|
|
 |
|
| Passion Investments: Property |
From the Ashes
Michael Verdon
12/01/2004
|
Standing beneath broken pipes and dangling wires on the sodden top floor of a
defunct Kaiser Aluminum factory in Newport, R.I., real estate developer J. Brian
O’Neill lights up about his latest project, which he refers to simply as “the
Tower.” “Most people only saw an abandoned factory. I saw Park Avenue condos on
the water.”
 |  | | AN ABANDONED Kaiser Aluminum factory (top) is being turned into the Tower in
Newport, R.I. Developer J. Brian O’Neill finds satisfaction—and financial reward—in transforming yesterday’s factories into today’s “gold mines.” |
When the $100 million transformation of this rusted,
220-foot-high industrial structure is completed in 2005, it will house
condominiums priced between $1.3 million and $7.5 million that offer
breathtaking views of Narragansett Bay. If all goes according to plan, O’Neill,
the chairman of O’Neill Properties Group in King of Prussia, Pa., and the
project’s investors will reap roughly $80 million in profits.
O’Neill is one
of a vanguard of developers mining gold from the brownfields of North America’s
discarded industrial sites. Investors are transforming former factories,
warehouses and auto showrooms into malls, office buildings, restaurants and
residences. They often garner double-digit returns for themselves and investors.
“These buildings are better built than many new structures and offer a
particular charm,” explains Denise Johnson, deputy director of the National
Trust for Historic Preservation’s Community Partners program.
O’Neill’s firm,
which has been rehabilitating old mills for nearly 20 years, holds about $4
billion in real estate assets. “We’ve built over 13 million square feet of
office space in the last five years, and all of it was based on factories,” he
says. This year, the company expects to pour $1 billion into new projects, an
investment that, based on current interest in this type of program, could
deliver a handsome return. According to O’Neill, within four weeks of the
opening of the model showroom for the property on Narragansett Bay, his company
had already sold several units, worth a total of $25 million.
 |  | | AN ABANDONED downtown trolley barn in Chattanooga, Tenn., was turned into the
highly successful Big River Grille in 1993. |
Taxing
Work
While many of America’s empty factory buildings were designed to
strictly utilitarian specifications, their hulking presence in communities large
and small, along with the memories of the role they played in the economic lives
of these communities, has led to a sentimental appreciation of their often
severe, minimalist architecture. Twenty-first-century workers who spend their
days ensconced in cubicles now marvel at the cavernous, cathedral-like quality
of buildings where their parents or grandparents might have worked.
Consequently, investors who repurpose these derelict structures often enjoy
strong community support for their efforts.
Even with community backing,
however, the task of breathing new life into old buildings is rarely easy.
“Redevelopment tends to have a higher risk profile than development,” says
Andrew Rothschild, CEO of Scientific Properties in Chapel Hill, N.C. “It
involves more complex factors like environmental concerns and availability of
historic rehabilitation tax credit financing.” Rothschild, who made the career
transition from physician to real estate developer, has been involved over the
past four years with transforming historic buildings into biotech labs. He has
two projects in North Carolina’s Research Triangle region, including a 1930s
garage conversion that has been featured in Architecture Week, and a group of
Durham tobacco warehouses that will house a 100,000-square-foot life sciences
campus.
“Success comes not just from choosing the right projects, but,
perhaps even more importantly, avoiding the wrong ones,” Rothschild says. “It
depends on the project particulars. Some projects are less risky than others. As
the developer, I often hold the biggest amount of risk. If I can’t project
adequate returns, then I won’t pursue the project.”
|
|
|
|
|
|
|
