A group of Eugene apartment buildings with more than 500 student housing units among them have been purchased for a total of $16.8 million by a pair of Southern California investment companies that plan to renovate the buildings with about $5 million in upgrades this summer.

“Our goal, I guess, is to go in and put a ton of money into it and really make these things nice,” said Andrew Boulton, acquisitions manager for MHE Properties of Marina Del Rey, Calif.

“We did a lot of market research,” Boulton said. “We just found that Eugene as a whole has a lot of old, kind of run-down (student housing) properties. Students and parents expect more, and our goal is really to give the students something better than they’re used to.”

The apartment buildings — a total of 10 parcels — were purchased in two separate transactions from Wentwood S.H. Limited Partnership of Tacoma, according to Lane County records.

The first group, purchased for $13 million, is made up of the Canterbury Apartments at 750 E. 14th Ave.; the Aldersgate Quads at 1436 Alder St.; the Campus Court at 1544 Alder St.; the Campus Quads at 751 E. 16th Ave.; the Woodside Manor at 1810 Harris St.; the Kincaid Quads at 1863 and 1869 Kincaid St.; and the Student Court at 951 E. 19th Ave.

The second group, purchased for $3.8 million, is the Bon Apartments in the 1000 block of West Seventh Avenue; the Holly Apartments at 795 W. Fifth Ave; and the Magnolia Apartments in the 1000 block of West Eighth Avenue.

In all, the purchases include 156 apartment units, 369 quads — four-unit clusters with private bedrooms and a shared kitchen and living space — and three houses.

The two groups of apartments are being held under the names of three limited liability corporations, but the primary investors in each are MHE Properties and MJW Investments, both of the Los Angeles area.

MHE Properties has purchased partnership interests in similar apartment properties in the past two years near the University of Southern California, the University of California at Santa Barbara, the University of Arizona and Cal Poly Pomona.

Boulton said his company plans to upgrade the Eugene properties this summer, with at least 80 percent of the units ready for fall term students. MHE and its partner companies will then hold the apartments for a period of three to five years before re-evaluating whether to keep or sell them, he said.

“Honestly, our business plan is to look at it (after a few years) and say, ‘What do we want to do from here?’ ” Boulton said.
Eugene real estate broker Jeff Elder, who has been involved in campus area housing for many years, said the purchases make good business sense.“Personally, I think it’s a smart move,” Elder said. “We’re seeing that enrollment at the university certainly justifies all the available housing that’s there … and supports a certain amount of new housing.

“The ultimate in convenience and safety is an apartment close to the university,” he said. “As long as it’s well maintained, it’s going to continue to be a popular rental property.”

The new landlords plan to update the apartments inside and out, Boulton said. Amenities will include granite countertops, dishwashers, new cabinets, new appliances and new carpet and other floor coverings. Most of the quad units also will get new “furniture packages” that include a bed, a desk and a chair.

The bulk of the work will be done after the current school year’s leases expire in June, and students give up their apartments for the summer, Boulton said.

Rental rates “are going up a little bit,” he said, with quad units starting at $399 per month and the three- or four-bedroom houses topping out at about $1,100 per month.
Copyright © 2007 — The Register-Guard, Eugene, Oregon, USA

Visiting the Fashion District might be a bit easier and less expensive now that a seven-level parking structure has opened at 636 S. Maple St., near Seventh Street. It’s one of the first parking garages to open in more than 20 years in the area. Councilwoman Jan Perry and Congresswoman Lucille Roybal-Allard attended the structure’s opening celebration on May 29, along with members of the Fashion District Business Improvement District. Mark Weinstein of MJW Investments, which is developing the Santee Court housing complex, spearheaded the project in order to provide more parking for his residents. The project took nearly three years to implement and is built atop an MTA bus holding station. The structure holds 420 cars, about 120 of which are reserved for Santee Village residents. The remaining 300 spots are for public use and cost just $3 for a full day, district officials said.

By Christine Rombouts

The phrase “something old, something new,” typically associated with weddings, can also refer to marriage of another sort—that of historic properties with new construction, creating residential and commercial projects that honor yesterday while embracing today.

Many communities across the United States are looking at historic preservation as a way to revitalize the economy and renew the downtown, while preserving the area’s character and cultural legacy. “As the historic renovation process began in St. Louis, Kansas City, and similar cities, the municipal and state governments, as well as the civic community, have valued the renovation of these historic properties,” says Kevin McGowan, CEO of St. Louis-based McGowan & Walsh Urban Developers. “The added benefits of creating new, quality housing at good prices while restoring vacant and underutilized historic properties have made historic and adaptive use a valued endeavor.”

Numerous challenges are associated with renovating older buildings, points out Thomas Cox, whose firm, Thomas P. Cox: Architects (TCA), is involved in several historic preservation and adaptive use projects in the Los Angeles area. These challenges include such issues as structural stability, toxicity, contaminated soils, and unforeseen conditions such as mold and water intrusion. He emphasizes the importance of conducting proper due diligence coupled with comprehensive design analysis in order to ensure that problems can be solved and buildings are suitable for the developer’s reuse plans.

Nevertheless, even with problems, Cox and other architects and developers say rehabilitating and revitalizing older or unused buildings can be well worth the effort. In many cases, Cox says, the necessary infrastructure is in place and traffic patterns are established. “Historic preservation and adaptive use are the ultimate in smart growth and the ultimate in recycling,” he notes. “When buildings are brought back to life through adaptive use, they revitalize neighborhoods by preserving the historic core architecture and create new housing and mixed-use opportunities, as well as increase public safety. Reuse of vacant or dilapidated buildings also enhances economic growth in urban and commercial cores. It’s the right thing to do.”

