There are many ways to invest in real estate and optimize the returns on those investments. In some cases, those with the capital to invest specifically choose to develop vacant parcels. However, empty land often commands a premium price, especially when in urban areas or in suburban areas experiencing development and infill.
Creative investors and developers may find themselves looking at existing properties and edifices when seeking to expand or optimize their portfolios. The acquisition of an existing property with the intention of redevelopment can be a lucrative endeavor. Investors and business leaders may also want to consider redeveloping an existing real estate investment to generate increased revenue.
Redevelopment projects can be lucrative and can help revitalize communities. But they can also be tricky business What challenges do investors and property owners often face during redevelopment projects?
1. Zoning issues
The conversion of manufacturing and warehouse space to condos and apartments has long been trendy. In recent years, as the demand for standalone office space has declined, developers have started looking at vacant office buildings for redevelopment. Such projects generally require a change in zoning. Either rezoning a building or seeking a variance from local authorities may be necessary before a redevelopment project can occur.
2. Infrastructure limitations
Buildings developed for commercial or industrial use do not necessarily meet the relatively strict standards for residential facilities. Developers may have to install individual HVAC units, drastically renovate electrical and plumbing systems, erect new walls and otherwise invest heavily in making the facility conform to residential construction standards. Those renovations can significantly increase the overall cost of the redevelopment project. Underestimating those costs could diminish the return on each individual unit sold or rented.
3. Challenges filling units
It can take time to attract buyers and renters to a neighborhood that does not currently feature much housing. Proactive marketing to prospective home buyers, an offer of bespoke finishing touches and even discounted purchase rates for a predevelopment purchase can be incentives to attract buyers on a competitive market.
Those looking into the redevelopment of an existing building may need help understanding the requirements of the proposed project, and that’s okay. Planning carefully can help limit complications and optimize the financial return on a major real estate redevelopment project.
