National Pandemic

Adaptive reuse, coronavirus edition

The pandemic is forcing us to adapt buildings in new ways
By Constantine Valhouli  |  August 11, 2020 9:44 AM

Image via Wikimedia Commons

Real estate has always been fungible as to asset class.

Most cities have former mills repurposed as apartments, and de-consecrated churches as condos. Many former office towers in the Financial District in Lower Manhattan, after the Black Monday crash in 1987, were redeveloped into residential buildings (and their atypical layouts sometimes suggest fluorescent lights, cubicles, and RuPaul exhorting you to "Worrrrrrrrrrk!").

One school of thought is that the coronavirus pandemic is going to devastate certain asset classes within real estate. And this is largely true, when we consider their conventional uses and usual income streams and drivers. But we're seeing some fascinating adaptive re-uses of existing buildings:

Amazon is using abandoned mall department stores as fulfillment centers. TechCrunch recently reported that Amazon is in talks with Simon Property Group, one of the largest mall owner/operators in the United States, to try this out. The malls have taken a double hit, from necessary lockdown measures as well as Chapter 11 bankruptcy protection on the part of anchor retailers like J.C. Penney and Sears. This provides some much-needed revenue for mall owners, and Amazon doesn't rely on foot traffic for a distribution center.

Movie theaters as temporary classrooms. Justin Davidson at New York magazine suggested that movie theaters – which are still largely shuttered due to the pandemic – could be temporarily repurposed into classrooms. The movie theaters aren't generating revenue on films, and classrooms are too crowded to allow for both six-foot distancing and proper ventilation. Cory Jacobson, the owner of Phoenix Theatres – with venues in Iowa, Massachusetts, and Michigan – has offered his theater locations as classrooms.

Hotels as homeless shelters. In New York City, over 130 hotels – including luxury hotels such as the Lucerne on the Upper West Side – are being used as homeless shelters. On one hand, the pandemic has restricted business and leisure travel and the hotels have seen bookings and revenues drop significantly. On the other hand, the pandemic has hit people unevenly – not everyone has the luxury of sheltering at home and social distancing when they do not have a home.

While the economics of the arrangement are opaque, it appears that the city or state are paying close to full price per night to house the homeless. This represents a significant and ongoing transfer payment from taxpayers to hotel owners, and stands in stark contrast to the one-time stimulus check of $1,200 that many Americans received earlier in the pandemic.