One of the biggest challenges is meeting fire and other safety regulations in older buildings, says Renata Simril, senior vice president with Forest City Residential West, who oversees development of Forest City’s historic preservation/adaptive use projects, such as the 80-year-old Subway Terminal in downtown Los Angeles, which the company renovated into luxury apartments. She urges architects and builders to conduct comprehensive due diligence and underscores the importance of working closely with fire, police, and other city departments, as well as planning and building officials. “Fire and life safety trumps everything,” she explains. “It’s also critical to make sure you have the proper technical expertise as part of your planning and development team, and, in the case of older buildings, consultants who know the ins and outs of historic preservation.”

Although historic preservation/adaptive use projects can have many pitfalls and are not always as successful as hoped, local governments and developers are increasingly committing to them. Consequently, a growing variety of toolkits with tailored programs and special mechanisms are available to help developers work through some of the more daunting issues, such as entitlement, planning, design, and financing. Among these tools are impact assessments, design standards, intergovernment agreements, and public/private collaboration on planning

Historic properties that become part of modem structures come in all shapes and sizes, from power generation stations to parking structures to soaring silos. In downtown San Diego, Burnaby, British Columbia–based Bosa Development is building a 43-story high-rise condominium called the Electra in the center of the long-abandoned San Diego Gas & Electric station, designated as a local historic landmark. Designed by Burnaby-based Chris Dikeakos Architects Inc., the 480-foot (146-m) condominium tower will overlook San Diego Harbor and include 248 units when completed next year

Mindful of the building’s value as a preeminent example of neoclassical and art deco architecture, the developer and the architect worked closely with the city’s Historical Resources Board to preserve the station’s facade and key structural and architectural elements, and incorporated them into Electra’s design. The give-and-take between the city and the developer over the generating station helped bring about both preservation of as much of the structure’s beauty and historic significance as possible, and integration of the new residential use, according to Dikeakos
The melding of the generating station and the new condominium tower presented Dikeakos with many challenges, not the least of which was having the board looking over the firm’s shoulder as it designed the high rise. “The board was involved at every stage of the project’s design and is now closely monitoring construction,” says Dikeakos, whose firm has designed several high-rise condominium projects for Bosa. “The board’s oversight is intended to ensure that the new structure does not compromise or detract from the architectural character of the historic structure. In many ways, it was comforting to have the board so deeply involved in the project design. Its guidance provided valuable input that resulted in a project that was not only acceptable to the city and the historic preservationists, but is also a unique architectural landmark on San Diego’s harbor.”

Working closely with city officials and historic preservationists is key to the success of any historic/adaptive use project. A “respectful discussion” with a municipal code official is more productive than repeated requests for waivers from an appeal body, McGowan points out. “Demonstrating good faith in compliance on some important historic aspects in one part of the renovation process may earn a small break on another that is very difficult to meet on a given property,” he says. And
finding cost- and time-efficient solutions to problems faced along the way is critical to maintaining a project’s economic feasibility; without such efforts, the costs and time delays of historic renovation projects can quickly sink them, he says.
Deep due diligence and persistence were fundamental to Forest City Enterprises, Inc., during a landmark historic/adaptive use project in downtown Dallas. Forest City is renovating the historic Mercantile Tower building as part of a $250 million project that includes the nearby Continental Building and the four-building Atmos Energy complex. The former Mercantile Bank building, a downtown icon since the 1940s and a cornerstone of the city’s redevelopment plans, will see life for the first time in more than 20 years. Recognizing the importance of this architectural treasure, the city provided a $70 million subsidy to Forest City in the form of public incentives, including tax abatements and funds generated from a tax increment finance district

In August 2005, Forest City and Dallas, with unanimous city council approval, entered into a redevelopment agreement involving nine vacant buildings in downtown Dallas, including the Mercantile Tower. Forest City will convert the vacant office space into apartments and condominiums, with completion of the Mercantile renovation slated for spring 2008
“It took time, resources, and a lot of negotiations. This type of development is definitely not for the faint of heart,” says David Levey, executive vice president with Forest City Residential

A key factor in the formation of the Mercantile project, as with any real estate development, is location. “That is the number-one factor we look at, which is actually no different than new construction,” said Levey. “We try to find properties that are part of an urban fabric. So it’s critical to ask, are you in a good location? However, many of the older properties and historic buildings are in marginal locations, so then a developer has to ask, can we create value to make a marginal location a great location?” To put it simply, says Levey, a successful historic renovation project needs “good bones, good vision, good connections, and good support from the city.”

The four-building, 1.1 million-square-foot (102,000-sq-m) Mercantile Bank complex is in the heart of downtown Dallas, across from Neiman Marcus’s flagship store and the Bank One Center. The entire complex approaches 2 million square feet (186,000 sq m) of space. Plans call for preservation of the iconic 31-story clock tower within the complex, which will be redeveloped into 225 lofts and ground-floor retail space. The three remaining buildings will be demolished and replaced by retail space, a parking garage, and a new 16-story residential tower adjacent to the Mercantile Tower. The Continental Building will be transformed into a 170-unit condominium development. Plans for the Atmos Energy complex are still being developed. The project is expected to lure new office tenants as well as residents to the urban center of town, Levey says, and is viewed as a landmark project that will revitalize this area of downtown

Integration of older buildings such as the Mercantile Tower with new construction presents architects and builders with myriad challenges, not the least of which is whether the existing structure has the integrity to hold up under the intended new use. This was one of the overriding concerns for Baltimore, Maryland–based Turner Development Group, which converted an old silo farm into a new residential project called Silo Point along Baltimore’s waterfront. A 112-foot (88-m) grain silo serves as a historic icon for the development
Project architect Christopher Pfaeffle, principal and founder of Parameter Inc. in Baltimore, says that with the Silo Point project, Turner Development hired a testing agency early in the process to take core samples of the existing concrete in the grain elevator to verify that it was stable enough for development of the proposed condominium project, even though the new residential loads on the building would be a fraction of those for which it was designed. “It’s always a challenge with more antiquated materials,” Pfaeffle says. “There are always challenges associated with designing for an existing structure with regard to space, as you have a set of limitations imposed by the structure. The existing building type and interior spaces can be very inflexible and may not allow for a clear and consistent fit with the new use. Trying to fit one size of space into an existing space often requires creative design solutions.”

