With the desire by many Arizona residents to experience a more urban lifestyle, the repurposing of commercial buildings and areas has become very popular over the last seven years. As evidenced in Phoenix by the Seventh Street Corridor, Roosevelt Row and ASU’s downtown campus, these projects can thrive, but it is important to note that real estate development involving repurposing requires thorough due diligence, significant time and a relatively large scope of review.
The good news is that most of the due diligence items to be considered are common to any real estate project. The bad news is that the failure to investigate and evaluate the risks might leave an investor with limited prospects for salvaging the initial investment.
If redevelopment will be pursued by a prospective purchaser, great care is required to identify and assess risks. The following are among many issues to be addressed.
Title Review: Reviewing the title, including an ALTA/NSPS survey, is essential. Obtaining title insurance in the amount of the purchase may not adequately address the scope of the risk, where the “fully developed” value is projected to be worth more than the cost of the land. (Consider obtaining “subsequent issuance” endorsements.) Among potential problems are covenants of record, access issues, easements, use restrictions, architectural approvals and other burdens, including sharing of amenities, such as parking, with third parties.
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