Saving Historic Buildings and Creating Value Through Smart Redevelopment

0:00For me now, it's pretty quick math to understand is this property going to be profitable? But the main thing that I'm looking at is square footage. Okay, — there's usually a lot of underused square footage in a historic like when I say historic, I'm talking usually — a downtown building with a second story. That's that's typically like for purposes of this conversation what I'm talking about. — And there's usually like that main level retail. It might be restaurant, retail, that's usually covering the debt service or whatever on the building.

0:36And then your your second story, a lot of times almost every case for me is vacant. So, a lot of opportunity for short-term rentals. And that's really what I shoot for is to try and do short-term rentals up there. Or some sort of residential space for a variety of reasons. Not only financially, but I also think from a community impact standpoint, it's great getting people downtown from a walkability standpoint, community connection standpoint, there's a lot of reasons to do that.

1:08— but to your question, like it's pretty easy to pencil that out quickly. — Yeah. — And on top of it, from a financial standpoint, a lot of communities have really attractive grants. They have really attractive funding programs that usually apply to those downtown districts. So there's a lot of intentionality on getting buildings renovated because they are scary. They're not attracting a lot of development. So they're really dangling carrots there to to draw people in.

1:44And if you're willing to go through those, you know, those those meetings, those extra meetings and and answer sometimes some, you know, redundant or silly questions and do that kind of work, you know, the fruits of that labor are pretty abundant if you can — muscle through it. — Got it. Okay, that makes sense. So So that's that's pretty wild, though. If the retail down below allows you to break even on your your your expenses and then the upstairs unit or units in in many cases is just gravy on top.

2:22I mean, if you can combine that with the short-term rental that's bringing in, you know, short-term rental type income, that's that's some significant cash flow. It's it's a strategy I I haven't really considered that much cuz I haven't been in commercial before. And it always seemed like a big undertaking to get a commercial client and you know it could sit vacant and that sort of thing, but it I mean this sounds like it could be a huge money maker. Is — is there a way to identify those incentives that the the city is offering? Like you know I know it's probably different in every single town.

2:54So how do you how do you go about that? Well there's a few different ways like right now just with how my career overlaps with a lot of things there I do have the advantage now of of communities actually coming to me which is awesome — if you put yourself out there and you let people know hey I'm willing to take this kind of project on there's a lot of communities are like great we have this this and this building that have been neglected for the last you know three decades would you come take a Look, that's a huge advantage, but really one of the first steps is talking to the local, you know, whether it's the economic development director.

3:38Usually like whoever's in charge of like building services or economic development, they're going to be the, you know, the main point of contact that's going to, you know, show you what programs that they have. And in my experience, I'm a small government guy. I don't love that. But it's it's really necessary to cover that delta because there is usually a financial gap that needs to be met. And I could really get into the weeds about, you know, appraisals on old buildings and how that I mean, you and I have had these conversations about like they just don't match, especially, you know, they they do like the post renovation appraisals.

4:19Sometimes those are really hard. Sometimes they're great, but it's usually the latter is they're really hard. Yeah. To to get to where you need them to get from a funding standpoint. So, you need some sort of outside funding that's pretty aggressive to make up that delta. And a lot of these communities understand that now, you know, in 2025, they understand that. And they're they're trying to to be aggressive about getting developers in there to do that. — Okay.

4:50So what is that like? What's an example of like a because I think people who aren't familiar with this hear that there's, you know, grants or or funding from the government that that's going to help you do one of these projects, — but like myself include I don't know how that I I've never gotten I I've heard of, you know, like tiff money and I've heard of all these other different types of of financing, but like can you give an example of what that do? They just give you a grant like when you start the project here's money for financing or for u construction or you have to like do the project first and then they reimburse you or how does that work?