Pfaeffle points out that with the many uncertainties of adaptive use projects, decision making is difficult, as is the discovery process associated with planning and designing the transformation of an old building into something new. For example, blending historic and modern housing can change the structural makeup of a building in ways that may not be obvious. New floor openings, increased load requirements, and changes to the building’s overall framework often require innovative structural and mechanical design solutions. “This path can often be costly, difficult to manage and coordinate, as well as extremely frustrating,” he says. “Therefore, it is important to learn as much as possible during the early design phase so that any modifications can be made in the early stages of the project to minimize unknown tasks or surprise expenditures.”

Historic preservation and adaptive use projects come in all shapes and sizes. In some cases, an entire structure is refurbished, and in other instances, only a portion may be preserved. In Pasadena, California, a parking structure built in the mid-1920s has the place of honor in a mixed-use project called Trio. “Many cities see preservation as a way to improve their economy and revitalize their urban character while saving their sense of history and architectural heritage,” says Aram Chahbazian, a principal with TCA, which designed Trio
Developed in the Pasadena Playhouse District by Shea Properties, Trio houses 304 apartments including affordable units, and 14,500 square feet (1,347 sq m) of retail space. To provide space for Trio, several nonhistoric existing buildings were removed from the site. However, a major portion of a historically significant, two-story concrete garage with an Italianate facade was preserved to become part of a new apartment building and will serve as the leasing center. Chahbazian says diverse structural and architectural measures were used to retain the historic integrity of the garage and ensure that the new designs blend with the existing homes and structures in the Playhouse District “Compatibility is always important with these projects,” he explains. “Mixed-use communities like Trio can be even trickier because it is extremely important to ensure that the retail and residential designs work well together. When designing the new portions of Trio, we also had to be respectful to the historic building, but we could not copy or mimic it.” This is a requirement of the U. S. Secretary of the Interior Standards for Rehabilitation, which projects must meet in order to qualify for tax credits. Although Trio did not receive tax credits, Pasadena required the design/development team to adhere to these standards because “they’re good guidelines on how to deal with historical buildings, and we were happy to do it,” said Chahbazian

Major constraints on historic/adaptive use projects usually relate to construction and budget, compounded by the desire to maintain the building’s historic character in order to generate needed historic tax credit equity. Successful planning and ensuing development of these projects require a careful balance between preserving the historic integrity of the buildings and effectively and aesthetically integrating the new uses

According to McGowan, whose firm has developed hundreds of housing units in historic structures, there is no simple way to balance these interests. “There is no single remedy,” he states. “Every building is different, unfortunately, and each uncovered problem requires a fresh solution. The issues simply need to be addressed one at a time, whether it’s being addressed with a municipal, state, or federal government entity; a utility company; a material supplier (for example, finding historic replacement windows that are energy efficient); a lender or investor, or some other entity.”

As important as the exterior treatment of a historic property may be, the interior is also crucial and requires creative design and special care, points out Jarrett R. Cooper, principal in charge of Rosemann & Associates of St. Louis. “In designing residential units, it’s important to consider what the space was originally designed to be,” he explains. “If the space was designed for office use, it was probably built with lower ceilings and clean finishes. These buildings usually have smaller-depth floor plates and support a clean, finished unit design with ample opportunity for most rooms to have windows.” A warehouse building typically has much greater mass on each floor plate and usually has taller ceiling heights, he points out, thus allowing for a raw, open, loftlike space that shares the light from a single large bank of windows. However, he warns, “It’s extremely important to consider the target market before selecting a building and starting the design process, whether interior or exterior.”

Environmental and contamination problems often arise in older buildings, surfacing during construction as the structures are stripped to their core. Adding to the complexity is the fact that municipal codes have most likely been updated significantly over the years: adapting older buildings to meet modern codes is not always easy and is frequently expensive.

Because reusing an older building is always challenging, a developer needs to plan early and properly in the construction cycle if the goal is to keep costs below what they would be for a project starting from scratch with raw dirt, says Mark Weinstein, president of Los Angeles–based MJW Investments, a pioneer in historic/ adaptive use projects. For instance, structural upgrades, especially in a seismic zone, will add costs and require careful planning. Sometimes a building may be beautiful, but is not suited for efficient residential layouts. It can be difficult to incorporate into projects such amenities as pools, gyms, conference rooms, recreation rooms, and parking. The biggest challenge usually is providing adequate parking for all units.

“Many older buildings are simply no longer safe for occupancy and cannot be rehabilitated without a significant investment to improve the building’s structural integrity,” says Ellen Berkowitz, a partner in the real estate and land use group in the Los Angeles office of the Manatt, Phelps & Phillips LLP law firm. Moreover, during the rehab process, builders may uncover unexpected problems that can significantly increase costs. Berkowitz, warning developers to be mindful of hidden costs, says budgeting properly for these contingencies is key to making a project pencil out.

Unknown conditions will always exist no matter how many tests and studies are performed, Forest City’s Levey says. “Pay special attention to structural issues, elevators, and windows, which usually have to be custom made,” he suggests. “That’s why it’s important to have a contingency in your budget to account for these unknowns.” He recommends that the budget include an additional 5 to 10 percent after the guaranteed maximum price to deal with contingencies

In some cases, a complete redesign may be the only way to address problems that arise, notes Nat Bosa, president of Bosa Development. “Historic preservation and adaptive use is a different type of development process because you have to be ready to respond to anything,” he says. “You may have to make adjustments at every stage. It might be during due diligence, demolition, and even in the midst of development, but there’s always a certain amount of discovery that may require substantial redesign. You make decisions based on the information available, but the plans and, of course, the budgets are always subject to change.”

