In multifamily housing, everything old is new again.
Developers are turning to adaptive reuse to convert old buildings in desirable locations to apartments that not only bring in top-of-the-line rents but revitalize entire downtowns.
Preservationists, environmentalists applaud
“We enthusiastically support adaptive reuse,” said Paula Benson, president of Preservation Idaho, a Boise-based nonprofit organization dedicated to historic preservation, in an email message. “It is one of the most common-sense uses of historic buildings. Historic buildings cannot always continue to serve the function for which they were built, but they still have much to offer communities and society as a whole. They can nearly always be updated for accessibility, security and technology needs and can offer a level of craftsmanship and architectural styles not seen in new buildings.”
Converting old buildings to multifamily housing is a nationwide trend, said Dan Everhart, outreach historian for the State Historic Preservation Office in Boise.
“Diverse properties across the nation have been converted to multifamily housing,” he said in an email message. “Warehouses, schools, hospitals, factories, churches have all been adapted to that use. The historic preservation community typically responds favorably to these projects because any use of a historic building is better than no use and demolition.”
In addition, in an age when people are more concerned about the environment, no construction is “greener” than renovating an existing building. “Adaptive reuse keeps thousands of tons of debris out of the landfill,” Benson said.
That said, not every old building is suitable for conversion into multifamily housing, Everhart said.
“If you hear complaints from the preservation community, it is when the housing use is crammed into a space where it doesn’t really work,” he said. “Chopping up a large open space like a church sanctuary or school auditorium into multiple smaller spaces for living units robs the visitor of an understanding of how that space was originally used.”
Consequently, one fairly obvious adaptive reuse for multifamily housing is converting old hotels, and indeed, these constitute the majority of the examples in Idaho.
“Some types of buildings are more easily converted to housing,” Everhart said. “It’s always easier to take spaces like school classrooms or hospital rooms and convert them to housing because the historic floorplan lends itself to that new residential use. Respect for what the historic building can allow without drastic alteration is key to a successful conversion.”
An early example in Boise was the Owyhee Hotel, part of which was converted to apartments in 2014 by LocalConstruct, now known as Roundhouse. That development helped spark residential construction in downtown and proved there was a market, said CEO Casey Lynch.
“We had the belief that there was demand for downtown housing in Boise, but we didn’t want to speculate on our first project by building from the ground up,” he said. “It gave us the confidence to do other new construction projects in downtown.”
Partnering with local developer Clay Carley, Lynch converted 72 hotel rooms in the western portion of the Owyhee, which had been constructed in the 1960s, to 36 studio and one-bedroom apartments.
The building, which Lynch sold in 2019 after five years of ownership, was successful, he said.
“It definitely exceeded our expectations,” Lynch said. “It was almost completely full the entire time.”
And that was at a premium. Initially, leases were $1.65 per square foot. “They were probably the highest rents in Boise at the time,” Lynch said.
Today, rents are probably closer to $2 per square foot – a 20% increase over five years.
But adaptive reuse multifamily housing doesn’t have to be expensive. The Housing Company, a Boise-based nonprofit affordable housing developer, owner and manager, has converted two Idaho hotels to affordable housing, said director Kathryn Almberg, in an email message.
The $11.4 million project is creating 35 affordable housing units within walking distance of Idaho Falls City Hall.
Most recent is downtown Boise’s Safari Inn, which was purchased in May, 2018, for conversion into apartments. One building will remain a hotel, while the top two floors of the hotel’s second building, with 43 rooms, will be converted into 41 apartments – four one-bedrooms and the rest studios, said John Schack, owner of Revolve Inc., based in Seattle.
“Once we saw the property and walked it, we started to realize that the structure – the bones, if you will – were set up nicely for conversion into multifamily,” said Schack, adding that it will be the company’s first adaptive reuse project. “The rooms are very large for hotel rooms, in the 400- to 450-square-foot range. Each had a bathroom. We’re adding kitchens and making sure we can deliver a product we are satisfied with.”
The company hopes to start construction in March for a nine- to 10-month project, Schack said. Prices aren’t being revealed, and design and permitting are still underway. Possible amenities include a sky garden, residential lounge and glass open-air atrium, in addition to renovations.
