How does one actually gentrify a building?
October 8, 2012 7:50 AM   Subscribe

How does the world of raising capital for large scale property improvement and investment work?

I know this is a super vague question, but the situation is as follows:

I work for a couple who own a huge, beautiful building in an affluent college town in the northeast. Street level spots are doing just fine, with businesses operating out of them, thriving and paying rent etc, but there's three full floors of glorious building above that remain unused. The owners are very interested in utilizing the space, but have no idea how to go about raising the capital or forming an investment group to do so. This particular building would honestly make a beautiful, classy restaurant/brewpub and hotel combination if executed properly.

Now, back home in PDX, it was really common (see, McMenamins, Ace Hotel, Etc) to see buildings very much like this turned into restaurants, bars, venues, etc. There's a trend in the northeast for older mill building to be repurposed, and this building is very much in the same class. This building is just ripe for revitalization and has the bones to make a very interesting hotel/restaurant/brewpub hybrid. I've not really done any research as of yet, but this area gets most of it's money already from tourist traffic and the college presence, so it appears on the surface to be a good fit.

My broad, broad question (hopefully with several to follow) is how do renovations like this take place from beginning to end? How do investment groups get pulled together to finance operations like this?

I'm sure there are consulting firms that specialize in this and individuals with degrees in finance and hospitality are more geared towards a good execution of such a thing, but I'm wondering if it's something that can even be attempted by a mere mortal with a communications (PR) degree and a couple decades of experience in the food industry?

My end goal is to work up a proposal for the owners to allow me to facilitate the project of actually pulling together investors and get the ball rolling on getting a financial group together to repurpose the building (the owners have no real time to do so, running several other quite successful businesses, but again, have expressed interest in the desire to use the rest of the building). I personally have no money to throw at an investment property like this, but I do have plenty of time and drive. My family and I going to be living in this area for the next 2 years +/-, and I'm actively trying to claw out of jobs that only pay $12/hour, so this seems like it could be a long-shot opportunity. Realistic? What steps would I need to take?
posted by furnace.heart to Work & Money (5 answers total) 1 user marked this as a favorite
In my experience, construction and development are extremely cutthroat. I am not exaggerating when I say you'd need to watch your back on all fronts. Half of the people on the project will be looking to cut you out of it or go around you, and half will be looking to see what they can cut out of the scope to make extra money for themselves while trying to CYA so someone else is there (you) to blame if anything goes wrong . I would not enter that domain casually.

That said, what would your role actually be? The investors would bring the money, the architect would do the design and specifications, the GC is going to do the construction. Are you owners rep, and if so are you empowered to make decisions? Do you feel comfortable making those decisions?

I know nothing about the hotel or restaurant business, and that's a huge aspect of this - obviously, you'd want to know what the purpose of the building will be before you renovate it. Does it make sense in that market? What's the competition like? Are the owners going to hire someone to run it (you?)?

I can't see this being completed in two years if there aren't even any prospects for investors yet. (What are the investors doing? Just loaning money (why not the bank?), and for what, a % ownership?)

IANYL, but I see a ton of potential for liability here for you, and a bunch of stress and sleepless nights.

All of that said, can you do it? I think you can, but it's more work and more stress than you think. Before you do much else, find a good team of professionals to help you out (lawyer, accountant, consultants, etc) and do a ton of research before you finalize your proposal. And then research some more. And be able to articulate and back up why the current owners should take this risk.

Also note that my experience is all East Coast, so maybe PDX is not the same environment. I doubt it, but could be.
posted by mrs. taters at 8:45 AM on October 8, 2012 [1 favorite]

I've only started to become interested in urban planning issues and town politics, but so far as I can tell, from a high level:

Property owner takes high concept to engineering firm, and starts to push around ideas in the press to see what may or may not fly.

Engineering firm starts to work out possibilities, from traffic impacts to EIRs to matching any municipal and general plan requirements for balance between residential, retail and other commercial, to pie in the sky building concepts (in one case locally it's "hotel with a farm on the roof").

Property owner and engineering firm take concepts to city council and planning department, start paying planning fees. City council pushes back against various elements, project changes, lather, rinse, repeat.

Property owner takes approved plan out to try to get funding. This stage can take a few years, and often relies on an existing network. One guy I've biked with has been feeling out his investor network for a vacation hotel project for about a decade now.