While the hurdles may be numerous, so are the opportunities for financial assistance in the form of tax credits and other programs that reduce the risk and improve the odds of success. “A key component in successfully rehabilitating a historic building in an advanced state of dilapidation is a clear understanding of the financial adversities inherent in rehabilitation,” states Randall Alexander, president of Madison, Wisconsin–based the Alexander Company. “The state of decay and contamination in some projects requires extra attention and additional funding tools, such as federal and state historic tax credits and tax increment financing, that would not otherwise be necessary.”
Creative financing coupled with multiple funding sources was the foundation for the Alexander Company’s renovation of the Professional Building in downtown Kansas City. The 16-story modernist building, constructed in the late 1920s, features a decorative terra-cotta facade with art deco styling. Placed on the National Register of Historic Places in 1978, the building was left vacant more than a decade ago and swiftly fell into disrepair as roof leaks allowed water to penetrate all the floors and flood the basement.

The extensive reconstruction concluded in October 2006, with the new Professional Building Lofts adding 132 workforce housing units and more than 10,000 square feet (930 sq m) of retail space to downtown Kansas City. The Alexander Company used an intricate structure of state and federal historic tax credits, state and federal affordable housing tax credits, tax abatement, community development block grants, HOME funds/loans, tax-exempt bonds, and an economic development initiative to finance the renovation.

In California, the use of special tax credits and programs is growing along with the popularity of adaptive use for historic structures. “A number of municipalities in California and nationwide endorse the historic preservation and reuse trend,” says Linda Dishman, executive director of the nonprofit Los Angeles Conservancy, the leading advocate of historic preservation in Greater Los Angeles. “In many cases, local officials will work with developers to find new uses for a historic building.”

To provide incentives for reuse of historic buildings, a variety of tax incentives and other tools are available to developers, says Dishman. At the state level in California, the State Historic Building Code provides flexibility in meeting building code and life safety requirements. From the federal government, there are investment tax credits for rehabilitation work and tax benefits for donating a facade easement. Los Angeles also offers such incentives as the Historical Property Contract Program, also called the Mills Act, which provides the potential for property tax reduction for owners of historic properties in the city.

Weinstein was the first Los Angeles developer to use the Mills Act to secure tax savings for individual homeowners in a historic/adaptive use loft project in the heart of the Fashion District. Like any real estate deal, adaptive use projects must be evaluated using financial assumptions that paint a realistic picture of a project’s potential return while minimizing risk, he says
“The biggest difference in understanding the viability of an adaptive use project is factoring in the neighborhood quality, before and after the project is complete, in order not to overprice the project,” he says.

The securing of financing presents one of the biggest hurdles for such projects, and requires superior projects and superior salesmanship, says Pat Turner, president of Turner Development Group. “For example, when you go to a bank and say that you want to turn a grain elevator into luxury, high-rise condominiums, they are taken aback because it’s never been done before,” he recalls of his quest to find funding for Silo Point. “But once we convinced them of its feasibility by building a great team of experts to bring it to reality, we were able to sell them on the idea.”

The federal historic tax credit provision of the Internal Revenue Code provides a 20 percent credit over five years to redevelopers of historic properties, McGowan points out. These credits are transferable to corporate and some private investors, which adds equity to projects and improves affordability. Several states, including California, Missouri, Kansas, Maryland, and others, offer additional historic preservation tax credit programs that parallel the federal credit and provide an additional source of capital to such renovation projects.

States also use environmental tax credit programs for adaptive use project funding because many renovated buildings, such as warehouses, require some environmental remediation work as part of the interior cleanup. Cities have enacted or made use of tax abatement and tax increment financing incentives as a means to add local incentives to the acquisition and renovation of these properties. “These incentives enable developers to keep the prices they sell units for affordable in local marketplaces and at the same time make a profit that enables them to take on additional projects,” McGowan explains. “Solid pro formas using these programs are also the basis for providing the sorts of guarantees that financial lending institutions and investors expect.”

The main problem with many financing programs is the disconnect between the amount of time a developer has for due diligence and feasibility analysis, and the time it takes to get approval for these programs, says Justin Shelby, founder and principal of UrbanFx Development. “There would be a much greater benefit to these programs if there was a faster approval process that was less subjective,” he states. Programs such as historic tax credits also have a “high degree of subjectivity” associated with approvals, he points out, as well as uneven allocations across the state that result in one area receiving more funds than it can use while another area is denied awards due to a lack of funding.

For developers such as Levey, the future looks bright for historic/adaptive use projects. “People want to live downtown and local governments want to revitalize their downtowns,” he notes. “This has been a trend we’ve seen for several years, and I expect it will continue. Of course, there are only a finite number of buildings to convert, but there’s still a good pipeline of properties to develop.” There is a movement across America, he states: more and more, people want to live, work, and play in that “urban fabric.”

The initial response to the opening of MJW Investments’ historic lofts at Santee Village has been strong, with buyers locking up reservations for 20 units within the first week the property was being marketed. Located between seventh and Eighth Avenues in downtown LA’s Fashion District, the development drew over 1,500 visitors during the first few days. The project offers 200 units in three converted historic garment industry buildings, from the 1920s, which provide reduced property taxes for the buyers.

“Visitors told us Santee Village was true urban living and that the oversized windows, dramatic LA vistas, and stylish interiors in a courtyard setting showed we knew how to do it right,” said Mark Weinstein, President of MJW Investments. “Buyers are coming from Burbank, the Valley and Orange County because they are looking for a place with an urban vibe close to the major job centers in LA. Their occupations run the gamut from engineer to hair stylist,” he added.

The project offers a range of floor plans from 700 sf studios to two-bedroom/two-bath lofts up to a 2k sf penthouse. “Each is artfully renovated to satisfy the modern needs or our residents while preserving vintage details. We provide the rare opportunity for buyers to create their own space in an area surrounded by art galleries, restaurants and nightclubs that are remaking downtown Los Angeles,” explained Weinstein. Prices range from the low $300,000s to over $1 mil with amenities that include a rooftop swimming pool and spas, a basketball court, putting green, and barbecue areas.

