Turning old office buildings into housing

Cincinnati is number two nationally converting office space into apartments. Dayton is also doing it. On this episode of Brick by Brick we look at how this possible solution can create more housing and whether this mode of up-cycling has any constraints. Brick by Brick Journalist Hernz Laguerre Jr. tours both luxury apartments in Dayton and the first new affordable apartments in Cincinnati’s downtown business district in thirty years. 

Interview guest: Doug Ressler, Manager Business Intelligence, Yardi Matrix

Brick by Brick Website

Transcript

Ann Thompson (00:01):

They dot the skylines of our cities and have served as economic drivers for downtown and neighborhood business districts. We're talking about office buildings, many that were once buzzing with activity supporting tax coffers and other nearby retailers are now sitting vacant, inactive, unproductive.

Lasserre Bradley (00:21):

Today we're seeing a different phenomenon where buildings are 60, 70, 80% vacant. The more vibrancy you can create, the better it is for downtown. The more people we keep living within the city limits, being city taxpayers, that's good for all parties.

Ann Thompson (00:36):

As our region continues to deal with a need for more housing, developers are finding a new purpose for some of these business centers to adapt and reuse them as a place to live.

Jason Dorsey (00:48):

Look around, I mean, these buildings are everywhere down here and they're empty, so you don't have to be a scientist to figure out that this is a great idea.

Ann Thompson (00:57):

On today's episode, we'll take a look at some examples of this adaptive reuse strategy, learn about how it works, and whether this mode of upcycling our buildings has any constraints.

Doug Ressler (01:07):

What you see is a combination of factors that have to come together. First of all, you have to have business and governance working together in conjunction to be able to provide housing.

Ann Thompson (01:20):

So what kind of impact can collaborations like that have? Let's get into it. This is Brick by Brick Solutions for a thriving community.

Ame Clase (01:31):

Brick by brick is made possible thanks to leading support from Debra and Robert Chavez and Greater Cincinnati Foundation with additional major support from AES Ohio Foundation, Laurie Johnston, Susan Howarth Foundation, the George and Margaret McLane Foundation, Diane and Dave Moccia, the Dayton Foundation, the Robert and Adele Schiff Family Foundation and more. Thank you.

Ann Thompson (01:59):

Hi, and welcome to Brick by Brick, where we're highlighting solutions for a thriving community in southwest Ohio. I'm your host Ann Thompson. Right now we're focused on solutions around the housing challenges in our region. One of the many indirect effects of the COVID-19 pandemic may turn out to be an opportunity for solving some housing woes. Spurred by shifts in work culture and remote work policies, as well as a drop in demand, there are now thousands of empty or underutilized office buildings across the country, including many owned by the government and experts predict much of that square footage, whether it's private or public, may remain vacant through the year 2030. That's because they expect demand for office space to continue to drop, decreasing 13% from 2019 to 2030. CBRE is a global commercial real estate company. Local Vice President Steve Timmel has been tracking the data.

Steve Timmel (02:58):

We're 22-million square feet in Cincinnati's kind of core CBD, so if we do 2- million square feet of conversions, that's a 10% move, so that really can move the needles.

Ann Thompson (03:10):

So what do we do with these buildings and can they be used to address the larger demand for housing in southwest Ohio dozens of them are waiting to be redeveloped. Cincinnati's vacancy rate is 20% and for Dayton it's 28%. Turning these buildings into something other than an office space is called adaptive reuse, and it's happening at a higher rate here in Ohio than in other states.

Steve Timmel (03:35):

We've had some very active developers over the years in the market. Town properties comes to mind. Al Nyer comes to mind that have done these conversions, but again, since 2020, it's ramped up significantly and significantly across the country.

Ann Thompson (03:51):

According to CBRE's latest report, Cincinnati is number two in the nation behind only Cleveland in adaptive reuse. However, it's not just those two, a number of our cities are showing activity with this approach, including Dayton. Today, we want to dig into this solution specifically office to housing conversions. We'll be taking a look at several examples from our region and also getting a national perspective on the strategy. But a quick note before we get going, we're zeroing in specifically on office to residential conversions, but we want to call out that converting buildings of all types is nothing new. There's a track record of successful conversions of warehouses, old factories, churches, commercial spaces and hotels throughout the region. You may have heard of these and we think this will continue to play a role as part of the solution to add more housing of all types. Right now there are about a dozen office conversions underway in Cincinnati and several high profile projects in Dayton.