Funders realize that general plan and city council desires for retail/commercial/residential balance are completely out of whack and make property owner and engineering firm completely revamp the project. This then goes back through the city council, with the "you've already approved this (completely different) project" momentum it actually goes through fairly quickly.

At which point the neighborhood and slow growth associations bring out the lawsuits, get bought off by donations to various organizations, and then actual construction can occur.

I think it's totally something that a mere mortal with a PR degree can handle, most of the stuff that doesn't need, for legal reasons, to be done by state registered professional engineers is PR. I would recommend that you start right now talking to actual engineers who've worked on these projects (there are a lot of them who are looking for projects right now), also make some friends who've worked in construction management: I know a couple of people who have, one who had no construction or civil engineering background, but knowing something about how to manage contractors will be really helpful. As mrs. taters says up above, it'll be stressful, there will be lawsuits (part of the game), but faint heart never won fair maid and all that.

Obviously this is a super high level overview, and I haven't done this myself yet, but I know a couple of people who play in this field and am getting together tomorrow evening to sit on a yacht and tour the river front of our beautiful little city and talk about issues of urban planning and development projects and the like.

I'd start by grabbing your city's general plan and seeing how the ideas you and the owners have for the property mesh in with that.
posted by straw at 9:20 AM on October 8, 2012 [2 favorites]

My end goal is to work up a proposal for the owners to allow me to facilitate ... pulling together investors.

What is it that you want to propose to the owners, i.e., do you want them as partners in the business or are you coming to them as a potential tenant with a business that will require renovation of their property?

The proposal presented to potential investors is a major project, in and of itself, e.g., you will need a detailed analysis of the cost of the conversion and the operating budget. Unfortunately, you could spend a lot of time and money on the analysis only to learn that the numbers don't work.

Then, if all goes well, you have a construction project on your hands and the issues raised by mrs. taters. And, I agree, 2 years is a bare minimum.

There are many much better strategies for getting out of the $12/hour job rut.
posted by she's not there at 9:26 AM on October 8, 2012

Whoa, straw - that's a very location-specific way of approaching a project, beginning with the notion of using the press to vet the idea. In some cases, it's much better to quietly build support in the community, rather than risk a knee-jerk reaction with a press announcement. In other cases, (e.g. Chicago), you would be a fool to talk to the press before talking to the alderman.

In addition, there isn't a universal model regarding the role of city government and various departments in the process.

Also, way over-the-top considering this is about retrofitting an existing three story building. The OP may be asked to address parking issues. Traffic study? Unlikely. This is a project that begins with a feasibility analysis, not "property owner takes high concept to engineering firm..."

FWIW, I have a grad degree in urban planning.
posted by she's not there at 10:36 AM on October 8, 2012

she's not there: conceded on all your points. The extent of my experience comes from:
  • a workshop that I designed and built in my back yard, the only difficulties with it are that it has a living roof, which triggered all sorts of "experimental structure" issues with the building department, and the sound-proofing also triggered Title 24 compliance. But planning compliance was a matter of showing that I followed all the setback and height rules in the design.
  • The rest of this is from hanging out with local political figures, local developers, and engineers. I do know that when I've asked what the process for planning approval is, I get nervous laughter. So that appears to be roughly "if you're not completely within the written guidelines (and almost nothing you want to do is), we start passing this around departments, committees and the council".
So, perhaps revised:
  • Develop a concept for the property.
  • Build public and political support. In some places that's go to the papers, in some places it's hit the community groups first, in some places it's talk to the local politicians. If you're floating this idea by investors, which you probably should be, they'll have input on how they think you should go about it.
  • Push the concept through the planning department and the policial process.
  • Approach investors (although you should have already been doing this groundwork).
  • Revise the project to something that the investors will back.
  • Get approval for the revised process.
  • Deal with the various NIMBY/anti-growth lawsuits.
  • Build the thing.
  • Deal with the various lawsuits that are a natural part of the construction process.
If you want to flesh that out, I'm sure the OP would be overjoyed. But I'd also suggest that if this is an interesting career path to the OP, dive in and start making mistakes! It won't be a cheap education, but the good ones never are, and you'll probably make both a whole bunch of allies and enemies along the way, either way: they'll be contacts. And get your interests in writing early, 'cause there's less free cash flying around than you'd think, and everyone wants all of it.
posted by straw at 1:46 PM on October 8, 2012

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