The Lazarus Complex: Some investors like bringing dead properties back to life and are finding the rewards are more than spiritual
- September 1, 2021: Vol. 8, Number 8

The Lazarus Complex: Some investors like bringing dead properties back to life and are finding the rewards are more than spiritual

by Benjamin Cole

Some properties, like some businesses, come to the end of the line. The rents or income don’t cover the costs, and the debts mount until the day of reckoning, be it return to lender or even padlocks. But unlike many businesses that can vanish into the night, the bankrupt and foreclosed properties remain, in the very tangible form of land, buildings and connections to infrastructure.

To be sure, for the departing owners such vacant properties were likely but a maw for money. But for others, a dead property can harbor signs of rebirth. Moreover, the price can be right. Banks and other property lenders do not like to own property; they know how to lend upon real estate, not manage it. So properties with hundreds of thousands and sometimes tens of millions in sunk costs can come on the market at dimes on the dollar.


Property denizens advise that repurposing an obsolete property is not an endeavor for the faint-hearted. There are reasons former owners wanted to sell or even just walked away.

Real estate experts define two general types of property obsolescence, those being “functional” and “economic.”

A functionally outdated property might need a technological makeover, such as retrofitting to accept more power from an electrical utility, or high-speed internet connections, better cellular reception, and modern security features.

Even evolving tastes and customs can affect functional obsolescence. For example, office buildings of the 1960s often eschewed eateries and retail, but by the 1990s ground-floor amenities and even pleasant common areas became essential.

Then there is “economic” obsolescence, a characteristic seen in many Rust Belt properties, out-of-date resorts, shopping malls, or in areas that have undergone large infrastructural changes.

For example, when the population of a city such as Pittsburgh declines from 678,000 in 1950 to 299,000 in 2020, many properties will become obsolete, lacking for demand. The old Catskills resorts in upstate New York have faded into hulks, as later generations lost interest in live theater and summer holidays relatively close to home.

But for selective investors with skills, some obsolete properties can be reborn.


Obsolete properties can be profitably repurposed rather than razed by wrecking balls. “Sooner rather than later” are bywords in reuse circles, as problems of deferred maintenance mount. By the time the bulldozers are being booked, a property has the gallows look about it, having been shunned by investors for years.

Yet in Bellflower, a bedroom community that struggled after the post-1960s departure of manufacturing from south Los Angeles County, another relic from the past, a JCPenney department store, was repurposed into a mixed-use retail and office configuration, when at one point demolition was on the calendar in seven days.

For 10 long years until 2020, the three-story 41,000-square-foot JCPenney building sat empty, a retail ghost on what was once Bellflower’s thriving main shopping boulevard. City officials wanted to down the JCPenney apparition, rather than endure blight any longer. But where authorities and other investors saw termination, Martin Howard, president and CEO of the property development enterprise Howard CDM, saw a chance for renewal.

“Old downtowns are coming back, and I had an architect in mind to take the somewhat pedestrian JCPenney building to another level,” says Howard. “The price was right too.”

Howard envisioned a project named “The Exchange,” a mixed-use food service, shared office and company headquarters facility. Howard arrived in town in the nick of time.

“If the sale of the JC Penney site didn’t go through, it would have been demolished. The City of Bellflower was tired of having an empty building, that was viewed as a community eyesore,” says architect Michael Bohn, senior principal at Studio One Eleven, who oversaw the structure’s revival. “The wrecking ball was scheduled to arrive a week after the closing deadline.”

Today, The Exchange is one of the most recent additions to Southern California urban-hip scene, with exposed brick, wood ceilings, natural lighting and Ironfire Workspaces, shared office space on the mezzanine level. The new Howard CDM headquarters is on the third floor.

Upscale food-service tenants are being selected for the ground floor, as the neighborhood is again on the upswing. Bellflower has housing, and any housing near the Southern California coast is seeing rising values.