West Hollywood’s Destini Café also signed a 1.1k sf retail space on the Santee Village courtyard with plans to open the coffee shop/cafe’s first downtown LA location.

Santee Village is a joint venture between MJW Investments and Phoenix Realty Group to provide housing affordable to middle-income households that want to five in the urban core close to jobs, mass transit and cultural sites.

MJW Investments (MJW) today announced a strong response to the opening of its new historic lofts for sale at Santee Village ( www.santeevillage.com ) in the downtown LA Fashion District. The three 1920s-era buildings netted 20 reservations on the first week of showings with over 1,500 visitors touring the site along Los Angeles Street between Seventh and Eighth Avenues during an open house weekend March 10-March 11. More than 200 urban lofts are for sale in the three historic garment industry buildings that offer reduced property taxes for owners.

“Visitors told us Santee Village was true urban living and that the oversized windows, dramatic LA vistas, and stylish interiors in a courtyard setting showed we knew how to do it right,” said Mark Weinstein, president of MJW Investments. “Buyers are coming from Burbank, the Valley and Orange County because they are looking for a place with an urban vibe close to the major job centers in LA. Their occupations run the gamut from engineer to hair stylist,” he added.

Units offer a range of floor plans from 700-square-foot studios to two-bedroom, two-bath lofts and a 2,000-square-foot penthouse. “Each is artfully renovated to satisfy the modern needs or our residents while preserving vintage details. We provide the rare opportunity for buyers to create their own space in an area surrounded by art galleries, restaurants and nightclubs that are remaking downtown Los Angeles,” explained Weinstein. Prices range from the low $300,000s to over $1 million with amenities that include a rooftop swimming pool and spas, a basketball court, putting green, and barbecue areas.

West Hollywood’s Destini Cafe also signed a 1,092 sf retail space on the Santee Village courtyard with plans to open the coffee shop/cafe’s first downtown LA location.

Santee Village is a joint venture between MJW Investments and Phoenix Realty Group to provide housing affordable to middle-income households that want to live in the urban core close to jobs, mass transit and cultural sites. It is located in the heart of LA’s Fashion District, home to 90 blocks of retailers, wholesalers, designers, Hollywood stylists, shoppers and residents who strive for creativity and individuality where they live and work.

MJW Investments ( www.mjwinvestments.com ) specializes in revitalizing urban neighborhoods with adaptive reuse projects that incorporate housing with retail components. Since 1983, the firm’s principals have developed more than 10 million square feet of commercial and residential projects across California, Nevada, Texas and Arizona. Currently, MJW owns and manages some 500 units of housing and more than 2.5 million square feet of retail and industrial space.

By Keeley Webster

Inside the Little Tokyo Lofts on March 10, a steady stream of people pored over half a dozen light-filled units, some modern with Philippe Starck Lucite chairs, and others cozy with oversized couches and funky art.

One of 16 projects on view as part of the Downtown Living Weekend, the Little Tokyo Lofts scheduled 20 appointments and signed two reservations on the spot. In all, nearly 4,200 people attended the March 10-11 event organized by the Downtown Center Business Improvement District, aimed at introducing potential residents to urban living.

Santee Village, part of a collection of historic garment buildings in the Fashion District, snagged 17 reservations for units starting in the low-$300,000s and extending to a penthouse topping $1 million. Two retail tenants also signed leases in the building - a clothing store and a coffee shop called Destiny Cafe, which has a location in West Hollywood.

“We’re not seeing investors, but people who really want to buy and live here,” said Santee Village Sales Manager Robyn Horwitz. “The insanity and frenzy of the last year has gone away and now we have a unique Downtown buyer.”

Interest in Downtown living extended across the community. The Barker Block in the Arts District scheduled 20 appointments, while the Roosevelt Lofts on Seventh Street in the Financial District saw 16 reservations, including two for penthouses priced over $1 million. Other properties on the tour included the 1010 Wilshire building, 2121 Lofts (hip scooters were driving around town, touting the project), Chapman Lofts, Title Guarantee Building, Rowan Lofts, Artisan on Second, Biscuit Company Lofts, El Dorado, Luma, Market Lofts, Mozaic and Mura. The renewed interest has kick-started a Downtown housing market that grew sluggish in the last year as hundreds of new units became available. According to the DCBID, an estimated 28,878 people live Downtown, with the population projected to hit 40,000 by the end of 2008.

EVALUATE
Like any deal, adaptive reuse projects are evaluated using financial assumptions aimed toward getting a great return while minimizing risk. The biggest difference between such deals and others is that, with adaptive reuse, it’s critical to understand and factor in neighborhood quality both before and after the project is done so that unit pricing is not estimated too highly. Often, reuse projects are in less-desirable areas that do not catch up to the value of established communities in the same town or cannot sustain that value. In an urban setting, comparable studies need to be evaluated block by block. What seems to be selling or renting at a high rate six blocks away may not translate into the same kind of sales at your project’s location. Because adaptive reuse projects are a unique type of project, it may take extra time for the market to absorb the available units. The best mitigation for this situation is to have the developer design and deploy smaller units. Resisting the urge to create “grand lofts” reduces the length of time on the market. This is because many loft buyers are first-time home buyers for which the price point is not value per square foot, but rather the overall sales price. For this reason, the million dollar loft condos should be saved for the beach where the buyers expect to pay more for location.

FINANCE
Historic tax credits can be used for rental properties in a variety of ways. They can serve as equity for developers or as construction funds for rehab. Provisions such as the Mills Act in California are often overlooked. The act can provide building owners 50 to 70 percent potential savings on their tax bills. Project developers need those breaks because a myth in the industry is that it costs less to do an adaptive reuse project than to create a new building. Adaptive reuse projects costing as much or more than new construction are common because of rising land costs and the complexity of the projects. Structural upgrades, especially in a seismic-zone, will add costs and require careful planning.

