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Historic Schools Go Hand-In-Hand with Housing

Published by Novogradac & Company LLP on Tuesday, December 1, 2015

Journal cover December 2015   Download PDF

All across the country, adults are returning to school. But it’s not for academics, it’s because so many historic schools are being made into rental apartments.

With school districts building new schools to meet the educational needs of students, a crop of historic schools are being left vacant. In recent years, developers found a new use for these large campuses: housing. Availability, ample incentives (federal and state historic tax credits [HTCs] and low-income housing tax credits [LIHTCs], to name a few) and an ever-increasing need for rental housing brought on this new trend. “From an availability standpoint, vacant schools are appealing to developers and attractive as housing,” Jason Korb, principal of Capstone Communities LLC, a small developer in the Northeast.

“This is a national trend because a lot of schools are closing,” said John Tess, president and founder of Heritage Consulting Group. He said that schools are doing two things: consolidating or moving to a new campus because of the high rehabilitation costs of aging school properties.

Experts agree that there is a lot to like about these vacant properties. Korb said it starts with a school’s double-loaded corridors, with classrooms on both sides of the hallways. Korb said this is “a perfect fit for housing.” In addition, Korb said that the size of a classroom is comparable to a one-bedroom unit. For larger units, Korb said that it is easy to combine two classrooms. Bill MacRostie, senior partner at MacRostie Historic Advisors, said that a school’s large windows are an attractive feature for housing as well.

“It has been a mainstay in our industry for a long time,” MacRostie said of converting historic schools into housing. “The dimensions of a school work well for housing conversion.” Like Korb, MacRostie sited the double-loaded corridors and the depth of the classrooms as perfect reasons for converting classrooms into rental housing units. “There is going to be enough depth to adapt the space into residential use,” said MacRostie.

In addition to the favorable layout of a historic school, Korb said, “There is a lot of charm in old schools as well.” MacRostie agreed and said that people in the community have an attachment to their local schools and are happy to see them being reused. In fact, Rich and Paula Abramson, semiretired educators living in southern Maine, recently moved to Nathan Clifford Residences, a historic school converted to housing in Portland, Maine. “I can’t tell you how many people we’ve met who have a connection to this school,” Rich Abramson said. Nathan Clifford School (now Nathan Clifford Residences) was the center of activity in the community for more than a century.

Like all real estate, location is always key. Richard Hayden, executive vice president and founding principal at Stratford Capital Group, observed that turn-of-the-century schools are frequently well located in the middle of town. Hayden said it is a big plus for housing to be near buses and other amenities, including jobs, health care, restaurants, grocery stores and others. Craig Patterson, senior vice president of The Woda Group, said that another positive to preserving these historic school properties is that it is fairly easy to get the support of community members and local leaders.

Funding School Conversions

Experts have found that these conversions work because there are a number of financial mechanisms available to developers. “[They] make economic sense because of the federal and state HTC,” said Hayden. Stratford Capital Group has converted five historic schools into affordable rental housing. “Often times you can combine that with the use of LIHTCs. So you have three sets of credits, making it very financially feasible,” said Hayden. In addition, Hayden said that each state has a number of funding programs that can be deployed. Patterson said that he has seen Community Development Block Grants (CDBGs) used to help finance these conversions.

MacRostie said that this trend occurs more with affordable rental housing than market-rate housing. And, he has found that there is less NIMBYism about senior housing than multifamily rental housing on the affordable housing side.

Development Challenges

Industry professionals agree that the most common challenges are what to do with the large gymnasiums, auditoriums and cafeterias of historic schools. Because the National Park Service (NPS) considers these character-defining features, developers are usually unable to break up these spaces into smaller spaces.

MacRostie said that affordable senior housing developments can use those rooms as common spaces, including a dining area or common activity space. He also noted that if it’s a big school with a gym and auditorium/cafeteria, sometimes the NPS will allow the subdivision of one of the spaces, but not the other. “The natural tendency for a developer is to want to capture as much space as possible,” said MacRostie. “That tendency runs counter to the NPS design standards.” Korb said that he has also seen developers use this space as storage for tenants.

While he doesn’t encourage it, Korb said that he has also seen these large spaces mothballed for five years, the HTC recapture period. After that time, he said partitions can be installed in order to turn this space into offices for the property manager or more units. MacRostie acknowledged that developers could wait out the five-year recapture period and then do whatever they want with the space. “[But] at that point you are really at a disadvantage in terms of you development’s unit-count revenue,” said MacRostie. Tess said this option is rarely used.

In terms of the hallways, MacRostie said, “one of the main challenges is the inefficiency of the wide school corridor.” Korb said the hallways tend to be wider with tall ceilings, so there is a lot of unusable space. In addition, he said that the large hallways can result in higher common utility charges for the owner, since they are heating and cooling significantly larger spaces than normal. To better use the large hallways, MacRostie recommended incorporating small seating areas or lounges in the hallways. He said that problems arise when developers try to break up the space–subdividing and narrowing the hallways, which runs counter to NPS standards.

Developers found that there can be unforeseen structural and environmental challenges as well. “Often there can be unforeseen problems with the structure of these 100-year-old buildings,” said Hayden. “You don’t know what is behind each wall or under each floor.” Patterson said that historic schools can have problems with asbestos, sometimes hidden in the plaster work. Because of this, Patterson recommends hiring a well-qualified environmental consultant because “the environmental budget can get out of control.”

Tess said it is important for people getting into this niche to know “these are tough projects, they take a special developer … Generally, there are a lot of things that come with schools. You have to deal with municipalities. Sometimes the purchase can be complicated.” Another challenge that Tess noted was what to do with all of the land that comes with these schools. He asked, “Do you build new construction? Use land for parking? What do you do with the old play structures?” To address this, Patterson said there is generally enough surface parking so there won’t be any ordinance issues when converting to housing. He said there is a lot of extra outdoor space for amenities such as picnic tables and lounge areas. Patterson said that well-maintained school playgrounds are good when the developer is converting the school into multifamily rental housing.

Other Uses for Historic Schools

While a vast majority of historic schools are converted to rental housing, experts note that there are other uses for these buildings. Tess said that he has seen historic schools converted into offices with room for incubator businesses. Others cited offices as the other main use for these schools.

Patterson noted rental housing is a popular option in part because of the research that can be done. “With housing you can do a market study,” said Patterson. “But with offices, unless it’s your own, I’d be a little more cautious.” Hayden added, “Generally housing is the highest and best use for schools. Generating office rent or retail rent is much more speculative than filling apartment units … Anything can be done, but housing is the predominant use.”

Conclusion

In spite of the challenges, developers enjoy transforming these historic schools and preserving the history that comes with them. It is a trend that experts say will continue. “These buildings are worth a second look. The infrastructure is there,” said Patterson. “You are saving a treasured asset that is already in the community from turning into blight and creating safety concerns.”

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