Reclaiming Buildings - Deliberate Study

Nov. 14, 2001
Strategies for Change

By Pam Brenner

As businesses explore their space options, they should carefully examine their business needs, location costs and benefits, and the valuation of every building prospect. Business needs include timing, cost, image, and/or location factors.

Timing. In the time it takes to secure land, complete a site analysis, and develop preliminary architectural plans for a new facility, an entire building renovation can be completed, start to finish.
Cost. It can cost as much to renovate an existing building as it does to build from scratch. However, with phased interior construction, businesses may be able to occupy space as it is renovated, resulting in net occupancy cost savings.
Image. The prestige associated with prime landmark buildings and historically significant structures builds corporate image, public relations, and good will.
Location. Proximity to customers, workers, vendors, distributors, or transportation, coupled with tax structures, commute times, and residential options for workers, may also be important factors. Location analysis should include transportation infrastructure, zoning and land use strategies, and environmental studies.

Comprehensive valuation entails evaluating a building's capacity to provide adequate thermal and IAQ control, sufficient electrical performance and quality, and adequate telecommunications connections. The financial feasibility of retrofitting depends on three key factors: the flexibility of the building infrastructure, the value of the existing investment, and the cost of alternative building options.

Building infrastructure is key. Many buildings built before the advent of electric lighting and mechanized ventilating systems in the 1930s are candidates for renovation. Because they relied on windows for illumination and ventilation, these buildings have more daylight, smaller floorplates, and greater floor-to-floor heights than many more modern structures. In addition, mechanized HVAC services were added as post-construction retrofits, so these services are not deeply imbedded in the building structure. On the other hand, buildings from more recent decades may pose challenges. Built for economy and energy efficiency, many are too tightly constructed - with huge floorplates, deeply imbedded services that prevent adequate air exchange (in extreme cases, causing Sick Building Syndrome), and minimal floor-to-floor heights.

Existing investment in a building affects the financial feasibility of renovation options. Depreciation schedules, debt ratios, operating costs, revenues, and tax liabilities are all part of the equation. Tax implications of renovation costs vary widely. Most capital improvements follow a 39-year depreciation schedule. Personal property improvements, however, are generally on a seven-year depreciation schedule. Planning renovations to shift the financial burden from capital improvement to personal property costs can result in tremendous tax savings. Even dormant, truly obsolete buildings - older vacant structures, which could not be profitably renovated and leased with traditional construction methods - may be candidates for reclamation with new solutions that integrate architecture, furniture, and technology.

Alternative options are also major factors in deciding whether to renovate or build. In one case, a business elected to renovate existing warehouse space into Class A office space because a move would have displaced half the trained workforce. The combined costs of construction and replacing workers were greater than the single cost of renovating existing space.

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