Rehab vs. New Construction

Mon. Dec. 11, 2017
Why Cherokee rehabilitates and renovates existing properties.

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Advantages of Rehab

Zoning Laws

"Zoning" is a term used to describe laws that regulate the use of real estate and the buildings on the land. What can you build, and what can you do within the buildings? The term "zoning" comes from the "zones" or regions drawn on a map that describes the "permitted uses" of land within each area or "zone".

Conceptually the primary purpose of land use regulation is to separate different types of activities that are considered incompatible. So, for example, in a certain "zone" the owner of a parcel of land could only build single family homes that met specific requirements for parcel size and structure configuration. In other areas new occupants of a existing structures could only conduct certain activities. For example you must not permit manufacturing along a highway where retail and office uses were deemed more appropriate.

Zoning Laws, and especially newer more restrictive revisions to previous regulations, are ostensibly intended to prevent new development from harming existing residents or businesses. Land Use laws are primarily enacted at the local government level, although broader regulations often seek to coordinate development across multiple local and county jurisdictions.

Zoning Laws are one of the primary determinations as to whether an existing property should be renovated, as opposed to torn down and rebuilt. This is especially true for "salvage" real estate infill developers such as Cherokee.

Renovation Zoning

Some forward thinking communities have implemented, or are considering, special land use Zoning "overlays" that facilitate the renovation of existing properties. This is usually called "Renovation Zoning."

The main concept of Renovation Zoning is that there can be multiple Zoning classifications incorporated into a community's Land Use laws. One set of regulations would apply only to existing buildings slated for renovation, and another set of rules would apply to buildings destined for demolition and new construction.

These forward-thinking land use paradigms seek to encourage the preservation and renovation of existing housing in neighborhoods that value their existing older buildings, and balance these objectives, and respect the rights of property owners, with the growth and modernization of the community, and the legitimate goal of implementing modern land use planning techniques that will result in more sustainable communities for everyone.

One such effort is a non-profit "grass roots" organization called Preservation Chicago. You can see their discussion on Zoning Renovation at this web page.

When land use regulations discourage the renovation of existing properties regardless of the motivation, the result is often encouragement to owners of rundown properties to avoid but essential repairs, and "bleed " the properties for cash as long as they can alternately these restrictive zoning controls result in a more gentrifying community with fewer affordable rental opportunities for working class citizens necessary to supply labor for existing local businesses.

There is a balance between the benefits of restoring existing properties and the implementation of room Vaux community development plans that over time are manifestations of the vision of where people want to live and work. On a small scale Cherokee helps stabilize and improve communities by salvaging existing properties and quickly and safely returning them to the tax rolls, and to productive use in their neighborhoods. This document argues that it is in the best interests of the community renovation activities even when the resulting continued use is not perfectly synchronize with the overall master plan. We hope that as you learn more about Cherokee, and how we benefit the people and communities within which we operate, that our renovation applications will be considered favorably.

Help Your Community

We encourage visitors to this web site to alert us to specific properties that are abandoned or in tremendous disrepair, and/or whose owners are neglecting their obligation to maintain the property. If Cherokee becomes involved in such a "salvage operation", the result will be that the property will be restored to safe, productive use, it will be current on its taxes, and it will be a net asset to the local neighborhood.

When an existing property is in need of significant repair or restoration, or when the owner is considering adapting it for a different use, such as from warehouse to retail, or commercial to residential, one of the first questions that arises is whether it makes more sense to demolish the structure entirely, and rebuild something completely new, or to renovate the existing structure(s), with modifications.

Some of the major factors that must be considered when deciding whether to renovate or rebuild a property include the purely financial aspects, local zoning laws and what they allow, the aesthetics (relative to the neighborhood) of restoring an existing structure and preserving its architectural style and character versus what new construction would look like, and the other needs of the owner and the community.

This is obviously a significant topic, with no "right" answer. Entire books have been written just on this analytic process. This web page obviously can't answer this question. A decision will be based on many considerations unique to the property, the community, the owner, and the social and economic circumstances at any given point in time. Rather, on this page, and in the context of this web site, we will briefly identify the issues that must be considered, and then explain why Cherokee usually chooses to renovate a property rather than demolish it.

Ultimately we hope our property rehabilitation applications are approved by local government, for all of the reasons articulated on this web page, and on this web site.

Some of the questions that must be included in the "renovate versus demolish" decision include:

  • Is the property prosperous and productive, or is it distressed?
  • Is the surrounding community prosperous or depressed?
  • Is the property consistent with its surroundings?
  • If there are problems, are they based on marketing or functionality, as opposed to esthetics or lack of maintenance?
  • Is it a commercial or residential property?
  • Is the owner going to hold it long term, or are immediate financial objectives paramount?
  • Is the local government, and the local populous, cooperative or combative?
  • Is the property occupied or vacant, and if occupied does the owner have the right to empty it?
  • Are there environmental (contamination) issues involved, such as asbestos?