“We’re going to take off the mansard roof and belly band,” Schack said. “We’ll paint it all dark gray and cover the rest with a teak screen that evokes the window patterning of historic buildings in the area. Inside, we’ll update the flooring and fixtures and put in kitchens and new tile in the bathrooms.”
Other examples of adaptive reuse into multifamily housing in Idaho, other than hotels, include the Gem-Noble building in downtown Boise, which was originally offices and is now condos, and the former Mercy Hospital in Nampa, which had been intended to be converted to affordable housing before it burned down, Everhart said.
But it’s Lewiston that has really grabbed the bull by the horns in terms of adaptive reuse for multifamily housing.
“We’ve seen great growth of residential in downtown Lewiston due to a couple of investors who converted upper floors to residential, or folks who restored residential property and brought it up to market expectations,” said Courtney Kramer, executive director of the nonprofit organization Beautiful Downtown Lewiston Revitalization Corp..
Primarily that’s due to one person, Mark Alexander, founder and CEO of Landmark Property Group. Alexander, a New Yorker, was on vacation when he happened to fall in love with downtown Lewiston.
“It’s an outdoor mecca with a tremendous amount of charm and potential and history,” he said. “I’m just in awe of the scenery.”
Revitalizing downtown Lewiston started out as a hobby for Alexander, who retired at 50 after heading up mergers and acquisitions for a British conglomerate, followed by a stint as the CEO of a small public energy company.
“I thought it would be fun,” he said. “I turned it into a career.”
Most notable was Alexander’s renovation of an 1890s-era International Order of Oddfellows Building into multifamily housing, where he essentially constructed another building inside to help maintain structural integrity.
“We tried to preserve the character inside the hall itself,” he said.
Altogether the project cost more than $1 million, about $150 per square foot, he said.
At the same time, some changes needed to be made. The hall had a two-story auditorium area on the second floor.
“It wasn’t economically prudent,” Alexander said. “It made more sense to convert it to upper-story residential, and so we put another floor in there, giving it three floors instead of two.” The ground floor is retail, he added.
The upper floors were converted into 10 studio apartments, Kramer said.
“They came on the market in the fall of 2018 and were very well received,” she said. “My understanding is that all 10 of them were rented six weeks before the occupancy permit, all at the top of the market.”
Alexander’s next project is the Lewis-Clark Hotel, a five-story building that has not been used as a hotel since the 1970s. Exactly what he’ll be doing with it is not yet determined, though multifamily housing is likely, he said. He’s thinking retail and office on the lower floors, and apartments or condominiums on the third to fifth floors, he said.
At this point, Alexander owns 13 buildings in downtown Lewiston.
“My overall goal is to be a catalyst for the revival of Main Street Lewiston,” he said.
The success of the Oddfellows project has galvanized such developments in Lewiston, Kramer said.
“Seeing them rented so quickly has catalyzed other investors to acquire historic multistory buildings and do similar projects,” she said, with units in two other buildings of a similar vintage scheduled to come online this fall.
“In a two-and-a-half-year period, we picked up 25 units,” she said. “That’s a very substantial impact on downtown.”
And there’s more to that impact than simply people living in the buildings. Kramer cited one study that found that each upper-story residential unit rented over $600 per month created $24,000 in economic impact per year.
First, converting space to residential helps property owners, Kramer said. While commercial tenant rents are stagnating, residential rents are continuing to increase above inflation. That allows property owners to subsidize their commercial space through their residential income, she explained.
Second, downtown residents are a built-in customer base for downtown merchants and add to the area’s vibrancy, as opposed to everyone leaving at 5 p.m., Kramer said.
“People are downtown through all hours of the night and over the weekend,” she said. “If something is happening downtown, we have community members.”
Advantages and disadvantages
“Reusing old buildings is both challenging and rewarding,”Almberg said. “It repurposes an existing structure, which may be in a very desirable location, and enables it to come back to life when it may have previously been in disrepair or underutilized. We were able to save historic structures and restore them to their original glory while also creating affordable housing in prime downtown locations.”
On the other hand, developers are also tied to the existing building’s limitations.
“You have to fit your design into existing exterior walls and window locations, while also managing existing load-bearing walls and other structural issues that can impact interior design,” Almberg said.