(04:52):

These range from major office towers at the heart of our cities down to smaller scale, office building conversions. All of them have their own particular challenges, but in each case, the end goal is more housing. In Cincinnati, one really obvious example is what used to be the tallest building in the city, the Carew Tower. It's being converted to apartments and mixed uses. So is the former Macy's headquarters. Leading up those projects is Vixtrix LLC developer Anoop Davé He says he can't comment on active projects, but told The Port in an interview last year, conversions are the talk of the country.

Anoop Davé (05:29):

I think there's a lot of people that want to solve the problem of largely vacant buildings and turn 'em into something useful. There's a lot of discussion about it. What's unique about Cincinnati is there's also a lot of action

Ann Thompson (05:43):

When deciding where to do adaptive reuse. Davé studies the obvious, population and GDP growth and the location of the building, but he also looks for historic buildings that are meaningful to the community like Macy's and Carew Tower

Anoop Davé (05:58):

Who hasn't shopped at Macy's and its companies, and to be able to say this is where a lot of interesting decisions were made that impacted people in small and big ways, and now you can live there. I think that's going to be a little bit of a special story and history for people that become residents of that building and Carew Tower. There's really nothing like it. It verges on being a mascot of the city.

Ann Thompson (06:26):

Davé says one thing that made Cincinnati more viable for adaptive reuse was in the due diligence phase. He says the city building department was extremely helpful. One of the better ones he's seen. Moving north plenty of office to apartment conversions are also happening in Dayton. Some of you may have seen our ThinkTV documentary following the Dayton Arcade's renovation over the past few years.

narrator (06:50):

It was a place we all knew it was the heart of the city,

Ann Thompson (06:58):

But for those not familiar, the arcade is actually a collection of nine buildings in the heart of downtown Dayton. At one point, it was listed for sale on eBay, but now has been renovated for many uses, including the creation of more than 100 affordable apartments for artists as Cross Street Partners developer Dave Williams explains.

Dave Williams (07:17):

So we've taken some buildings that were originally residential and we brought 'em back to residential. It was interesting. If you look at the size of the spaces that they lived in back in the 1902 to 1970s, they were pretty small, so there was a fair amount of bringing some spaces together to meet local codes and our financing requirements and so on and so forth. But what we had is some great bones

Ann Thompson (07:42):

At the Arcade. The tenants are already moved in. Also in Dayton, the private development firm, Windsor Companies has been very busy in the downtown area. It's recently opened new apartments at the Price Store site, a five story commercial building that housed a clothing store for 70 years. It's also in the process of completing a conversion of the 22 story mid-century modern Grant Deneau Tower, which was the first modern high rise built in downtown Dayton. The goal there is to create apartments in retail space to dig into their activity a bit more, we're now joined by Brick by Brick journalist Hernz Laguerre Jr. Hey, Hernz. So Hernz, you recently connected with Windsor Companies to talk about their projects and I heard you even took a tour of the new Grant Deneau building.

Hernz Laguerre Jr. (08:27):

Yeah, they took me to three different rooms, one that was totally stripped and ready for the renovation, another one that was in the in between stage and one that was totally done. They're transforming these spaces into luxurious apartments. Many people see adaptive reuse as a solution that helps with housing. We have vacant buildings that we need to do something with and we need housing for people, so why can't we marry those two ideas?

Ann Thompson (08:51):

It seems like an obvious thing to do. I mean, like you said, we need housing. What about all these vacancies downtown?

Hernz Laguerre Jr. (08:59):

True, and another cool thing about it is that it helps the environment. You reduce your carbon footprint by not having to destroy and reconstruct all these buildings. But there are many challenges for developers who are trying to turn office buildings into apartments. We see that with Windsor Companies. I was able to see how they implemented creative and innovative methods to redesign the Grant Deneau. Take a listen.

(09:20):

The Grand Deneau Tower across from the Dayton Arcade was built as a state-of-the-Art Office tower in the 1960s, but stood empty for a number of years. Jason Dorsey is the executive vice president of asset management at the company that is behind its transformation. Windsor Companies,

Jason Dorsey (09:40):

Hey listen, we bought a tower, we bought a skyscraper and we're going to turn into residential, commercial and restaurant

Hernz Laguerre Jr. (09:46):

And turned this mid-century modern office into a 21st century building, which is no small task.

