Converting school building into apts - What to consider?

Question

Our school district is getting ready to get rid of an old high school building built in 1905. My husband and I have dreamed of turning into an apartment building. I reached out to the district and got the opportunity for us to walk through the building, assess things, and potentially make a proposal for purchase. We own and manage 18 units right now, but have never put a deal together of this magnitude. How can we determine if the building is suitable for conversion into apartments? What experts should we bring along on the walk through? We'd love to hear from anyone with experience pitching to school districts or historical renovations in general. Thanks in advance!

Greg Dickerson · Answer

@Allyn Witt there are a lot of things to take into consideration from type of construction, mechanical systems, lead paint, asbestos etc.

I have done a lot of conversions of old historical buildings such as  school buildings, hospitals, factories, office buildings etc. and converted into apartments, condos, mixed use and office.

I would be happy to discuss more in depth as these types of projects are very complex and there is way to much to go into than can be posted here.

Teri Feeney Styers · Answer

@Allyn Witt get a GC and learn about IRC and local code when it comes to: egress, fire separation, and other physical design limitations. How many apartments? If you go over a certain number do new "rules" apply? Sounds like an intriguing project - but could be a big money suck without enough homework first.

Barry Ruby · Answer

Hi Allyn,

The risks and challenges associated with renovation are far greater than new, ground up construction projects. New construction provides the ability to control design and allow for the introduction of present and future "state of the art" design and technology. Renovation demands the envisioned "highest and best use" of the property honor existing physical construction realities that will meet current codes required to entitle, build and operate the planned renovated project and its uses.

Historical renovations introduce an additional layer of constraints that must be met. If this property is historical in the sense that it is on or may be placed on a historical register, the renovation project will also have to conform to a set of conditions that will generally have to do with maintaining all or significant portions of existing architectural elements such as facades, building materials and colors.

Historical or not, any planned project will have to be heavily vetted in terms of existing conditions and projected uses for all major building elements such as structural, electrical, plumbing, mechanical and ADA and ANSI provisions. Determining existing conditions and the scope and cost of renovating them and other project scoping requires time, money, patience, as sense humor and maybe even an attraction to pain :).

On the issue of cost alone, getting a handle on existing conditions will require finding a set of professionals with renovation experience to assess each trade and provide a cost to repair, replace or redesign what each of them is looking at. Engaging the same or perhaps other or additional professional help may also be required. All of which generally involves the payment of what can be pricey fees and time.

In order to rationally engage and pay for the kind of services noted above, you need to gain control of the property so that you know that you are not trying to score without having possession of "the ball". In order to negotiate a document that provides control (a contingent lease or purchase and sale agreement), you need to do some preliminary development and pro forma analysis which should form the basis of key terms and conditions (purchase or lease pricing, the timing and amounts of earnest money and a due diligence program/schedule/budget) of the acquisition document to get to a stated closing date. The closing date should be contingent on having the project at a shovel ready state which generally means that the project is fully entitled with debt and equity capital committed.

Last, mitigating the construction risk is a lot harder to do for a renovation vs new construction. Renovation work involves a great deal of room for the general contractor and subs to encounter unforeseeable problems in the form of what is contractually called "hidden conditions". These situations, if encountered typically become engineering and construction problems that are ultimately solved with the developer's money.

You are encouraged to do a bit of due diligence before spending an inordinate amount of time on this (or any development project) by:

- Determining the highest and best use you see for the property

- Running a pro forma to understand the project's value (sales or capitalized rental income) to see if the project makes sense financially

- creating a project schedule and pre-development budget

-Using the above data to approach the school district to see if they will work with you based on an offer that you make to them that is informed by your due diligence and try to get the property under contract if you can come to terms with the district with a closing date you think you can meet

You may well discover that the school district would prefer or may even be bound to dispose of the property thru an RFP process, that is a "request for proposal" where you and anyone else can throw your hat in the ring to see who produces the most attractive (to the district) proposition. Even in this event, if you conduct the initial due diligence as suggested above, your chances of "winning" the RFP should be greatly enhanced over those of your competition.

I hope this helps to address your questions. Please let me know if I can be of any assistance to you and good luck if you elect to proceed with the project.

Allyn Witt · Answer

@Christopher Hunter I’ll definitely post updates!

Allyn Witt · Answer

@Greg Dickerson That sounds great, Greg! I’ll send you a direct message. Thanks!

Christopher Hunter · Answer

@Allyn Witt  Hello Allyn.  It sounds great what you guys are planning on doing.  I have not done a deal like this.  Me being a home inspector I can only offer some tips that I think might help.   A building built in 1905 it’s probably going to have a  old boiler system so you will need a GC to look at.   HVAC person, of course you will need to check the regular stuff, like soil, roof, lead etc.  please keep me updated on how this project goes, should you acquire the property.  Happy hunting

Converting school building into apts - What to consider?

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