HURRICANE IRMA
Repurposing commercial projects in Florida
while maximizing net operating income
By Kim Ashby
Special to Florida
Construction News
As the Florida economy gains trac-
tion, building owners and developers
are rightfully examining all of the op-
tions that may be presented for maxi-
mizing the income from commercial
properties, and especially from exist-
ing bricks and mortar in already ma-
ture areas.

In Florida and surrounding areas
the challenges of dealing with the af-
termath of Hurricane Irma may have
inadvertently delivered a boost to the
incentives for repurposing for the
properties which were affected by the
storm. This article will explore those
types of repurposing that have had
particular successes as compared
with those which continue to struggle
and offer suggestions about how to
tell one from the other at the outset of
the plan for repurposing.

14 – FALL 2017 — Florida Construction News
Investment in the project begins
with the projection of the ultimate out-
come of the repurposed commercial
property, and it is most likely to origi-
nate if it can predictably throw off a
sustained acceptable net income for
at least 10 to 12 years. With the lim-
ited exception of cash buyer owners,
the attractiveness of the repurpose
scheme to commercial lenders is typ-
ically the starting point. Since the
cheapest money to borrow has histor-
ically been for loans of at least 10
years, the repurposed use must
demonstrably show that the net oper-
ating income will support the debt
payments and achieve a loan to value
ratio of usually 70 percent or less over
the life of the loan, plus years follow-
ing to allow for refinancing.

In addition to the search for con-
ventional financing, federal and state
recovery funds are now a separate op-
tion to finance remediation and devel-
opment of a new use for properties
and structures which were damages
in the hurricane force winds that af-
fected so much of the state.

FEMA and related agencies have
access to more than $15 billion in
federal funding to assist in rebuilding
damaged structures. See https://
www.disasterassistance.gov. Also,
the Small Business Administration has
posted availability commercial ven-
tures that qualify for SBA financing to
access specially earmarked funds to
repurpose structures damages by the
recent storm. See https://www.sba.

gov/loans-grants/see-what-sba-of- fers/sba-loan-programs/disaster-loans.

The type of repurposed use does,
and should, depend greatly not only
on the region but the anticipated
growth and development in that re-
gion. Though this may state the obvi-
ous, research in advance will often
better align the repurpose plans with
something not yet developed but on
someone else’s drawing board.





HURRICANE IRMA
For example, the rapid expansion
of enterprises such as SpaceX, renew-
able energy firms, and all manner of
private schools, may not be currently
present in the region, yet once situ-
ated, would leave the would-be devel-
opers in the dust of others who
foresaw the needs that would attend
such a radical new regional influx.

Also, South Florida has particularly
benefitted from vast investment sums
flowing in from South and Central
America by investors who are looking
to maximize return by securing assets
in the states, or are as interested in
placing their assets outside the reach
of certain governments.

Unquestionably, properties which
are experiencing the greatest chal-
lenge to sustaining their value are
older, traditional big box stores and re-
tail malls and large walk-in bank build-
ings. However, inventive thinking
about the re-use of turnkey properties
which are already heated and cooled,
and which are usually attendant with
plenty of available parking, is already
turning profits for those who with vi-
sion to create an entirely new con-
cept. For example, creating a “destina-
tion” for entertainment as something
more than big box retail has found
success in Bayside in Miami, Hyde
Park in Tampa and Thornton Park in
Orlando. Population draws brought by
“event destinations” require a certain
amount of work and advertising but in
return are capable of taking relatively
dead commercial space which reinvig-
orates an entire sub-community.

A survey of the greatest success
stories of plain to fame in commercial
rebuilding include the innovative who
predicted the proliferation of charter
schools, sometimes scoring state and
private subsidies and other incentives
to court the development of early and
grade school education. Other types
of successful re-uses of commercial
properties are: entertainment, such as
music and movie venues with adja-
cent dining opportunities; hotels
which have sprung in city cores from
older office buildings or government
centers which are no longer needed
as such; community college or annex
properties of established colleges and
universities taking up residence in
churches or former fora that have
large auditorium spaces and plenty of
parking. For example, the Aloft brand
of hotel has purposefully singled out
commercial buildings, former office
space, and turned that into fashion-
able (and needed) hotel room space in
Florida’s metropolitan areas, and
which, in turn, spawns new dining
destinations and other commercial
dollars for the surrounding areas.

Added to the plan of action is the
determination of any subsidies, grants
or other government incentives that
sometimes attend a city planner or
leader’s desire to refresh a historic or
venerable neighborhood or area. Few
politicians are shy of words or pro-
posed deeds, if elected, and the re-
view of the last campaign platform of
the local governing leaders will often
serve up clues of areas where the city,
county or state will support the rede-
velopment of existing properties for
the greater community good, as well
as for those developers savvy enough
to have done their homework.

And, of course, parking and other
access should be at the top of every
page of analysis for redevelopment as
the end users’ ability to park, and/or
the willingness to use public trans-
portation or valet, can mean life or
death of a new going concern. In
Florida, there are additional available
investment dollars for centers and
commercial space which is engi-
neered to serve as hurricane shelters.

A discussion of the successes and
best practices is often placed in best
context when compared with those
repurposing ideas which decidedly do
not work statistically as sustainable
new uses, nor offer the needed net
operating income. Independent
church groups, unaffiliated with any of
the nationally recognized and backed
church organizations, are usually seen
as among the biggest risks; for the
most part, they are simply at the risk
of the current parishioners’ contribu-
tions for an income stream. Most
lenders do not recognize this tenant
use as occupancy at all or at best,
place them at the lowest tier of ten-
ants. The fabled “credit tenants” of the
past decades are also on the ropes to
the extent that retail is in the throes of
full-fledged attack from e-tail and di-
rect mail and supply. Non-retail uses
such as schools and professional of-
fices can add stability to the income
stream but can also add greatly to the
costs of specialized build-outs.

Analysts of trends in commercial
property have in common tackling the
issue of whether the curtailing of tra-
ditional retail due to Amazon-like influ-
ences is here to stay or whether there
may be a resurgence of the need for
more local stores and outlets. Warn-
ing: Will new development needs be
able to adapt in a way that will coexist
in a marketplace which may have no
need or demand for Mom and Pops?
Ideally, a repurpose plan is hedged to
favor both outcomes.

A careful plan for repurposing com-
mercial property will be a well-mixed
balance of research of the area based
on government announced prefer-
ences, private influx of development
dollars into the area, and the statistical
rebounds for the type of new venture
combined with thorough due dili-
gence on the industries and popula-
tion coming to town.

Kim Ashby is a partner and litiga-
tion lawyer with Foley & Lardner LLP.

She represents developers, contrac-
tors, and governmental entities on a
range of complex litigation matters,
including lenders and special ser-
vicers in CMBS foreclosures and
workouts. She can be reached at
(407) 244.3265 or kashby@foley.com.

Florida Construction News — FALL 2017 – 15