For a retail property (i.e. a shopping center or a Mall), the primary considerations are usually functionality. If you renovate, you must live with the existing structure. If you demolish and rebuild, you have a more certain budget than you do with a renovation. It can be cheaper in the long run for developers, because an entirely new shopping center will usually attract better tenants, who will pay higher rents.

So for shopping centers, construction costs are not the major factor when determining how to "refresh" a property. The Demo/Reno decision is much more than the initial construction costs. The more important factor, long term, is whether the property "works" in its present configuration, or as it could be reasonably remodeled using some or all of the existing structure. If it is functionally obsolete, a new facade won't help.

But for residential properties, especially smaller ones, the major determining factor is often local Zoning regulations.

Residential infill development

Cherokee is primarily concerned with salvaging the value of existing real estate, and associated financial assets. Most of the properties we own were formerly run down, if not outright dilapidated and dangerous. We always restore these properties to safe, attractive, productive members of their communities. We facilitate community development by "saving" non-performing properties. To do this we must earn a fair profit, because money is one of the raw materials for our business.

The most efficient way to recover the latent value of this type of real estate, and thus enable us to grow and salvage more properties, is to repair and renovate the existing structure, not to demolish and rebuild.

Zoning laws are one of the primary reasons that Cherokee typically renovates existing structures, rather than tearing them down and building something else.

Zoning Laws have become more restrictive over the years. Concurrently, building codes have become more expensive to implement. Consequently, if a residential property is accidentally destroyed or intentionally demolished the owner typically does not have the right to replace it, without a lengthy government approval process.

However an existing property can be repaired and renovated without any land use permission, even if it does not conform to the present land use regulations.

Continuing what is called a "pre-existing but non-conforming use" is still subject to meeting certain health and safety requirements, and is further subject to other conditions related to the extent of the renovation relative to the existing structure. In other words, if you are "renovating" 99% of a structure, it may be considered a new building, whereas most jurisdictions consider a replacement of less than half of a structure to be a "renovation".

By renovating an existing structure Cherokee is able to more quickly return a property to a safe, desirable, productive status. Renovations tend to be more cost-effective than demolishing and rebuilding, further reducing the amount of rent we must receive in order to earn a fair return on our investment. Renovations tend to maintain the architectural appearance of the property, which is usually more in keeping with the character of the neighborhood.

In many instances current land-use regulations would prohibit two, three and four unit residential rental properties. These were common years ago, and today often represent the most affordable and conveniently situated apartment rentals in a community. If these structures are demolished, whatever replaces them will probably not be as affordable, if rentals are permitted at all.

So by renovating existing structures rather than demolishing and rebuilding them Cherokee is able to preserve affordable rental opportunities in the very neighborhoods that need them most, working class communities.

Obviously any renovation must result in dwellings that are safe as well as functional and desirable. Every Cherokee renovation meets or exceeds all current building safety standards.

Cherokee is a long-term investor. We own and operate a portfolio of rental properties. We have a long-term commitment to each property, and an obvious self interest in the desirability and sustainability of the surrounding neighborhoods. We are involved in the community, and provide financial support to local community-based organizations that serve the locales where we own real estate.

A typical Cherokee renovation involves a complete replacement of the electrical, plumbing and heating systems. This ensures the utility infrastructure is as safe and productive as anything in a brand-new property, and is less expensive to maintain on an ongoing basis.

From an ecological perspective, a renovation is significantly more desirable than a demolition. When you demolish a property all that material must be sorted, and trucked to a landfill. Then new construction materials must be produced to build the new structure. Any time you can salvage and reuse a portion of an existing structure, it represents three "wins":

  1. less volume in a landfill,
  2. less new material being utilized, and
  3. less pollution and transportation costs removing the old material and bringing in the new.

These "infill" rehabilitations are often located in or near downtown areas, allowing occupants to use mass transit, or walk. This supports the sustainability of the community from an ecological perspective. Fewer cars means less roadway congestion, fewer parking problems, and less air pollution.

From an aesthetic perspective, the architecture and construction materials of older properties are often more attractive than the bland (some would say "sterile") construction material standards used today.

More broadly, many people are rightfully concerned about preserving their architectural and historical resources for future generations. Many communities have enacted historical preservation laws. But these laws may discourage renovation by overly restricting what the owner of a "historical" property can do with it, and how it may be maintained and renovated.