As far as whether adaptive reuse is a financial advantage or disadvantage, it depends, developers said. When Lynch first converted the Owyhee, it saved him money over constructing a new building, he said. That said, things change.
“In the environment we are in today, after five years of construction cost escalation, it’s probably less expensive to build a brand-new building than to build a project like the Owyhee today,” he said.
Almberg agreed, noting that the cost can be “equal to or more expensive to do an adaptive reuse than new construction, especially if the building is historic.”
The biggest challenge, of course, is that there are only so many old buildings to go around.
“A lot of historical buildings in Boise were demolished in the 1970s and 1980s,” Lynch said.
Funding such a renovation can be part of the challenge, but there are sources of funding specifically for such projects. Most notable is the Federal Historic Preservation Tax Incentives Program, which provides a 20% federal tax credit to property owners who undertake a substantial rehabilitation of a historic building in a commercial or other income-producing use, while maintaining its historic character. The Owyhee renovation, for example, generated $2.2 million in tax credits.
A similar option in more than 30 states is a state historic preservation tax credit. The preservation community has been trying for some years to create such a tax credit in Idaho, but without success thus far.
In addition, urban renewal and other redevelopment agencies can also provide funding. Lynch partnered with the Capital City Development Corp. (CCDC), Boise’s urban renewal agency.
“They paid for some of the improvements in the public right-of-way,” such as landscaping and streetscapes, he said.
In return, CCDC has an easement for the façade of the building, meaning it can’t be modified, he said.
“Otherwise, it was a standard construction loan from a bank, and equity investments.”
The Bonneville Hotel project was a similar arrangement, Almberg said.
“This was in partnership with the City of Idaho Falls and the Idaho Falls Redevelopment Agency, which purchased the building and sold it to us at a deeply discounted price to make the project possible,” she said.
Other federal tax credits include the New Markets Tax Credit program, which provides an incentive for investment in low-income communities. A more recent example is Opportunity Zones, a community development program established by Congress in the 2017 Tax Cuts and Jobs Act, intended to encourage long-term investment in low-income urban and rural communities through tax breaks.
Older buildings are often located in the type of low-income parcels that have been named Opportunity Zones or eligible for New Markets Tax Credits. A project in one of those zones can offer valuable tax shelters to participants, as well as support from the city in question to help improve those parcels.
In Lewiston, for example, nearly all of downtown is part of an Opportunity Zone, and Alexander is looking at them as a source of funding for future projects, though they came along too late for him to be able to leverage them for his Oddfellows project. He is hoping to use them, as well as historic tax credits and New Market Tax Credits, in future projects, he said.
What sort of person wants to move into an apartment in an old building? In Lewiston, it’s a mix, Kramer said. With St. Joseph Regional Medical Center two blocks away, many tenants are doctors or nurses at the hospital and may even live there only during the work week, she said. “It’s their flat in the city.”
In Boise, it’s the same, Schack said.
“Anyone who wants to live downtown works downtown and wants to bike or walk to work,” he said.
Others are young professionals who don’t want to have to worry about a yard and want to live downtown near amenities such as restaurants, shops and the confluence of the Snake and Clearwater rivers, Kramer said.
But it’s not just millennials, Lynch said.
“What surprised us at the Owyhee was the number of baby boomers and retirees who chose to live in the building,” he said. “At least 50% of residents were older people who wanted to live a lower-impact life and live downtown. We had people in their 80s. And they loved that they could walk downstairs, have dinner and a glass of wine and all the amenities at their doorstep in an urban environment.”
“Historically, during the 1970s and the 1980s, the population moved out of town and into the suburbs,” Alexander agreed. “In the past decade, it’s been just the reverse, with people moving downtown and wanting everything at their doorstep where they don’t want to drive.”
Young families are not so common, Lynch said, because they require more space than most downtown housing can provide.
The combination of these factors has been a shot in the arm for downtowns, particularly in Lewiston. In 2017, Kramer found that 24% of privately owned property in the 13-block downtown area was vacant, with the vast majority not tenant-ready. Since then, the vacancy rate has dropped to 17%.
“It’s still high, but we’ve picked up about 180,000 square feet of occupied space downtown,” she said. “All the commercial and residential spaces that have been invested in are occupied. Something like 12 new businesses moved into spaces that were dark. Quality tenants are attracted to quality tenant spaces.”