One of the curiosities of older Southern California architecture is that buildings often neglected to take advantage of one of the world’s best climates, featuring moderate humidity and temperatures, yet abundant sunshine. Correcting past oversights, a new outdoor mezzanine was constructed at the front of The Exchange for patio dining and informal gatherings, while abundant natural air and light was brought inside, including in the stairwells. To good purpose: The average high in Bellflower in August, the hottest month, is a modest 84, and in the coldest month of January the average low is 46. Rain is rare.

For all of the promise, The Exchange was a tough sell to banks, and it was not always clear the project could get funded.

“Lenders had a hard time valuing the empty building, and the neighborhood was perceived as declining,” recalls Howard. Even at the bargain basement $50-per-square-foot sale price, financing only came with stiff terms.

But in the end, it is likely Howard has done well by doing good: Prosaic commercial properties in and around Bellflower today sell for $300 per square foot and higher. That suggests quite a purpose to repurposing obsolete properties.


Detroit, a once formidable environment, is now famous as the very symbol of national industrial might and decline, the metropolis where trees sprout from long-moldering tower rooftops. A landscape of obsolete real estate.

But for the intrepid, it’s also a city to profitably repurpose property.

Before being emptied in 2013, The Foundation Hotel in downtown Detroit was a working fire station and the headquarters of the Detroit Fire Department. Like many regional structures, the firehouse features Neoclassical architecture from Detroit’s early golden age, in this case circa 1929.

The hoteliers Aparium Hotel Group bought the vacant five-story facility in 2017, along with the adjacent Pontchartrain Wine Cellars, and began a $34.5 million repurposing led by local architect Michael Poris of McIntosh Poris Associates.

“To maximize the budget, we had reuse more than just gut,” explains Poris. “We modernized but kept many of the existing spaces for the same functions, such as using the original firemen’s kitchen, and its original glazed brick, as the kitchen for the hotel restaurant.”

As a result of Poris’ makeover, The Foundation Hotel is more than merely a swank inn, but also includes a large lobby open to the public. Dubbed The Apparatus Room, the enclosure has become a downtown common area that embraces the onsite restaurant, lounge and bar, and other retail. A restaurant specialty is Pear Cheesecake, an offering with a widening fanbase.

Like other property re-do projects, the Foundation Hotel might have been stillborn. Lenders were leery. “Finding financing for hotel redevelopment projects is always difficult. In this case, the difficulties were compounded by the perception of Detroit at the time, which was coming off one of the largest municipal bankruptcies in history,” recalls Michael Kitchen, a partner at Aparium.

Of major hotel project repurposing ventures, he warned, there “will be unexpected curveballs 100 percent of the time.”

If Google reviews are any guide, the resurrection of the firehouse  laid the groundwork for success as The Foundation Hotel; closing in on 1,000 reviews, the inn averages nearly a five-star rating.

And therein lies another clue for would-be property repurposers: To maximize profits, not only does the re-do of an obsolete property have to be spot-on, the management thereafter takes bullseye work also. Witness The Foundation Hotel.


No conversation about repurposing real estate is complete without a long nod to shopping malls. Industry denizens count 1,000 malls in the United States, and the vast majority were built to code, still in decent repair, variously situated near population bases, and yet many are lacking for business — and perhaps one-quarter will either shutter or change business models in the next five years, according to Coresight Research.

The “shopping to shipping” repurposing meme has some merits, and indeed many former retail emporiums have been converted into warehouse and distribution centers for Amazon and other ecommerce retailers. By one count, the House that Bezos Built purchased 25 malls between 2016 and 2019, but no one seems to have kept count since. Still, that leaves a few hundred malls wanting fresh identities.

Though warehousing has gotten the headlines in the mall-makeover news, many regions of the country have severe and worsening housing shortages. In California, where housing is always tight, moves are afoot to ease malls into second lives as residential bastions, if local property regulators and interest groups can be mollified.