Jason Dorsey (09:53):

Where does all the plumbing go running up through the middle of the building or where does everything run? And these are all things that were to me, the hardest, daunting tasks engineering-wise

Hernz Laguerre Jr. (10:03):

On top of that, the tower was not so energy efficient because of the window glass. The building's heating and cooling costs were so high that no one could afford to make the building profitable.

Alex Manno (10:14):

So we gutted the entire building, all of the mechanical, and we installed a VRF system.

Hernz Laguerre Jr. (10:20):

Alex Manno, director of construction for Windsor stressed the importance of having energy efficient glass. In addition to the variable refrigerant flow system or VRF that Mayo mention. They installed glass that was less thick than the original glass,

Alex Manno (10:35):

However, it's four times higher of an insulating property than regular insulated glass. Oh, wow. So they use these micro-pillars in order to stand the glass off from each other, and then there's a lot more technology that goes into it. That's even over my head. It's amazing.

Hernz Laguerre Jr. (10:50):

And on top of creating an energy efficient building, Windsor Companies have to follow strict building requirements because 20% of the $50 million project was being covered by the historical tax credits.

Jason Dorsey (11:02):

When you have historical tax credits, you have historical guidelines.

Hernz Laguerre Jr. (11:06):

The skyscraper was listed on the National Register of Historical Places in 2016, which means they had to keep or work around some historical elements such as

Alex Manno (11:16):

We did have to preserve there are these mailboxes within each floor. So that was one of the elements that were part of the historical requirements that we had to keep

(11:24):

Jason Dorsey

(11:24):

With it being a historical property as an office building, you could only put in carpet squares or concrete

Hernz Laguerre Jr. (11:31):

And they couldn't alter one of the most historic pieces of the building. It's facade also known to architects as the curtain wall,.

Alex Manno (11:39):

But the biggest obstacle definitely is the curtain wall. It would've been easier, it wouldn't have been cheaper. It would've been easier to just build a brand. You take the old one down, you put a brand new one up and you're done.

Hernz Laguerre Jr. (11:49):

This sounds like a lot to handle, but this isn't the Windsor Company's first. They've worked on properties like this across the day and metro area, including the former Price Stores building at fourth and South Jefferson, The Journal Herald Building on one 11th East fourth Street and the Graphic Arts building at 221 South Ludlow Street. And they're able to accomplish this because their company's vertically integrated, meaning that it owns its own suppliers such as plumbing and electrical services.

Alex Manno (12:19):

Vertical integration allows for two things, control and speed. So all of the labor is in-house and then when you control that, you're not beholden to subcontractors.

Hernz Laguerre Jr. (12:28):

And this comes in handy when you need to create items like mulian covers. Don't worry, I had no idea what mulllion covers were either. A mullion is that vertical bar between two panes of glass, the Grant Deneau's mullions needed covers to complete the design when they're wanted, but you can't go to your local hardware store or go online to purchase them.

Jason Dorsey (12:48):

We built custom made mullion covers essentially in our 3D shop. It even allows us to stuff in installation here. That would've probably been very difficult for us to find.

Hernz Laguerre Jr. (13:00):

Winter's ability to innovate while they develop is a skillset set that allows them to make unique luxury apartments in Dayton.

Alex Manno (13:07):

It's a very high-end look. My brother's like, Hey, make it look like nothing like anybody's ever seen in Dayton, and I think that's what we did.

(13:17):

Charlynda Scales is one of the owners of 6888 Kitchen Incubator. The facility is housed in the Dayton Arcade as they provide resources for restaurants in the area and they are a stone throw away from the Grant Deneau Scales shares what she thinks the renovated tower will do for local businesses.

Charlynda Scales (13:34):

What they're also doing is helping these small businesses become big businesses. So as we saw in the pandemic, a lot of these restaurants going out of business is because people were not residing here long enough to stay and patron the food businesses

Hernz Laguerre Jr. (13:50):

And for their next project. Windsor is not just looking into luxury apartments.

Jason Dorsey (13:54):

We actually think that that might be the next step for us. Yeah, affordable housing and adaptive reuse, these big tall buildings, maybe they're safe. We make them efficient. We think that there's a great need for it.

Ann Thompson (14:09):

Thanks for that story. Hernz, you really painted a good picture about how difficult it is to turn an office building into apartments.

