Vacant commercial properties can provide unique opportunities

Most of us who have been in the commercial real estate industry for more than 10-20 years have seen some form of this.  As the commercial real estate marketplace evolves, so too do space and building requirements. This creates properties that become functionally obsolescent for certain uses but can create opportunities for entrepreneurs and creative landlords.  I first saw this take place in the late 80′s although I am sure it has taken place for decades.  During the emergence of the regional mall we saw many types of retail buildings that quickly became undesirable for their intended use.  I first experienced this with a building in San Diego that was originally built to house a movie theater.

When the onset of multi-screen cinemas began to take hold in San Diego, this particular theater went out of business leaving a 25,000 square foot, single purpose building with a sloped floor. What to do?  As a retail broker for a large national commercial real estate brokerage firm at the time, I was able to experience this creative recycling process first hand as the landlord was able to remodel the building and lease it to Bookstar (I believe they are owned by Barnes & Noble) and keep the theme of a classic movie theater intact.  The landlord and tenant kept the design of the sloped floors while creating level aisles as the floor sloped toward the former screen, enabling customers to slowly browse the bookshelves as they worked their way from the old entrance to what was once the first row of seats.  The theater concession lobby was remodeled into the checkout area.  The end result was a very impressive looking building that was one of the first mega-bookstores in Southern California.

The commercial real estate industry has an even larger challenge these days as we try to come up with creative ideas to recycle larger, less architecturally significant buildings such as anchor tenant spaces in regional malls, multi-tenant office buildings in suburban office markets, former call centers, industrial buildings in downtown locations and even theme parks and recreational facilities.  We are seeing interesting ideas emerge and landlords not only face the challenge of convincing tenants to “buy-in” to a new concept but must convince lenders to do the same.  Recycling buildings can be an expensive proposition, as can be seen in some of the examples in the attached article from the Wall Street Journal.  However, the alternative which is trying to re-lease these buildings for the same use as that which previously occupied these buildings, may just be akin to putting a band-aid on a gun shot wound.

We are going to see some interesting ideas emerge in the next few years.  Auto dealerships leasing space in vacant department stores within regional malls, hotels going into former office buildings and jails, and others that have yet to be thought up will reshape our landscape.  Please read the article, Entrepreneurs Make Use of Odd Spaces, as I think it is well written and provides some real life examples of how the country is dealing with this re-emerging opportunity.

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