REUSE
Reusing an old building is always challenging. Sometimes a building may look beautiful and seem to be posed for residential reuse, but it is not suited for efficient residential layouts. Amenities, such as pools, gyms, conference rooms, recreation rooms and parking, are sometimes hard to incorporate into projects. And the biggest challenge usually is providing parking for all units. A custom reuse of basements can create parking areas, but usually at a very inefficient rate – sometimes doubling the space needed for one stall because of building constraints. The best advice is to consult with those in the know such as land use experts, historical societies that know about the tax benefits and investment advisors about the practical realities of the site.

These points were prepared by Mark Weinstein, President, MJW Investments (www.mjwinvestments.com). The firm specializes in revitalizing urban neighborhoods with adaptive reuse projects that incorporate housing with retail components. Weinstein was the first developer to use the historic Mills Act on downtown Los Angeles to get tax breaks for the buyers of loft/condo units. He can be reached at (310) 395-3430 or mweinstein@mjwinvestments.com.

By Katelyn Lee

THEY WILL NEVER BE EASY, BUT HISTORIC preservation and adaptive reuse are becoming increasingly popular in Southern California-and nationwide-as developers seek ways to utilize existing structures for new and more profitable uses. As its popularity grows in concert with urban development, government agencies are cooperating by offering a spectrum of tools that can be utilized by developers and cities to redevelop and rehabilitate aging and underutilized buildings. This can thereby re-energize communities and neighborhoods, while preserving local cultural heritage, architectural character and a community’s historic legacy.

“A number of municipalities in California and nationwide endorse the historic preservation and reuse trend,” says Linda Dishman, executive director of the non-profit Los Angeles Conservancy, the leading advocate of historic preservation in the Greater LA area. “As added incentive, there are a host of local, state and federal programs that offer funding for rehabilitating older buildings that still have life left in them. In many cases, local officials will work with developers to find new uses for historic buildings.”

Since its founding in 1978 as part of the community effort to save the LA Central Library from demolition, Dishman’s organization has been a strong proponent of and expert resource for historic preservation in the greater LA area.

In Los Angeles, three projects developed by LA-based Forest City Residential West have garnered numerous accolades and awards. They are Metro 417, a historic preservation/adaptive reuse project that rehabilitated the former Subway Terminal Building in Downtown LA into a vibrant mixed-use property; I 100 Wilshire, a long-vacant high-rise office building adjacent to the 110 Freeway that was redeveloped into a luxury condominium tower: and the Mercury at 3800 Wilshire, the former corporate headquarters of Getty Oil, which is also being redeveloped into luxury high-rise condos.

Dishman says these projects represent the effectiveness of the City of Los Angeles’ pioneering Adaptive Reuse Ordinance (ARO), which was enacted in April 1999 to encourage the conversion of underutilized commercial buildings into residential uses. The success of this land-use policy helped solidify the Downtown LA renaissance by providing thousands of apartments, condos, live-work spaces and artists’ lofts now being built in the Downtown core. By so doing, the city’s goal to revitalize the lackluster Downtown area is being achieved.

Thomas Cox of Thomas P. Cox: Architects, who is also involved in the above-mentioned projects, points out that there are numerous issues associated with renovating older structures. They include structural stability, toxicity and contaminated soils, and unforeseen conditions like mold and water intrusion. He stresses the importance of proper due diligence coupled with comprehensive design analysis to ensure that these buildings are suitable for the developer’s reuse plans.

Nevertheless, even with these issues, Cox says that rehabilitating and revitalizing older and/or unused buildings is well worth the effort. In many cases, he says, the necessary infrastructure is in place and traffic patterns are established. “Historic preservation and adaptive reuse are the ultimate smart growth and the ultimate in recycling,” he notes. “When buildings are brought back to life through adaptive reuse, they revitalize neighborhoods by preserving the historic core architecture and create new housing and mixed-used opportunities, land increase] public safety,” Cox continues. “Reuse of vacant or dilapidated buildings also enhances economic growth in urban and commercial cores. It’s the right thing to do.”

Cox also emphasizes that architects and developers learn the newest trends in designing and developing historic/adaptive reuse projects, and the intricacies of planning tools such as special ordinances and zoning for these projects. “This is not a business for the faint of heart,” he states, “so it’s critical to be well informed and well armed before starting down this path.”

Sometimes the benefits of an existing structure outweigh the possible pitfalls. At 1100 Wilshire, Kevin Ratner, president of Forest City Residential West, says the spectacular views were one of the main reasons Forest City was so interested in acquiring the 37-story office tower.

With the potential for multiple unknowns, Renata Simril, senior vice president of Forest City Residential West, who oversees development of Forest City’s historic preservation/adaptive reuse projects, says one of the biggest challenges that these projects bring is satisfying fire and life/safety regulations in buildings such as the 80-year-old Subway Terminal, as well as in 1100 and 3800 Wilshire, since both were originally designed as office buildings. “Fire and life/safety trumps everything,” she states. “It’s also critical to make sure you have, as part of your planning and development team, the proper technical expertise and in the case of older buildings, consultants such as the LA Conservancy who know the ins and outs of historic preservation.”

Echoing Cox, Simril urges architects and builders to conduct comprehensive due diligence, and underscores the importance of working closely with fire, police and other city departments, as well as planning and building officials.

In Downtown San Diego, Bosa Development is transforming the former San Diego Gas and Electric Co. Generating Station 8, which has been designated an historical landmark, into a luxury, for-sale residential tower called Electra. With 43 stories and 248 units, Electra will soar to new heights as San Diego’s tallest residential landmark. The original two buildings on the site were designed by Eugene Hoffman in 1911 to house the boilers and turbines for the San Diego Electrical Railway Co.

