Greenberg Glusker Real Estate partner Henry Finkelstein was quoted in a Law360 article published August 25, 2016, “4 Challenges When Repurposing Office Campuses,” (subs. required) about the challenges developers face in repurposing large office campuses as companies increasingly move jobs from suburban campuses as a result of the shift of millennial workers to city centers.
Obtaining local zoning approval for non-office use is one of the major challenges in repurposing corporate space and requirements for rezoning can be even more stringent than in the prior use.
“In one instance [in San Jose, California] we did a conversion to medical office and the city’s code requirements for parking were enough stricter than the prior general office use that we had to wall off part of the space and just use it for storage because we couldn’t meet the required parking ratios … for the building,” said Finkelstein.
In addition to zoning hurdles, developers also face the problem of how to finance the property during the zoning approval process and how to monetize the property in light of construction costs. Finkelstein, having worked on a few of such matters in California, said “the deals are challenging just because [oftentimes] there’s really no value there except in the land value.”
Repurposing office properties designed for that purpose only also poses challenges for developers when designing and constructing the space for new use.
“We had a suburban office and there wasn’t really a good market for office use on the ground floor,” said Finkelstein. “We ended up making a lease to a yoga studio only to discover that all the heat and humidity from the hot yoga room was creating problems in the office space upstairs.”
“We had to spend so much money to do it right … that we lost a lot of the extra value in having a multistory building," Finkelstein added.