You see them in movies and on TV shows all the time: people living in lofts fashioned from industrial or warehouse hulks built during a bygone age. The structures were easier to let sit unloved for decades than demolish.
Big-city developers for years have gobbled up huge commercial structures to convert into residential lofts, condos and apartments — often for well-heeled tenants intrigued by a pre-pandemic 21st-century urban renaissance.
The trend is gaining traction in Santa Fe, with an interesting twist: Developers are beginning to look closely at the possibility of retail strip centers and hotels becoming the latest iteration of the commercial-to-residential concept in the never-ending hunt to create more affordable housing.
And on this front, the novel coronavirus may be fueling the curiosity.
Homewise CEO Mike Loftin said he believes the strip mall — flagging in popularity from its 1980s heyday and now under assault from the pandemic’s battering of the economy — could someday be the scene of the hybrid commercial-residential blend. It’s not hard, he said, to see onetime shop space converted into living units that can coexist next to a salon, coffee shop or shoe store.
“Santa Fe, we’ve seen this here,” Loftin said. “Canyon Road was once all residential. There’s residential and commerce right next to each other. Who would not like that? If you can convert commercial that is underused or vacant, why not let people do that? Is Santa Fe open to that kind of mixed use?”
The strip center appeals to Loftin because it puts residents close to businesses, and businesses closer to a built-in customer base.
“It’s an obvious solution,” he said.
The discussion has taken on new urgency as the retail landscape tries to sort itself out during the pandemic. So far, there are few obvious answers, though developers are asking this fundamental question: What sort of vacancies —large, small and in between — will emerge in the coming months and years?
Amid the backdrop of such out-of-the-box thinking comes what’s happening inside the box. Developers already are converting onetime hotels and office complexes into housing. Loftin, for example, said he has his eye on an unspecified small boutique hotel in a neighborhood to convert into affordable housing. Separately, Utah-based PEG Companies, which owns the Residence Inn near Christus St. Vincent Regional Medical Center, said it intends to convert the structure into affordable housing.
“What we are seeing in the pandemic is a strong push for affordable housing,” PEG Chief Investment Officer Soren Halladay said.
There’s this as well: The city of Santa Fe this month agreed to purchase the Santa Fe Suites to convert into affordable studio apartments.
If all that weren’t enough, Jeff Branch, founder and CEO of Santa Fe-based Columbus Capital, said there someday may be a revised future for a theater like the Regal Santa Fe Stadium 14.
“I’m not sure we need 14 screens,” said Branch, whose firm owns San Isidro Plaza, where the theater is located. “It would be my hope to keep a movie theater there but not 14 screens. I want to adapt part of the building to other uses.”
Branch said he will bring unrelated redevelopment plans for the San Isidro Plaza acreage west of Lowe’s to a virtual Early Neighborhood Notification meeting Monday. He said the area would be redeveloped into housing, with some office and “experiential” retail.
“What I am doing is converting parking lots to density,” he said. “This will be a mixed-use, high-density live, work and play environment.”
Parking lots are Branch’s sweet spot. He intends to use portions of the parking lot in front of the movie theater to build the new incarnation of San Isidro Plaza. But as he looks around the city, he zeroes in on St. Michael’s Drive and its sea of parking lots.
“Those parking codes are antiquated,” he said. “You don’t need them any more. Let’s use [the empty] Kmart as an example. That parking lot is massive. You can convert part of Kmart to mixed-use and office, definitely use some of the parking lot.”
Such ideas flow from an economy in which retail stores are either closed for good or shuttered by state health orders. That will have ripple effects for months and years, said one longtime member of the state’s business community.
“I think your commercial real estate sector is going to hit a reset button,” said Dale Dekker, an architect and partner at Dekker Perich Sabatini in Albuquerque. “There’s going to be quite a few buildings that will be repurposed. I think there are great opportunities that we don’t even know about.
“The low-hanging fruit are probably some of the hotels that might have closed during the pandemic,” Dekker added. “Those would be the easiest and most cost-efficient conversions.”
PEG Companies acquired the Residence Inn at Galisteo Street and St. Michael’s Drive and seven other hotels across the country in September 2018 and now has 11 hotels nationally that could become, loosely defined, affordable housing. The company is now evaluating when to move forward with converting the Santa Fe hotel into affordable or “lower-rent” housing, which could be early next year or much later in the year, Halladay said.
PEG is committed to its 2-year-old mission to convert its hotels — mostly Residence Inns — into affordable housing. But Halladay acknowledged the project is not for the squeamish.
“It sounds easier than it is,” Halladay said. “A lot of people have great ideas and thoughts, but it’s a challenge. You are dealing with different asset classes. You’re dealing with zoning. You’re dealing with neighborhoods.”
Not everyone agrees Santa Fe could be a prime candidate for a commercial-to-residental conversion. James Wheeler, owner of Commercial Properties Santa Fe, said his firm dabbled in transforming an office building near Sixth Street and Cerrillos Road but eventually abandoned the idea. Renovation costs, he said, are extremely expensive for such projects.
“Even if I found it,” he said, “I don’t think it would work.”
Other experts say it’s important to balance optimism with reality when considering how to add living units within existing buildings
“It’s a great conceptual idea,” said Jim Chynoweth, managing partner of the Albuquerque office of CBRE commercial real estate services. “The devil tends to be in the details. It’s a lot of work. It’s very expensive to do all the retrofitting. You have limited availability.”
But there is availability.
“The first people in should do fine because there is a lot of demand,” Chynoweth said.
For his part, Loftin believes opportunity is and will remain out there.
“In times like these, people start creating and innovating because they need to,” Loftin said.