The San Diego Gas and Electric Co. then purchased the property and engaged William Templeton Johnson to expand the existing facility to meet the city’s increasing energy needs. Further expansions by Johnson and other architects occurred between 1939 and 1941.

Mindful of the building’s value as a preeminent example of neoclassical and art deco architecture, Bosa is preserving the station’s facade and key structural and architectural elements, integrating them into the high-rise structure. The company is also donating commercial space along Broadway to the San Diego State University Art Department to install an art gallery. The Electra is slated for completion in early 2008.

Electra represents the finely tuned give-and-take that attempts to preserve as much of a structure’s historic significance as possible when it undergoes a new use. Nat Bosa, president of Bosa Development, points out that it also “has to fit within the context of the surrounding neighborhoods and community and, most important, work financially for the developer.” A complete redesign may be the only solution in some instances. “It’s a different type of development process because you have to be ready to respond to anything,” Bosa says. “You may have to make adjustments at every stage. It might be during due diligence, demolition and even in the midst of development, but there’s always certain amount of discovery that may require substantial redesign. You make decisions based on the information available, but the plans and, of course, the budgets are always subject to change.”

Ellen Berkowitz, a partner in the Real Estate and Land Use Group at Manatt, Phelps & Phillips LLP, contends that historic preservation and adaptive reuse are useful methods for Los Angeles to add badly needed housing to its inventory. “Downtown Los Angeles has tremendous untapped potential for a number of reasons,” she says. “One key reason is that, because Downtown is not a residential neighborhood in the traditional sense, there should be little community objection to high-rise and other residential.”

She also points out that some of the markets offer an economic advantage to developers who could (at least theoretically) experience some savings by reusing existing buildings rather than relying on more expensive new construction. As a result, thousands of units have been constructed, providing housing where many vacant offices and warehouses previously existed.

While revitalizing Downtown LA has been a good thing, Berkowitz says that the rebuilding process, due to construction and material costs, has required higher prices of the housing that is replacing the older buildings, which pushes up the rental and sales prices of the new stock. The result is a chipping away at affordable housing options, requiring the lower income residents to find housing elsewhere–or not at all. “In Downtown today, where people of vastly different socio-economic groups live next to one another, the need for more affordable housing is hard to ignore,” she states.

Mark Weinstein, president of MJW Investments, was the first developer to use the Historical Property Contract Program, also called the Mills Act, to secure tax breaks for one of his pioneering projects. He says that like any real estate deal, adaptive reuse projects must be evaluated using financial assumptions that paint a real picture of a project’s potential return while minimizing risk. “The biggest difference in understanding the viability of an adaptive reuse project is factoring the neighborhood quality, before and after the project is complete, in order not to overprice the project,” he explains.

Adaptive reuse projects in less desirable areas may not sustain the value as well as an established community in the same market area. Weinstein says comparable projects need to be evaluated on a block-by-block basis in an urban setting. “What might seem to be selling or renting at a high rate six blocks away from an adaptive reuse project may not translate into comparable sales performance,” he says. Because an adaptive reuse project is unique, additional time may be required for the market to absorb the available units.

Because reusing an older building is always challenging, Weinstein says a developer needs to plan early and properly in the construction cycle if the goal is to keep costs below what they would be starting from scratch. For instance, structural upgrades, especially in a seismic zone, will add costs and require careful planning.

Nevertheless, a historic building may have distinct architectural elements that make it special and worth the additional effort and costs. “Even if the character-defining features are confined to the exterior, an historic structure may have a better chance of standing out in the marketplace, giving it an advantage over [itsl competitors,” Weinstein says.

Sometimes a building may look beautiful and seem to be poised for residential reuse but is not suited for efficient residential layouts. Amenities, such as pools, gyms, conference rooms, recreation rooms and parking are sometimes hard to incorporate into projects.

The biggest challenge usually is providing adequate parking for all units. Depending on the circumstances, adaptive reuse projects can cost as much as or more than new construction due to the raising land costs and complexity of the projects.

“Many older buildings are simply no longer safe for occupancy and cannot be rehabilitated without a significant investment to improve the building’s structural integrity,” she says.

Moreover, during the rehab process builders may uncover unexpected problems that could significantly increase costs. Berkowitz warns that developers should be mindful of hidden costs, and budgeting properly for these contingencies is key to making the project pencil out.

To deal with the structural unknowns, design constraints, entitlements and other challenges, Dishman points out that developers have a variety of tax incentive and tax credit programs available to lessen the burden of historic preservation and adaptive reuse.

Along with the Adaptive Reuse Ordinance, the City of LA offers such incentives as the Milis Act, which provide the potential for property tax reduction for owners of historic properties within the city.

On the state level, there is the State Historic Building Code, and from the federal government there are investment tax credits and facade easements.

“It’s important for developers to work with local planners and government agencies, as well as with historical societies, community groups, and state and federal agencies to get these projects off the ground and completed,” Dishman concludes. “A willingness to work in concert with public and private interests, coupled with necessary knowledge and expertise, are vital to the success of these projects.” -socal

By Richard Clough

For developer Mark Weinstein, the idea was simple: If the owner of a historic building is entitled to tax breaks, then condo buyers in a historic building should get those same breaks.

This seemingly straightforward idea proved groundbreaking as Weinstein and his company, MJW Investments, adapted a piece of legislation more than three decades old for an entirely new and innovative use.

“It had never been done before,” Weinstein said. “It was complicated but we were persistent. We were told we couldn’t get it done, but we did.”

The Mills Act Program, enacted in 1972, was meant to provide tax relief for the restoration and preservation of historic buildings. The act had previously been used primarily by single-family homeowners and developers of commercial projects. According to the law, the benefit to the owner may be a “substantial reduction in property taxes,” while the benefit to the city is the preservation of historic resources.

For more than 30 years after state Sen. James Mills penned the law, no developer tried to apply it to individual units within a single building. But Weinstein reinterpreted the legislation when he began developing several Fashion District buildings into what would become the largest adaptive reuse project in Los Angeles–the Santee Village lofts.

