This is the perfect time to commence adaptive reuse for empty commercial spaces into affordable housing and make money out of it, says adaptive reuse pioneer Richard Rubin, CEO of Repvblik.
Adaptive reuse for shopping malls, shuttered hotels and office spaces will be big during this pandemic era, predicts Richard Rubin, Chief Executive Officer of Repvblik LLC. Rubin should know. He’s the guy who pioneered adaptive reuse of office complexes in Johannesburg into affordable housing about 17 years ago. He’s now putting his expertise to work in the US where he’s relocated since 2015.
“Commercial property is going to be massively hit. When tech companies – always the early adopters – themselves historically large tenants and owners of commercial office – telling their respective employees not to come back to work and to continue to work from home; the writing is on the wall.”
“This cycle may not repeat itself. How often can you buy existing buildings at a massive discount?”
Rubin believes this pandemic is a once-in-a-lifetime opportunity for entrepreneurs as the opportunities are massive.
“There is tremendous nationwide demand from workers, employers, owners of distressed properties, and investors for commercially viable answers to today’s marketplace challenges,” says Rubin.
“This cycle may not repeat itself. How often can you buy existing buildings at a massive discount?”
Take for instance his purchase of a shuttered Days Inn hotel in Missouri for USD800K, a significant discount from the market value of USD2 mil.
Explaining his decision to pick that particular building, Rubins says the area is near a large college, so there is a potential play in student housing, senior housing and the middle workforce.
Hotels are also the easiest to convert into housing, he adds. To make it a conducive living environment, they installed a pool and spa, and made it fully gated. As a result, these affordable apartments of about 320sq ft each attract a lot of single parents who like the safety of a gated community.
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Other facilities that they have put in are coworking space, micro storage for tenants/residents, gymnasium and recreational games room, as well as day care facility. In as way, they are making up for the small sized units with lots of community facilities.
Conversion Costs
The conversion cost includes cost of borrowing which results in USD40-50K per key to turn it into a door. All in, the acquisition price and cost per door add up to USD60K per unit. This is much less compared to building a new unit which may cost at least USD100K per unit.
Rubin adds that the project is completely privately funded through construction loans at commercial lending rates despite this being an affordable housing which normally should entitle them to federal funding or tax credits.
Despite the higher cost of capital, Rubin maintains that their project gives one of the highest return equity that an investor would like at about 30%. He hopes however that their project would attract more capital as this would reduce their cost of capital, savings which can be passed on to the tenants. “If the cost of capital goes significantly lower, we could even rent out at USD250 – 300 per month.”
The now rebranded Plato’s Cave offers efficiency and one-bedroom apartments at monthly rents of USD495 – USD725, which includes all utilities, free Wi-Fi, parking, and security in a pet-friendly, gated community environment.
On the challenges, Rubin says while challenges remain the same everywhere, the laws should be tweaked to make it easier for developers of such a niche segment. “The Adaptive Reuse Ordinances should be mandated to come from top down as bureaucrats might find it difficult to understand the process.”
“Business is so good, Rubin says he’s receiving call after call from distressed hotel owners looking to discuss deals.”
Rubin would also like to see more public sector involvement since this is an affordable housing project. They work as much as possible with local general contractors.
Repvblik has ongoing developments in Topeka, Kansas, Los Angeles, CA, and many more. In fact, business is so good, Rubin says he’s receiving call after call from distressed hotel owners looking to discuss deals.
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