Entrepreneurs Make Use of Odd Spaces
Properties With a Past Provide Unique Marketing Opportunities; Jails Transform into Hotels, Churches Into Restaurants
Original post Date: MAY 4, 2010
The founders of Brooklyn Boulders LLC chose a former Daily News delivery-truck garage to house their venture, believing they could use the property’s distinct past to draw visitors.
When Brooklyn Boulders LLC opened in September, the rock-climbing business’s owners purposely left a Daily News logo above its entrance, hoping the facility’s former identity as a delivery-truck garage for the New York newspaper would help draw visitors.
“The character and history” of the property definitely make the business more marketable, says Stephen Spaeth, one of Brooklyn Boulders’ three co-owners. Several New York publications, including the Daily News, ran stories that mentioned the start-up’s original occupant.
Business owners often find unique ways to repurpose buildings: They’ve transformed jails into hotels, roller rinks into retail shops and churches into restaurants. Many credit their establishments’ incongruent past in part for their success.
Those looking to take up the strategy can potentially find bargains as other businesses shutter and leave attractive properties behind. Office and retail property prices in the fourth quarter were down 31% and 26%, respectively, from two years ago, according to Moody’s Investor Services Inc. And some properties may qualify for tax credits if they’re designated historic.
The owners of Brooklyn Boulders left the Daily News logo on the facility, saying it would add character to the business.
But investing in a property can require a significant chunk of cash, and financing remains difficult to obtain. “It’s the Catch-22 of all real estate today because you’ve got property you can acquire at extremely low prices, but the parties you usually go to for financing are running in the opposite direction,” says Tom Kirschbraun, a managing director at Jones Lang LaSalle Inc., a real-estate services firm based in Chicago.
Realtors say they are seeing some bargains. A vacant New Orleans office building constructed in the early 1900s was sold last month for $5.5 million, about $2 million less than what it was appraised for in 2005, says Richard Juge, president of RE/MAX Commercial Brokers Inc., based in Metairie, La.
The buyer, Mark Wyant, owner of a local small construction business, says he plans to turn the building into a luxury hotel while maintaining its original architecture, including granite and scrollwork exteriors.
The property qualifies for between $3 million and $5 million in state and federal tax credits because of its historic status, says Mr. Wyant.
To buy the Charles Street Jail in Boston in late 2007, where the Boston Strangler and other criminals were allegedly once held prisoner, Dick Friedman says his small real-estate development firm, Carpenter & Company Inc., teamed up with an investor and tapped equity, $15 million in state and federal tax credits, a bank loan and personal savings.
The 150,000-square-foot luxury inn, which includes a restaurant and bar, now makes about $40 million in annual sales, according to Mr. Friedman. “People are fascinated with its history,” he says.
But renovation costs on a property originally designed for another purpose can add up. Brooklyn Boulders’ Mr. Spaeth says it cost about $1 million to fix up the delivery-truck garage, which is leased, and Liberty Hotel’s Mr. Friedman says the total tab for transforming the 169-year-old formal penal facility—including the cost of the property—was about $120 million. “It’s not for the faint of heart,” says Mr. Friedman of doing a major overhaul of a property. “But I think it’s worth it.”
Mary Liz Curtin and Stephen Scannell’s furniture and gift shop, Leon & Lulu LLC, used to be a roller rink and Motown concert venue. They bought the place in 2005 for $750,000 and added $255,000 in renovations.
They kept the 69-year-old property’s original flooring, benches, trophy cases, scoreboard and signage. On weekends and during special events, employees skate through the aisles to serve coffee and cookies to shoppers.
Last year the Clawson, Mich., company posted about $2 million in sales, a 20% increase from 2008, according to Ms. Curtin. “We get letters from people who thank us for keeping the history alive,” she says.
Business owners can sometimes run into problems obtaining basic operating permits, warns Alan Shor, president of the Retail Connection LP, a retail real-estate firm based in Dallas. Any business “that might impact children, traffic or even the look of the neighborhood” could face opposition from local lawmakers, he says.
Steve Morrison, who owns Mission Restaurant, a Syracuse, N.Y., eatery housed in a former Wesleyan Methodist church that was an alleged stop on the Underground Railroad, ran into such a problem. A local law prohibits the sale of hard liquor within less than 200 feet of a church—an active one—and he’s within that range of a Baptist church. “I can only sell beer and wine,” he gripes.
An establishment’s idiosyncratic past may not always be an advantage. Hair stylist Randy Fotia says he usually avoids mentioning that his salon was once a funeral home unless clients inquire about a photo on the cash register showing its original facade.
“Some people get creeped out by that,” says Mr. Fotia, who purchased the Highland Park, N.J., property in 1992 at a below-market rate with a mortgage he’s long since paid off. “I’ve always liked it.”
Mr. Fotia says he spent close to $500,000 renovating the salon, now called All Is Vanity, and the apartment above it, where he lives. Clients are typically unaware when using the bathroom in the basement that bodies were once embalmed down there. “People say they’ve gotten weird vibes,” says Mr. Fotia. But “no ghosts.”