Bruce J. DeBol, CEO Badgerow Building, a Mako One Corporation Company (Nov 08)
Your company specializes in renovating historic buildings for commercial and industrial purposes. What types of buildings are ideal for this kind of project?
DeBolt: Historic properties offer significant advantages both in the opportunity to contribute to the community and in their ability to be funded with significant tax-driven equity. We look for properties that are in areas served by inexpensive power, a well-educated competitive labor force, strong local economic trends, strong community leadership, and a property that is either on the National Historic Register or is eligible for inclusion on the register. Typically, buildings that are more than 50 years old will qualify.
Are there suitable historic properties everywhere, or are there parts of the country where this kind of development is more appropriate than others?
DeBolt: While there are historic properties across the country, the types of properties that meet our criteria are more plentiful in the Midwest and portions of the eastern United States. "Rust Belt" areas have been slow to redevelop and recover from the migration of manufacturing operations overseas. That has created an abundance of opportunities. These properties often sit in historic and economic redevelopment and revitalization zones, which bestow a variety of enhanced or additional economic and tax incentives.
What are some of the most suitable modern uses for these buildings?
DeBolt: We have seen obsolete manufacturing buildings converted to state-of-the-art production facilities used to make massive wind turbine blades, or conversion of churches or office space to high-tech, raised-floor data centers. The only limitation here is your imagination. It seems like every building has its own personality, which creates in some way a strategic advantage for one kind of user or another. The trick is to identify what those advantages are and which industries would most benefit from them.
What are some of the federal, state, and local tax and other incentives that might be available for this kind of renovation project?
DeBolt: The federal government provides a "Historic Renovation Tax Credit" of up to 20 percent of the total renovation costs. A number of states offer additional historic preservation credits of up to 25 percent or more. Because many of these buildings are located in areas that have suffered considerable decay and economic blight, they will often meet the requirements for participation in the Federal New Markets Tax Credit program. The NMTC can generate additional credits equal to 39 percent of the renovation costs and are often layered on top of the historic credits. Some quick math will tell you that adds up to 84 cents on the dollar of public equity contribution in the form of state and federal tax credits - just for starters.
How does the overall cost of a typical project like this compare with what it might cost to undertake equivalent new construction?
DeBolt: By putting the proper incentives in place, new construction cannot compete with the value of historic renovation. New construction may appear at the onset to be less expensive than historic renovation because the labor costs comprise a much larger portion of the historic renovation construction budget. New construction labor costs are typically about 50 percent of total costs, whereas the labor component of historic renovation is closer to 60 to 70 percent. But you have to evaluate the complete financial structure, and when you do that historic renovation creates greater value.
What are some of the challenges inherent in this type of project?
DeBolt: Historic renovation by its very nature is challenging. The use of experienced development management is essential to abate the risks inherent in this kind of project. You never know what you are going to find behind the next sheet of drywall or below the next floor panel. Mold, asbestos, toxic chemicals, submerged tanks - these can really do a number on redevelopment budgets. Structural deterioration due to neglect, lack of heat, or moisture encroachment can all cause expensive renovation problems that are not readily visible at the outset of a project. Many times the original architectural and engineering drawings are at best incomplete, or worse, no longer exist at all. You may have to go to extraordinary lengths such as x-raying the structure to see how much steel is in the building and what size rebar was used to determine the building's strength, or employ ground-penetrating radar to determine if toxic dump sites or underground storage tanks are present on the property.
What are the environmental advantages of choosing renovation over new construction?
DeBolt: Buildings today consume about 40 percent of all energy used in this country. Obviously the cleanup of hazardous and toxic materials contained in many of these buildings is a benefit for all. Beyond that there are so many gains made with increases in energy efficiency as part of the renovation. The installation of new high-efficiency heating boilers or conversion of old boilers to run on green fuels like vegetable oil, geothermal systems, replacement of single-pane windows with energy-efficient thermal insulated windows, green cooling opportunities, use of environmentally friendly and less energy-intensive building materials, energy-efficient lighting, high-efficiency cooling systems, and elevators that generate electricity are just a few. These lower energy and operating costs dramatically, so that the property is once again economically viable.
Do you find communities eager to support projects of this nature?
DeBolt: Renovation and adaptive reuse of historic properties makes good economic and lifestyle sense for everyone. It improves surrounding property values, it abates environmental liability, it increases local property tax revenues - even while granting property tax abatements or concessions to the historic developer - it creates jobs, it creates opportunities to attract new businesses and economic growth from outside the local community, it is a "green" environmentally friendly strategy, and it forges new private/public relationships.
There is a history and a connection with these properties that is very strong in the community. Multiple generations of fathers and mothers have worked in many of these buildings, so losing them to decay and destruction is like losing a small part of ourselves. So, yes, these projects enjoy very strong community support. Federal, state, and local governments will immediately become your partner in development. They see the advantages right away.