Hernz Laguerre Jr. (14:17):

No, it is really difficult. But what helped Windsor Companies was the fact that they're vertically integrated. They're able to not have to go through subcontractors to do what they have to do, which may have been the reason why Jason Dorsey told me at the end that they're looking to do affordable housing as well. They haven't started yet, but that's something that they definitely want to move into.

Ann Thompson (14:35):

Yeah, I was kind of wondering about that because in a lot of the examples that we have given, in talking to developers, they're mostly focused on market rate or luxury apartments, and I was wondering how that would work for affordable housing.

Hernz Laguerre Jr. (14:49):

Originally I thought adaptive reuse help with affordable housing because you already have the bare bones of the building. All you have to do is try to figure out how to turn into an apartment. Right. But I was wrong. It takes a lot to make it happen. Developers have told us Ann that affordable housing is affordable for tenants, but it could be more expensive for them in the long run. But there is work being done in Cincinnati to transform an old office building into a mixed-income affordable housing complex. We're talking about the barrister at two 16 East Ninth Street. I spoke to developers and partners to see how they made it work in the first place and also spoke to a tenant to get his perspective on the project. Take a listen .

(15:34):

These days. Living downtown in any city is expensive, especially Cincinnati.

Todd Halsell (15:35):

If I told you I was paying 2,500 a month for this, it is believable, isn't it?

Hernz Laguerre Jr. (15:41):

But 54-year-old Todd Wholesale who just moved into the Barrister Apartments isn't paying anything close to that. Built in the 1800's, the Barrister building served a variety manufacturing purposes, such as a shoe factory production of printing presses, and eventually it turned into some office spaces. Now in the heart of Cincinnati Central business district, the Barrister' is one of the most recent examples of adaptive reuse. The historic office building is being turned into affordable apartments with rents ranging from as low as $400 a month to $1,400 a month. With steady employment as a plumber, Todd is able to afford the monthly rent of $900 a month, which is well below the market rate.

Ben Eilerman (16:24):

Central business district for a long time was really a dawn to dusk area. As we're seeing the revitalization from Over the Rhine move in, we're seeing more residents move down here too. So as the popularity and the amenities down here grow, the rent has also grown.

Hernz Laguerre Jr. (16:46):

Ben Eilerman, director of real estate development at Over the Rhine Community Housing, gave us a tour of the two historic buildings that make up the Barrister. What makes the Barrister unique is that it offers apartments at 30 to 60% of the area and income making it the first affordable housing project in the downtown area in over three decades, which is one of the reasons why Todd is grateful to be a new resident.

Todd Halsell (17:12):

I've done it all on both sides of the fence, from the hood to the Hollywood, from the block to the boardroom.

Hernz Laguerre Jr. (17:20):

Todd was born and raised in Cincinnati, but as he became an adult, different jobs took him to Indianapolis, Atlanta, and even further out west in California. But there's no place like home.

Todd Halsell (17:31):

I just wanted to be in my city and have a place in my own name.

Hernz Laguerre Jr. (17:36):

But Todd had difficulties passing background checks.

Todd Halsell (17:39):

Cause I did prison time for drug charges and once you get that sticker, nobody wanted to rent to me no matter you got money or a job or anything.

Hernz Laguerre Jr. (17:51):

So Todd's housing situation was unstable until he crossed paths with the David and Rebecca Barron Center for Men. It's the shelter house for homeless men in Cincinnati.

Todd Halsell (18:01):

And I went to the Drop-In the second time and that is when it changed because I changed my mind.

Hernz Laguerre Jr. (18:07):

Michelle Christopher is a caseworker at over The Over the Rhine Community Housing where she worked with Todd.

Michele Christopher (18:13):

When I first met Todd, he was well-spoken, well groomed. I thought maybe he came here to work or something. You wouldn't think he came from the homeless population.

Hernz Laguerre Jr. (18:23):

As Michelle and Todd kept speaking, Michelle heard someone that needed help.

Michele Christopher (18:27):

He needs help in getting his life on the right track

Hernz Laguerre Jr. (18:31):

Over the Rhine Community. Housing believes that every right track begins with housing.

Michele Christopher (18:36):

That means putting 'em in housing first and working on their barriers

Hernz Laguerre Jr. (18:41):

Over the Rhine Dommunity Housing had to overcome some barriers of their own to make this project possible.

