The post-pandemic real estate landscape continues to shift as consumer habits change. The market for office property seemed to turn positive in early 2025; but as economic uncertainty continued across the Midwest, the market in many city centers turned the other way. In Chicago, the vacancy rate nearly hit 25%, a record in that area. In Detroit and Milwaukee, the vacancy rates hit similar points, at 21% and 24% respectively.
With so much availability, real estate owners and operators are searching for other ways to use their properties. Depressed and lagging city centers have been shown to benefit greatly from repurposed and reimagined spaces, which bring in new visitors and tenants alike.
While the initial wave of repurposing brought quick transformation, real estate owners and operators are now using data to determine the best ways to revitalize a depressed space. Yet these transformations do come with challenges, and those that are prepared are far more likely to succeed.
Austin Smith, Hub International Michigan
Consider these three major risks before you repurpose your property:
1. Changing Spaces
As a building or plaza undergoes renovation and conversion, new risks pop up. For example, vacant spaces can be attractive to troublemakers of all types and come with an increased risk of fire, vandalism and unauthorized entry. When a building is largely unoccupied, it can trigger vacancy clauses that either reduce coverage or increase premiums across the board.
Similarly, many real estate owners and operators try to keep the doors open as long as possible, even during a major renovation. While this creates its own challenge, there are others who follow a strategy of “delay and decay” when faced with uncooperative municipalities. They try to keep properties barely functioning in an effort to convince municipalities to go along with their plans. However, these properties are also at risk of triggering vacancy clauses, leading to increased insurance costs.
Solution: Recruit the support of an insurance expert or broker who understands multiple specialties, including real estate, construction, healthcare and entertainment, to be sure you understand the risks that come with this type of project. With expertise in managing risk and plugging coverage gaps, the expert can help determine appropriate insurance coverage from the beginning to avoid the type of issues that can derail an entire project.
2. Changing Tenants
Today, underwriters considering insuring a property will often run detailed risk assessments across the entire property, so they require full tenant rosters. This means you will need to determine who is going to be filling all the units, not just the anchor spaces, ahead of time.
High insurance costs or an inability to obtain coverage can quickly offset a high-revenue lease. And profitability does not always translate into insurability. For example, cannabis dispensaries, tattoo parlors and casinos are often seen as too risky – even if they are also known to be good tenants in other ways. While one difficult-to-insure tenant may not make a difference, several can make the entire property difficult to insure.
Solution: Consider the neighborhood around the property and the type of people who might frequent the new space. If it is a family-friendly location, these risky businesses might be the wrong ones to recruit as tenants.
3. Changing Policies
Real estate owners and operators must not assume that their existing policies will apply to the new, repurposed space. Carriers will likely require detailed information about the new space and its tenants before offering coverage.
The new space may have different requirements for major systems such as plumbing, electrical, fire safety and HVAC. For example, an office tower will require different supports than a restaurant, a retail store or a theater. These new spaces will also need to conform to up-to-date ADA standards as well.
Solution: Work with your expert advisor or broker to determine the new facility’s needs and work them into the plan so there are no surprises down the line.
Overall, repurposed properties generate higher tax revenues, revitalize neighborhoods and boost local economies. With so many poised to benefit – from the real estate owners and operators to the municipalities to the consumers – it is worth taking the time to do it right.
About the author
Austin Smith is a Senior Vice President in Commercial Risk at international insurance brokerage Hub International Michigan. He is focused on delivering creative solutions that drive results and reduce risk, helping clients position themselves in the marketplace and helping to educate them in making better informed business decisions.
