Bisnow | Christi Moffat

November 16, 2020

Houston has a reputation for knocking old things down. To that effect, the city has a very limited number of historically protected buildings, compared with places like New York City and Boston.

But developers say Houston’s wealth of product built during the city’s construction boom in the 1970s and 1980s could present significant adaptive reuse opportunities.

“I think there's a lot of opportunity in that product,” The Deal Co. founder Jon Deal said during a Bisnow webinar Nov. 12.

Redevelopment projects like M-K-T in the Houston Heights are prime examples of the possibilities. M-K-T is a collection of five adapted industrial buildings along the hike-and-bike trail, and it has about 200K SF of creative office and retail space. Radom Capital partnered with Triten Real Estate Partners to develop the project.

Tenants have already begun moving into the office space, while retail build-outs are continuing through the fourth quarter. The redevelopment is expected to open to the public in early 2021.

“It's a very impressive project, I'll say. I've seen a lot of cool repurposing projects, adaptive reuse projects, but I think without much competition, that's my favorite. They've done a fantastic job,” Deal said. “It's been good for the area, it's good for the market.”

Adaptive reuse opportunities inside the 610 Loop are particularly attractive, owing to their central location. East Downtown and the broader East End area have been popular with developers over the last five to 10 years, while large-scale project The Ion in Midtown is expected to be a big draw for entrepreneurs and companies when renovations are complete.

Method Architecture associate principal Angel Gonzalez said Class-B industrial product in the Inner Loop could become targets for logistics and distribution companies that are seeking to solve the last-mile problem.

“I mean, some of those acquisitions are going to be purely just based on getting people their products faster. So it might not fully change type, it might not go from industrial to retail, or industrial [to] restaurant, but it'll get a new purpose, to kind of fill the modern need,” Gonzalez said.

The expense of taking on an adaptive reuse project should not be underestimated. Oxberry Group co-founder PJ Jamea said the cost is usually between 15% and 20% higher than taking on a normal development project, and there are more hindrances involved from a permitting standpoint.

“It just really helps to [have] knowledge of the city codes, architectural engineering, the construction aspects of environmental issues. Also, these older buildings, they do have environmental issues that haven't been addressed. So they're definitely not easy,” Jamea said.

Because there are more obstacles with adaptive reuse projects, Jamea said inner-city projects usually make more financial sense than suburban projects, and there are usually fewer opportunities in the suburbs.

“You don't most likely have 100-year-old buildings in the suburbs in Houston anyway. So it just makes it not as attractive as some of these inner-urban infills,” Jamea said.

For developers like RHS Interests President Bob Schultz, adaptive reuse projects ultimately require patience, particularly if an asset is situated in an area that has yet to gain popularity.

“You're looking at products [where] you might have to go into an area that isn't matured, or is really early, and it [has] a possibility for changing, so that you can get it at a price that makes sense to go through that process,” Schultz said.

“That's a risk, of course, but I don't think these things are quick processes. This is, you're talking about making a commitment to an area really, and putting the effort into it for quite a while to realize the dream of an adaptive reuse.”