Ben Eilerman (18:47):

Projects like this are expensive and they're made more difficult by the fact that when we charge affordable rents that we don't have as much money to pay off debt like a traditional project would. So of about a 16 and a half million dollar project, we had to go after all kinds of sources

Hernz Laguerre Jr. (19:08):

To get the money they needed Over the Rhine Community Housing alongside developer Urban Sites enlisted low income housing tax credits, historic tax credits and philanthropic donations, all of which were necessary.

Ben Eilerman (19:23):

Buildings like these are hard. There's many challenges that are here. And so the historic tax credits help to offset some of those costs and most importantly, the low-income housing tax credits make it viable for us to charge affordable rents here. This project wouldn't have happened without it.

Hernz Laguerre Jr. (19:41):

LISC, which stands for Local Initiative Support Corporation was one of the project's partners. Executive Director Kristen Baker says The Barrister is a great example of a for-profit developer and a nonprofit working together over

Kristen Baker (19:56):

The Over the Rhine Community Housing-they are a nonprofit entity and so sometimes they maybe are not always able to draw down the capital resources that are required to do large multi-million dollar housing projects. And you can combine the power of a for-profit developer who really brings a lot of expertise and you can bring in that affordable housing expertise and development experience from a nonprofit affordable housing developer. It's really a great partnership.

Ben Eilerman (20:33):

We're fortunate to have partnered with LISC here locally and nationally to provide us a really attractive and competitive permanent debt on the project.

Hernz Laguerre Jr. (20:47):

And with that lower rate, it meant that they could borrow more to get them over the hurdles to have this project cross the finish line. And there are many hurdles.

Kristen Baker (20:55):

So development is not for the faint of heart. In the case of projects like The Barrister, which are incredibly complex with lots of different public financing tools involved, that requires a lot of different inspections.

Hernz Laguerre Jr. (21:08):

Since The Barrister is designated as a historic building, they had to adhere to some requirements.

Ben Eilerman (21:13):

So the historic folks said that we cannot build this wall out any thicker. Sometimes when we can, we'll build the wall out thicker and put insulation in here. The historic folks, number one said that that's something that we couldn't do

Hernz Laguerre Jr. (21:29):

Or there were supply chain issues.

Ben Eilerman (21:33):

A $60 electric breaker can hold up the occupancy and the completion of a building this one six to eight months at the cost of hundreds of thousands of dollars.

Hernz Laguerre Jr. (21:46):

Wait, what? A piece that costs $60 cost a project, hundreds of thousands of dollars. How does that make sense?

Ben Eilerman (21:55):

That is where it's been just so difficult, so frustrating to work in the current environment we're in.

Hernz Laguerre Jr. (22:07):

But the hurdles are cleared at the standing room only ribbon cutting. On March 7th, 2024, Mayor Aftab Pureval highlighted the significance of affordable housing in the downtown area.

Mayor Aftab Pureval (22:18):

Projects like the barristers that don't just happen, especially when it comes to truly affordable housing, helping to grow our city into a more vibrant community for not just some of us, but for all of us.

Michele Christopher (22:30):

Living down here is expensive. That's why some feel like they won a lottery and it's based on their income. I think it'd work out fine for Todd because he's trying to build a life and stay on that path.

Todd Halsell (22:44):

And I was always wanting an apartment right down here from when I would be in trouble here at the Justice Center or even when I was in the Drop-In center, I'm like, downtown is really coming up and I got blessed.

Ann Thompson (22:58):

So for somebody like Todd, this is really a game changer finding The Barrister as his apartment. I'm wondering how popular are these apartments and how affordable are

Hernz Laguerre Jr. (23:08):

They? I would say very. They're very popular after ribbon cutting. I would say a majority, maybe close to 90% of the units were already filled. When I spoke to Cynthia Bell, she told me that there were only about three more units that were left to be filled, but I'm sure that'll be taken care of soon. And in regards to affordability, these units are for folks making 30 to 60% of the area median income. That's about 25,000 to 50,000 for a family of four.

Ann Thompson (23:32):

And the apartments, as you were saying, are very close. They're in a prime location.

Hernz Laguerre Jr. (23:39):

It being in the heart of Cincinnati means many things. One, you don't need a car solid transportation between the bus, the streetcar, you can get around the city pretty easily with the public. Transportation is also close to a Kroger, meaning that your grocery needs are met. It is close to the Cincinnati public library. But I would say the one thing that The Barrister offers, which I think is a game changer, is free internet. Imagine people who are working from home, those who take their work home or students who are working on a project that is one less cost they have to worry about.