5:26— Yeah. So they're they're never going to I shouldn't say never. I don't know. — But usually it's going to be after the project's done then they're going to they'll give you a commitment up front — that you know you can then your your lender is usually going to be involved in that process. Okay. — and they'll give you some sort of commitment upfront. And you know a lot of every municipality is going to be different. Some in Nebraska we have what's called LB840 which is local municipalities can vote on a sales tax option where we can basically I'm going to butcher this and someone's going to correct me but you basically put money aside for capital improvements where there's there's a fair amount of discretion there where municipalities can be like yeah we have this money sitting here where we can put it towards improving this private

6:15Project. You know, there's there's regulations, there's stipulations. It's not just the wild west. But then there's there's ways to incentivize private development. Here in in Illinois, like, you know, my Frankfurt project, Frankfurt's a pretty affluent suburb. It's not blighted. So, to use TIFF, tax incremented financing, you have to be in a blighted district. There's no blight in Frankfurt. You know, there's it's it's just a very affluent area. But Frankfurt developed their own program called TIP.

6:49And basically the same thing they just took out of their budget. They put money aside every year to put to pour funds into the downtown district. So there's an agreement made that hey you're going to do you have to follow these stipulations of the project. The project's going to you know provide benefit to the downtown district in these ways. They're usually very reasonable. It's not anything out of crazy out of line. — and then at the end of the project, that's that's funed back to you.

7:21I've had projects where there's been hundreds of thousands of dollars committed from from the public side. Which is great. I say that it's it's great, but it's also the project wouldn't have happened if we didn't have that. So that's al always a very important requirement like — Yeah. Because they're not just giving money, — right, — to to give money. It had to have happened that way. — Yeah. Exactly. So the the concept behind it is like — if you were just to go out and rehab that property, you'd have to put way more into it than it'd be worth at the end.

7:56So these properties, these old historic buildings will just sit vacant forever because from a financial standpoint, a developer is never going to come in and spend more than it's worth afterwards. — So that's why they're giving you a supplemental amount to to help get these fixed up and then it it helps the whole community when they're fixed up. That's that's the idea behind it. Correct. — Right. Okay. — Right. — Okay. — So is there certain areas like you talked about, you know, blighted versus non-blated. Are there certain areas if someone's hearing this and they're like, "Okay, this sounds like there's a ton of opportunity.

8:29There's all this vacant square footage sitting out there in all these towns, where should people start? Like, how do you identify where there's opportunity or where it makes sense to to start looking at potential properties?" — I would go for a walk. Like, I did that today in Velpo. Like, — I I do that all the time. And I've I've bought properties because I was out on a walk. So I start there and I'm always looking up. I'm looking at the second story. Does it look like there's action up there or does it look like that's vacant?

9:00Is it dusty? And is there is there activity in any of the second stories around here? — that's usually where I where I start. — Yeah, that that makes sense. Yeah. And I think in your own backyard is is a good answer. A lot people always like, "Oh, no. If I just lived across the country, then I'd be making tons of money, you know, and but it's like there's opportunities everywhere. You just have to start looking." — yeah. And to your point, downtown Valpo, like where I live, Alperezo, Indiana, like we just did a five-unit downtown, it it's working phenomenally as a short-term rental.

9:34And I see all these buildings — along the old strip, you know, it's called Lincoln Way Road, ironically, that have all these old like shops below and then the apartments up above. And I I I feel like there's so much opportunity there. So — but yeah, that's the type of property I think that makes makes a ton of sense for this. What's the cost of construction for So I I've rehabbed old properties before. And man, it's like exponentially higher in terms of cost typically than something built in like 1960, 1970 that has the, you know, PVC and coax in it already or the PVC and — you know, the the updated electrical.

10:20So what what's how do you account for the the cost on a historical building? — it's more expensive. So that's why you need the that's why you usually you need to have some sort of way to supplement it on the front end, but before I go too into it, that's they still, at least in my experience, they still pencil out really well. — Okay. — because you're starting with a lot of square footage. So like a lot of my buildings have 10,000 square feet or more.

10:52You know, maybe five to 15,000 square feet. So you if you look at it from that standpoint, you have a lot of opportunity for units. So you can get a lot of doors under one roof, which is valuable to I mean anyone listening to this understands the value of a lot of doors under one roof. — Yeah. — I love that model. — and are you always planning to gut the whole building? I mean, it's pretty much you just plan on absolutely replacing everything. — It depends. Like my my building in Carney, Nebraska, it was it was set up as apartments in that one was built in the late 1890s and it the apartments were never demoed out.

