Adaptive reuse is the process of transforming a building or space from one use to another.  This process often involves extensive renovations. Renovations may include moving walls, installing new plumbing and electrical, and adding insulation. The result is a living space that combines the character of the existing building with the amenities and features of a residence.

One of the biggest trends in real estate is the adaptive reuse of office properties into residential units. It is a popular idea in markets where office vacancy rates have skyrocketed to over 20%. In many of these markets, housing remains in short supply.

For Montana, the economics look a little different. Across the state, there isn’t a lot of vacant real estate. The most obsolete retail or office building can be leased to a commercial tenant with some strategic updates.

For some Montana property owners, conversion to residential space may make sense.  Montana’s tightest commercial markets are also the tightest residential markets. 

Here are three things to consider as you evaluate a property for residential adaptive reuse:

#1. Is it a place people want to live? 

An office building in a vibrant urban district is a great option for redevelopment. Many people want to live where they can walk to shops, restaurants, and entertainment. A building tucked into a suburban community will hold some appeal and take advantage of existing retail and services. But an office building set in the middle of a barren industrial park may not cut it for a residential conversion. 

Location is still a key component for residential uses. It is difficult to overcome an unsuitable location. Issues like ambient noise, a lack of green space and walkability, traffic congestion, and smells can be hard to overcome. The product needs to match the location. An isolated suburban office campus might work well for senior housing. The same building may miss the mark for apartments targeted to young professionals.  

#2. Is residential a legal use? 

Check a property’s zoning before starting a commercial-to-residential adaptive reuse project. Zoning regulations govern the types of activities and uses allowed in a particular area. It’s important to make sure that the zoning allows for residential use. In Missoula and Bozeman, most zoning categories allow for housing. The exception includes some industrial categories. Also, be sure to check for any CCRs and deed restrictions that may limit housing development.

Another reason to check the zoning is to see how many residential units the site can accommodate. It may make more economic sense to tear down and rebuild new. In some cases, the number of units the site can support is higher than the number of units that can be made out of the existing building.

#3. Is there anything structural that may prevent the conversion of the building?

A professional inspection is the best way to tell if a building has any major issues like a faulty foundation or environmental issues. They can determine any potential problems that could be costly to address. Additionally, they can provide advice on the best adaptive reuse strategy for the building. 

Note that even the most thorough inspection may not find all of a building’s issues. As the renovation progresses, issues may emerge. It is critical to budget more room for cost overruns for redevelopment versus new construction.

Bringing in an architect is also a critical step in a conversion. They can help optimize the unit layout to take advantage of existing plumbing systems, natural light, and access.

Conclusion

Adaptive reuse of office buildings can produce unique housing options at a lower cost than new construction. With careful planning and due diligence, an underperforming commercial building can become profitable again. And for communities, underutilized buildings can become much-needed housing options.

Want to learn more about converting your commercial space into a residential building? Contact Maggie Collister at Sterling Advisory Services.