Ann Thompson (24:12):

And they have limited income since they live there and they may not otherwise been able to afford the WiFi.

Hernz Laguerre Jr. (24:18):

Exactly. But there's one more thing I do want to mention about the Barrister in regards to funding. So before the developers or Ryan Community Housing and Urban Sites, they were able to use state subsidies and federal subsidies. So they were able to use the historical tax credits from the state and a low income housing tax credits from the federal government. But the state passed a law saying that you couldn't double dip with both when working on one project. But Ben Eilerman told me if he didn't have the state subsidies and the federal subsidies, this project would not have been possible at all, including the philanthropic donation. Don't forget about that too. So I think although what The Barrister did was great, they're really a one of one, you can't replicate their model.

Ann Thompson (25:07):

That's right. And so other developers, it's going to be a little bit more complicated for them going forward.

Hernz Laguerre Jr. (25:12):

For sure.

Ann Thompson (25:13):

Thank you Hernz. We'll see you at the end of the episode. Our region seems to be having a moment right now in using this strategy to bring more housing online, but there are some limitations to this solution. After a short break, we'll look at those through the eyes of a local developer who is actually working on projects in Cincinnati and Dayton and also talk with a real estate expert who's watching the adaptive reuse trend nationally. Stay with us.

Ame Clase (25:39):

Break by Break is based possible thanks to the generous support of so many, including Murray & Agnes Seasongood, Good Government Foundation, Rosemary & Mark Schlachter, The Camden Foundation, Patti & Fred Heldman, DeeDee & Gary West, the Stephen H. Wilder Foundation, Judith & Thomas Thompson, a donation in memory of Frank and Margaret Linhardt and more. Thank you. We couldn't do this work without you.

Hernz Laguerre Jr. (26:13):

Hey, it's Hernz Laguerre Jr. One of the team members behind Brick by Brick. Our new show is about solutions for a thriving community, but if you think about it, we all have a different perspective of what a thriving community should look like. That's why we need to hear from you. We want to know what a thriving community looks like to you. Maybe it's more housing, more parks or stores or even safer sidewalks. Whatever your vision, we hope you'll share with us. You can do that by heading to the Brick by Brick show page on cetconnect.org or thinktv.org. There you'll find an audience question button just fill out the survey in. That's it. We look forward to sharing your hopes and dreams with the rest of our neighbors in future episodes. Thank you.

Ann Thompson (27:03):

Okay, welcome back to Brick by Brick. As we've been talking about for a developer, converting an office building into apartments is an expensive decision, so you have to get it right. Think about it. There's limited plumbing and heating and what about the middle of the building without windows? Estimates say only 10 to 15% of US buildings can actually be converted. Lasserre Bradley thinks about those kinds of things. As President of Development for the Model Group, his development firm is converting offices into apartments right now at the Mercantile Building in Cincinnati and in Dayton at the Centre City Building across from the Dayton Arcade.

Lasserre Bradley (27:40):

What always seems to bogle the mind, and I'm in this every day and I still struggle with it sometimes, is you think, well, I already have a structure. I already have a facade. I have windows, I have these things. How could it possibly be as expensive or sometimes more expensive to rehab a building? And it certainly depends. The costs are equivalent or potentially even higher than a new construction project.

Ann Thompson (28:06):

Part of his process examines whether the layout works for residential space. He says some buildings just eliminate themselves architecturally right out of the gate. He also wants to know how much mixed use is in the building. Restaurants and shops can be a driver for whether potential renters will move in. The Cincinnati, renovation of the historic Mercantile Building and the adjoining Formica Building on Walnut Street is underway. The Mercantile Library is staying. It has that famous 10,000 year lease. Bradley says the apartments are luxury

Lasserre Bradley (28:40):

Residents will actually have a unique opportunity as they move into the building. They can select the historic early 1900s s Mercantile Building. They can select the mid-century modern building and have kind of these different unique aesthetic experiences, but then come down to the arcade on the first floor and also a new rooftop amenity. That'll be one of the more dramatic rooftop spaces in the city. When that's completed with views of the river and skyline,

Ann Thompson (29:09):

Some of the 174 apartments in the Mercantile Building will be ready for move-in this summer. We mentioned the Dayton Arcade earlier. Another project that Lasserre with the Model Group is working on is the 21-story Centre City Tower. It's across the street and is slated for adaptive reuse with a goal of creating hundreds of new apartments. It used to house the offices of Orville and Wilbur Wright and is not as far along as the Mercantile building.

