Why the Renewed Interest in Adaptive Reuse?
There are several factors driving interest in adaptive reuse now more than ever before.
Put simply, the combination of the 8700+ qualified Opportunity Zones and new rules for investing in these vehicles released by the Fed and U.S. Treasury Department. Adaptive projects in these zones offer investors and developers several advantages:
- Tax advantages - There is a permanent exclusion from taxable income of capital gains from the sale of an investment in a qualified opportunity zone fund as long as the investment is held for at least 10 years.
- More flexible than a 1031 exchange - The program allows investors to trade out of one asset class and place the earnings into real estate.
- ESG benefits - Institutional investors do not get the same tax benefits as retail or high-net worth investors, clearly, but they are still eager to invest in Opportunity Zone Funds because many of these investors have mandates for ESG (environmental, social governance) and an investment in an Opportunity Zone can check that box
While opportunity zones are generating significant interest, Adaptive Reuse itself has made a comeback in recent years. In fact, experts have predicted that adaptive reuse projects will likely comprise a greater percentage of investment activity than self-storage and other established noncore property types by 2023. Some go so far as to say that land and construction costs and availability will result in a massive boost of adaptive reuse, so much as that as much as 90% of all development activity will involve reuse versus ground-up construction.