“We looked at Santee Village as being a unique project, so we asked, ‘What value-added propositions could we bring to the project? What could we do to distinguish ourselves?’” Weinstein said. “The buildings are unique–we wanted to make the tax savings unique.”

The buildings were all constructed during the 1910s or 1920s in an area teeming with textile manufacturing buildings. After a long and complicated approval process, Weinstein and his company managed to pass the tax savings along to the buyers by having the Mills Act applied to the individual condos.

Weinstein’s innovative use of the act could save Santee Village condo buyers as much as 50 percent to 70 percent on their properly taxes, amounting to thousands of dollars annually. And with this reduction, some buyers could afford a mortgage that’s higher by as much $100,000. It’s been an attraction to buyers in project where units range from $300,000 to $500,000.

“We’ve been doing no advertising and we’ve basically sold out,” said Weinstein, noting that at least one of the buildings would not have been included in the development project if not for the Mills Act tax relief. “It’s probably the single most powerful incentive that drives people to Santee Village.”

Carol Schatz, president and chief executive of Central City Association, said Weinstein’s contribution to the downtown housing market has been “pretty extraordinary.” When most developers stayed away from the Fashion District, she said, Weinstein pushed ahead with an ambitious plan.

“I think he thought that downtown was ripe for housing for a younger, hipper clientele tired of the suburban lifestyle,” Schatz said. “He saw the potential early.”

Santee Village will include seven buildings of 445 for-sale and rental units. Three of the buildings opened in 2004 as Santee Village lofts and another opened in late 2005. The three remaining buildings are set to open by August 2007.

With the success of Santee Village, other downtown projects in the pipeline have tried to use the Mills Act to similar ends. The Rowan Lofts and the Tomahawk Building Lofts have both sought Mills Act approval, according to the Los Angeles County Assessor’s Office.

LEADER

Mark Weinstein

Born: Arcadia, 1958

Position: President, MJW Investments

Accomplishments: Spearheaded the $145 million, 800,000-square-foot Santee Village lofts projects and obtained Mills Act approval for individual condo buyers

On Getting Mills Act Approval: “It was a complicated process. It had never been done before and as we went along we were actually learning with the assessor.”

Companies:

• MJW Investments Inc._Services
• MJW Investments Inc._Officials and employees

Product Codes:

• Subdividers & Developers (6552000)

Event:

• Government regulation (930)
• Government regulation (cont) (940)
• Legal issues & crime (980)
• Taxes (920)
• Services information (360)
• Executive changes & profiles (540)
• Management dynamics (200)

By John Nank

Mark Weinstein — a lawyer by trade — had no formal business training when he founded MJW Investments in 1983. Now, more than 20 years later, one lesson he learned then still applies now.

“Surrounding yourself with the right people makes your life easier,” Weinstein says. “You should invest a lot in your employees and a lot in their training.”

By surrounding himself with the best people and creating a culture built on accountability and growth, Weinstein has expanded his Santa Monica-based company into one of the fastest-growing developers in the region. MJW’s revenue has grown from less than $45 million in 2003 to more than $70 million in 2005.

Smart Business with Weinstein, president of MJW, about how he builds a culture, inspires employees and uses community service to make himself a better leader.

Q: How can CEOs motivate their employees?

We have accountability groups and personal growth groups where we feel we have a value-added component to our company by having consultants that are working with people as individuals and as a group. They improve not only their work skills, but improve their ability to get along at home with their significant others and their family. My employees feel that that’s a value-added.

When we set the example of doing good things in the community or doing good things in our company, it inspires all the people in the company to want to do better. We encourage not only personal growth but business growth by promoting people and giving them the opportunity to have as much responsibility as they can handle.

By constantly raising the bar, communicating our goals, having an open environment and supporting them both personally and in business, it makes people want to work for you.

Q: How does your community service influence your leadership style?

I get involved in the community for two reasons: one is that doing good things is one of the values of our company, and another is that you meet other business leaders and sources that you might deal with in your business.

I lead by example of what I do in the community and by being a visionary, and I surround myself with really good people. I have a management structure that’s well-defined, and each person knows their role and we support each other.

I give a lot of feedback and behind-the-scenes support, but I try to let the other members run the day-by-day stuff. I don’t have to be so much the key person in integrating every detail of the company.

I have other great people, so I don’t have to think about whether they’re doing a good job or not. I trust them, and they get the job done, and I get the benefits of their work ethic.

Q: How do you know when you’ve found the right person for the job?

It’s more important who a person is than what a person does sometimes. People development is often not focused on, and that’s really key because you can always train people to do work, but if they’re not the right people, then it’s kind of hard.

Sometimes there are people who don’t want to work for you. They will self-select out.

If everyone else is on a certain road and training and the other person doesn’t fit in, a lot of times here they’ve self-selected out where they realize they’re not really into personal growth or business growth. There’s accountability here, and they don’t want that, so they leave.

Q: How would you describe your company culture?

Our culture is one that’s committed to growth, accountability and creativity. Those are our values, and we meet a lot and we have defined what our values are and what our goals are.

When we make decisions, we often ask whether the decision is consistent with our values, and it creates a good environment because everybody knows what our values are. Our goals are clear.

Our environment is very open to having people communicate to each other. We have group meetings where we network and brainstorm, and even if it’s not your area of expertise, everybody has good thoughts, and we try to run things by the brain trust of everybody so that we can get better ideas and be more efficient.

Q: How do you measure success?

Success is a very individual thing. We all set our own personal business goals, and when we do things both in the community and at work that achieve our goals, I think that’s success.

But what happens in most businesses is you keep raising the bar. You set certain goals for the company and as individuals, and you reach those goals and you suddenly move the bar up. So you’re always chasing the sky.

Success is an ever-changing target, but accomplishing your goals and giving back to the community and being recognized for the work that you do — that’s success.