Lasserre Bradley (29:37):

There's a unique aspect as well that is something added just in the last year. We are taking, because the building is so large, we're able to take a portion of the building and design it specifically to senior affordable housing. Senior affordable housing is an unmet need in downtown Dayton, and we applied to the Ohio Housing Finance Agency for what's called bond gap financing, which allows us to use a 4% low-income housing tax credit. And so 80 residential units will be designed and targeted towards senior residents of downtown Dayton at or below 60% of the area median income.

Ann Thompson (30:16):

Sixty-percent AMI in Dayton for a single person is about $39,000 a year, and for a family of four, it's 55,000. As the Centre City Project takes shape, we'll be sure to keep you updated. Bradley doesn't expect to wrap up the financing until the first quarter of 2025 for Centre City, so that's still a ways away. He is paying attention to some guidance the White House released last year. Nationall, The Biden administration is trying to encourage communities to do more with empty office buildings, government buildings, schools, warehouses, motels and more. But will this work and what are the limitations? Doug Ressler is with the Real Estate Company, Yardi Matrix. Hey Doug, thanks for joining us.

Doug Ressler (31:01):

Thanks Ann. Always a pleasure.

Ann Thompson (31:02):

Let's talk about the Biden administration plan. So what are the specifics as it offers up money to encourage these kind of conversions?

Doug Ressler (31:11):

Sure. The Biden has an infrastructure bill that is still playing out in terms of money. They also have a transportation bill that's already been passed by the Congress that will allow for development in key areas. There's a couple federal bills right now that are floating through the Congress that have yet to be voted on that are talking about putting money into the economy to be able to supplement or stipend affordable housing. Also what you see is bills at the city and state levels that have been passed to be able to supplement.

Ann Thompson (31:48):

Why is Cincinnati such a big player when it comes to adaptive reuse and in the top 10 nationally?

Doug Ressler (31:55):

Sure. We really looked at the four cities in Ohio, Cleveland, Cincinnati, Columbus, and Dayton. And what you see is the profile that most of the properties that are currently under construction or permitted to be able to be adapted are very old buildings. So you've got a lot of space, a lot of underutilized old buildings, and the question is going to be asked, well, what do I do with those buildings? Can I repurpose them to be able to do more? In the Cleveland area, you see a lot of schools, Cincinnati, you see a lot of office that is being repurposed, especially downtown. And again, they're older buildings, 1920s, 1930s, some as late as 1960, but they really have good bones, good structure, and in many instances those buildings were built prior to air conditioning. And so what we see is a lot of people, it's contrary to what a lot of people think, but older buildings sometimes make better conversion targets because being built in a time when there was an air conditioning, the airflow and things like that, that were structured into the architecture of their building can be easily adapted. Bricks can be undone, windows can be undone, things like that, high ceilings. It really plays well to the fact of converting it to today's benefit, especially for residential housing.

Ann Thompson (33:30):

Yeah, you got right into what I was going to ask next. When it comes to the limitations. So what makes this so expensive to convert an office building into housing?

Doug Ressler (33:42):

Well, first of all, some of the cost drivers right now is the area zoned for residential. You have existing assets that are going to be converted to another asset. So the permitting and zoning, that's a cost. And can you get the local governments to be able to move on that? In other words, it's not just a matter of applying for a new zoning permit to be able to put residential into an office area, but it's also getting the occurrence of the local governance to be able to do that. In addition, you have construction loans are the primary vehicle that does this. Construction loans run about eight or 10% and you start paying interest on those day one, so you don't get any kind of relief or deferral time. And so what you've got to do is once you commit to this eight to 10% type of interest rates, you've got to go forward, develop your product, and then you've got to turn around, inhabit it and start gaining a return very quickly. And that's why people are looking for stipends or supplementals that help them in terms of tax deferrals, things like that. What you also see happening is people are looking at opportunity zones. There are a couple in the Cincinnati area that people are looking at to be able to place this opportunity zones again, give you tax deferral. And so all those things, all those supplements are being looked at. And that's part of the federal bill that would actually provide a federal mandate to be able to supplement investment and incentive investment in these areas.

Ann Thompson (36:22):

Doug, what do you see going forward? Adaptive reuse is really popular now, ramping up, what do you see down the road?