Case in point is the Stonestown Galleria mall in San Francisco, which has a lineage extending back to 1952, featuring then anchor store The Emporium, and other historic retailing names such as Gallenkamp Shoes, the Red Chimney restaurant and a Woolworth. The mall was rebuilt in 1987 and upgraded periodically, but by 2017 Macy’s quit the location, and then Nordstrom left in 2019. Mall foot traffic was off.

As a result, vast acres of Stonestown parking lots have been largely empty for years, but under-used land anywhere near the coast of California loudly beckons repurposing. And, indeed, an ambitious repurposing project has been proposed for Stonestown by owner Brookfield Properties, including nearly 3,000 housing units, six acres of green spaces, and a new “main street” lined with shops and residential buildings.

The proposed re-do of Stonestown is interesting in that it leaves the existing structures mostly intact if upgraded and reconfigured, but especially makes more intense use of capacious parking lots. That potential repurposing scenario surely applies to sagging shopping malls anywhere along the West Coast and some other regions of the United States.

Yet other malls are being reborn as office projects, and money appears to be little object.

For example, the 740,000-square-foot Westside Pavilion shopping center in West Los Angeles opened to fanfare in 1985 (Leonard Nimoy, aka Mr. Spock, was seen arching an eyebrow on opening night) but now is being made over into office space for Google by owners Hudson Pacific and the Macerich Co.

The $475 million three-year project will convert the three mall floors into warrens for Google workers, under the tutelage of architect Gensler, and slated for occupation in early 2022.

Some mall-world denizens say there is an upside pending in higher-end shopping venues by migrating to a greater concentration on expensive luxury goods, and featuring a diversified tenant mix. The theory is that shoppers are hesitant before unloading $200 on that just-right-looking jeans, and want to try the pair on first in the non-virtual world.

Malls are also taking on tenants such as doctor and dentist offices, or other service-oriented office suites.

However, for individual investors, even those of high-net-worth, participating in a mall makeover probably requires participation in a limited partnership or other vehicle.

Though not a pure play, investors can buy one of two mall REITs on the expectation smart managers will repurpose or revive their properties, or get at least good money for selling to other developers. The listed mall REITs are Tanger Factory Outlet Centers and the industry behemoth, Simon Property Group, both trading well below all-time highs and offering yields around 4 percent, which is not bad by today’s standards.


Housing is in fierce demand along the West Coast and several other markets, but the office sector is soggy, given the uncertain outlook for COVID-19 and the work-from-home movement, and yet recent construction is coming to market. Nearly one-fifth of offices in downtown Los Angeles are vacant in second quarter 2021.

Opportunity to repurpose?

“Wait,” warned Michael Polk of Beverly Hills-based Polk Properties, and member of the Forbes Real Estate Council. “Properties were designed and built with a use in mind, consistent with then-applicable zoning,” he advises. “Tread carefully, as repurposing costs can soar, and every project turns out to have unique challenges.”

Indeed. “Many of these older office buildings will need to decline in price about 50 percent from today’s level before they make economic sense for repurposing into residential,” says a mortgage broker who wished anonymity.

Given property trends, some older office properties may come on the market on both coasts in next one to three years at deep discounts, down into the $150 a square foot range, said the mortgage broker. That’s a major haircut from the rough $250 a square foot range for class B properties.

At present, shopping malls with acres of parking lots that can be improved are a better bet for repurposing, said Polk.

“But keep an eye on office buildings,” says Polk. “If prices adjust downward, and some projects are successful, the financing will come.”


Almost without exception, practitioners of property repurposing love the craft, but warn the business model is not for those who fall in love with a building. The price has to be right, and a wide variety of skillsets brought to bear on the project, from relations with government entities, to financing, to the building re-do, to the marketing and operation of the finished product.

First-timers may be advised to initially participate in a repurposing project as an investor, perhaps a somewhat passive silent partner with limited financial exposure.

Learning how to repurpose a property may be the most valuable return of all.


Benjamin Cole ( is a freelance writer based in Thailand.

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