11:33They were just like abandoned I think in the 1930s. So those walls kind of still lent themsel really well to apartments. So we're like, well, let's leave them. Yeah. — you know, the code allowed for us to keep the the L and plaster, so we so we left that. And, it worked out. I guess on that note, like for me, I'm not like a big hippie, you know, tree hugger. However, the sustainability aspect of all of that is super important.

12:06The construction industry accounts for 25 to 30% of all waste that goes into a landfill every year. So reusing these buildings that already exist. There's already a roof. There's already a shell. They're built with way higher quality materials than what we're using now. They've got old growth lumber. You're going to have real stone. Great masonry. So I try to incorporate as much as possible. If we can avoid gutting, I will. If we do have to gut, reuse, you know, studs if we can.

12:38But you are going to have to incorporate fire suppression systems. Anytime you're mixing, you know, commercial with residential, you're going to have a fire suppression system, things like that that are going to drive cost up, but then you're also going to get a cut on your insurance. So, — you're you're not by no means is that going to offset. I'm not trying to say that, but you know, you are you're you're basically you're taking a building and giving it another life for 150 years. You're giving it another really long-term make building a long-term asset. So, I I try to, you know, I usually error on going a little overboard on my remodels.

13:15but yeah, there there's there's a serious cost associated with all that. But, you know, it's like it's like then you're almost like building a new house. It's like every inch of that building — is new. — Yeah. Exactly. Yeah. Yeah. And I think if you go into it with that thought process, that's the key. Cuz I talk to a lot of people who will like send me a deal or show me a deal that they want to purchase, you know, people that I'm I'm working with in my education program and they're like, "Oh, I'm just going to throw $30,000 into it." And I'm like, — "No, no, this was built in like 1900." Like, as soon as you get in there, — everything is going to be required.

13:51So, just plan on that from the beginning. And if you do, then you know, you might not build a ton of equity from day one, but you have this amazing asset that's totally gutted and everything's brand new and it's going to make money for you long term. So I think that's smart. Do can you kind of walk me through a a a example deal that you've done in the past and like what you did to it? — Yeah, I think like probably my favorite deal is the Frankfurt the Frankfurt project. So that was one where Frankfurt's my hometown.

14:24You won't you you're very familiar with it, but it's kind of like a hallmark town. It's a very well manicured, affluent area. I wouldn't say it's necessarily like a touristy town. But — suburb of Chicago. — Yeah. Yeah, good point. Yeah. Suburb of Chicago. — and there's no vacant there's no like neglected buildings, but there was one. So, for years, when I was coming back and forth from Nebraska, I was duct taping envelopes to the door with my with a letter that would say, "Hey, I want to buy this building." so nothing and nothing nothing.

15:03And then one day I got a call from this lady and it she said, "Hey, my sister owned this building. She passed away. I got all your notes and we'd like to give you first crack at it." So, I was on a flight the next day. Wow. — And was able to get the building. I had been talking to the to the city of Frankfurt for years about the building. And — cuz the the seller was just not selling. She was just holding on to it.

15:33And the the city was really really helpful with me getting the building and getting you know with in terms of permitting and and getting through historic preservation. I mean I still had to go through every step and jump through every hoop. It wasn't like I just got a green light. There's still it's a very I mean — Frankfurt's a very restrictive area to build. It's it's kind of known for that because they have high standards and that's why it's such a that's why it's such a nice area and such an attractive area.

16:09— So, they really wanted this fixed up though. They wanted to see it. — They were very fearful that it was going to it was going to have to get demolished. — it's the second oldest building. So we did a full, you know, essentially a full gut remodel. It was full about 6 ft full of stuff which is a common theme of every historic building I've bought is just full of everything and the roof is always gone. So it was just wet stuff. So I think we took like six dumpsters of just wet stuff out of that building and had to do mold remediation and just air it out for like months.

16:46And yeah and then just did a full buildout. So, now it's a thriving, it has a thriving bookstore. There's an office on the main level as well. And then we have a two bed, two bath, short-term rental, and then a studio unit short-term rental. And they're doing great. And it's so fun to to see that. And the community has been really well receptive to it. And — it's the only short-term rental in Frankfurt.