFundingOppurtunitiesGuidebook.pdf

https://www.google.com/search?q=Superfund+Pictures&hl=en&prmd=imvns&tbm=isch&tbo=u&source=univ&sa=X&ei=jIt_T8XgBZD69gSI17H6Bw&ved=0CCYQsAQ&biw=1311&bih=625

Building Codes & Adaptive Reuse:

     Bring older buildings into compliance with modern building codes can be very difficult and expensive.  Accodingly, many localities exempt adaptive reuse buildings from some or all of today's building codes.  One example of this is the Adaptive Reuse Ordinance in Los Angeles, California.

The Adaptive Reuse Ordinance has become one of the most significant incentives related to historic preservation in Los Angeles, facilitating the conversion of dozens of historic and under-utilized structures into new housing units. The Ordinance was originally approved in 1999 for downtown Los Angeles and was extended into other neighborhoods of the city in 2003. It provides for an expedited approval process and ensures that older and historic buildings are not subjected to the same zoning and code requirements that apply to new construction. The result has been the creation of several thousand new housing units, with thousands more in the development pipeline, demonstrating that historic preservation can serve as a powerful engine for economic revitalization and the creation of new housing supply.    

     Tyler, Texas Adopts New Adaptive Reuse Code:  The City of Tyler, Texas, adopted new a new code that will help to encourage the reuse of older existing buildings. By approving the International Existing Building Code, the City is providing property owners who possess an older existing building to utilize this new code rather than codes written for new construction. While the IEBC still requires that buildings meet safety standards, the code provides a different method to achieve safety points. A special task force arraigned by the City examined the potential code and ultimately recommended that the City adopt it. Tyler hopes to see the majority of impact in its downtown where there are a number of historic and older buildings. Reuse of the buildings will be less cost-prohibitive while still providing safety as well as revitalizing the downtown.

Lance Armstrong Foundation & Adaptive Reuse:  After leasing corporate office space for over a decade, The Lance Armstrong Foundation now has a permanent home for the LIVESTRONG offices in East Austin, Texas. The headquarters is part of a larger revitalization effort within the underserved neighborhood of Austin. The adaptive reuse of this warehouse has provided new life and a commitment to the local community.

     The renovated space provides a number of private office and meeting spaces as well as large open areas to host meetings for other local non-profits. The work has resulted in LEED Gold certification, codifying the Foundation’s concern for the environment.

Sources:

http://preservation.lacity.org/reuse-ordinance

http://adaptivereuse.info/tag/building-code/

http://adaptivereuse.info/tag/texas/