Doug Ressler (36:30):

Well, it's not a panacea again, it's building by building specific, and what you see is a combination of factors that have to come together. First of all, you have to have business and governance working together in conjunction to be able to provide housing regardless of the alternative asset type. That's what you see playing out in DC right now, and you see some of that occurring in the Columbus Cincinnati area. In addition, what you have to do is have a large density where a density migration pattern that allows for developers to be able to build in areas like Columbus and Albany in the northeast corner, they're putting in the new semiconductor plants. That type of parallel effort by the city fathers is really helping to attract employment population and density to those areas. The same thing is occurring in Cincinnati in terms of transit hubs, industrialization that's occurring. Also, Nashville is building electronic vehicles and some of the newer technology. The infrastructure bill that has been passed by Congress, which has a significant amount of money, still has a lag effect. You're not seeing all that money come into the economy yet, but you will. And what that's going to do, especially in the Midwest where we see a very robust type of population and migration pattern, very healthy rates, you're going to see those population increases come back. You've got a lot of people that are auto workers or been trained as automotive that are going to benefit from the electronic vehicle industry and things like that.

Ann Thompson (38:17):

Doug Ressler with Yardi Matrix. Thanks so much, Doug,

Doug Ressler (38:20):

You bet Ann. Thank you.

Ann Thompson (38:24):

Remember, if you're interested in learning more about Brick by Brick and want to read articles, hear the podcast and see Hearn's video stories, go to cetconnect.org and thinktv.org. Hernz Laguerre Jr. Is here again. Time for takeaways. What were your impressions of this episode?

Hernz Laguerre Jr. (38:45):

Development is not for the faint of heart, and there were a lot of details with both projects with the granted no and the barrister, but they both were approached differently. Windsor Companies with the Grant Deneau, they're vertically integrated, so Windsor doesn't have to reach out to subcontractors in order to get the supplies that they need. So they were able to pretty much handle all of the issues that they came across. Right? But when it comes to The Barrister Over the Rhine Community Housing and Urban Sites, they were held up by that switch issue. I was mentioning earlier in the package, that one switch cost them months, hundreds of thousands of dollars. And for them, they're trying to create affordable housing. And one thing we realized is that affordable housing is not affordable to make.

Ann Thompson (39:32):

And one thing is that the financing that these developers need could be about to get trickier. Banks may be more reluctant to loan money out because the prediction is than the next two years. So many of these mortgages are slated to mature at higher interest rates, so that could be an issue. In the meantime, the Biden administration is flirting with offering subsidies to developers, especially near transportation, turning some of these vacant office buildings into apartments. That could be additional financing, however many people say if you're going to find a solution, look local. So it'll be interesting to find out what our local governments are going to do and what subsidies they can provide. We'll be following the issue.

Hernz Laguerre Jr. (40:20):

For sure,

Ann Thompson (40:23):

Looking ahead on Brick by Brick, following the lead of other cities nationwide. Cincinnati City leaders are trying to create more housing by changing zoning laws, but the reaction is a mixed bag.

Ken Brawner (40:35):

The concern is the proposed changing of the zoning to allow multifamilies in traditional single family neighborhoods potentially interrupting and ruining the quiet one-family house neighborhood.

Nick Wright (40:51):

These are big changes that are going to affect us, and I think it's important that I know what's going on, and it's important that I can lend a voice to the change, ideally, a positive change.

Ann Thompson (40:59):

What changes are being proposed as part of the Connected Communities initiative, and will they work? That's next time on Brick by Brick. That's our show. If you like what you hear, please rate and review our podcast. We hope you learn something. And if you did, please share it with your friends and family. For Hernz Laguerre Jr., I'm Ann Thompson. We'll be back soon with more solutions. Take care. Our show is produced, hosted, and edited by me, Ann Thompson, with reporting and story editing from Hernz Laguerre Jr. Our executive producer is Mark Lammers. Our show consultant is Gloria Skurski. Gabe Wimberley is our audio engineer and mixer. Zach Kramer runs the lights and cameras. Derrick Smith is our production specialist, and Jason Garrison is our production manager. Kellie May heads up our marketing and promotions along with Mike Shea and Bridgett Dillenburger. Elyssa Steffenson handles the website, and Steve Wright is our designer. Bill Dean and Andresj Kruza are the engineers for the show. And our chief content officer is Colin Scianamblo. Our music is from Universal Production. Music. Brick by Brick: Solutions for a Thriving Community is a production of CET and ThinkTV Southwest Ohio. PBS members stations.