Why This Former Walgreens Drugstore May Not Be Repurposed As A Multi-Tenant Strip Center

A planned adaptive reuse of a former Rochester, NY-area Walgreens into a multi-tenant center has been postponed indefinitely as the proposed tenants pursue locating at a different development project

In January a Rochester, NY-area development group was scheduled to attend a local Planning Board meeting to obtain final site plan approval for a project:

To convert a vacant single tenant Walgreens into a multi-tenant strip center for Panera Bread, Chipotle and three other tenants.

Approval seemed likely.

After all the Planning Board had reviewed previous versions of the site plan and even approved a parking variance.

But shortly before the meeting the development group asked that the request be “tabled” from the agenda, effectively postponing it indefinitely.

Now three months have passed and it has yet to be added to a future Planning Board meeting agenda.

So is the Walgreens-to-multi tenant conversion project dead?

And, if so, why and what could it portend for future drugstore adaptive reuse?

Over 1,000 drugstores have been vacated in the past twelve months and ~2,000 have closed during the prior five years.

But while hundreds of former drugstores have been repurposed for individual tenants like dollar stores and health clinics, few have been adapted for multi-tenant use.

Why?

Well carving up a single tenant drugstore building for multiple users can result in odd suite sizes, a significant amount of unleasable space, and a lack of parking.

Plus the price to acquire and the cost to repurpose can be quite expensive.

So how did the Rochester development group attempt to tackle these issues?

One challenge in converting a single tenant drugstore into a multi tenant use is to divide the building into “leasable” suites.

For instance, dividing what was a single tenant building into multiple suites can create spaces that are too narrow and deep to attract tenants.

Conversely, a multi-tenant layout with standard suite dimensions can result in a significant amount of “dead” space — or unleasable building area that is a drag on project economics.

The developers of the former Walgreens attempted to solve for this issue by facing four tenants west and one tenant south which provides adequate frontage without excessive suite depth.

This layout also minimizes dead space — as ~95% of the building’s square footage remains rentable with the remaining space utilized as a mechanical room.

The plan also smartly provided for two drive-up access points:

A reconfiguration of the existing drive-thru on the north side of the building for a proposed Panera Bread restaurant and the addition of a Chipotlane pick up window on the building’s east wall for Chipotle.

The lack of adequate parking is another issue in drugstore conversions.

Most drugstore customers have short stays or utilize the drive-thru so few drugstore sites include large parking fields.

But the replacement of one tenant with five — plus the addition of parking intensive uses like restaurants — can result in site congestion and violate city ordinances.

In fact while the 67 parking spaces at the former Walgreens site in Rochester were sufficient for its use as a drugstore, the local ordinance required 9 extra spaces for the proposed multi-tenant use with two restaurants.

However, instead of adding parking at the site, the developers obtained a variance from the City’s Planning Board.

They cited the increased customer usage of mobile apps, drive thru lanes and pickup windows over the past several years has reduced parking demand.

So will the development group reconsider the proposed multi-tenant conversion of the former Walgreens?

Perhaps — but not likely with the same proposed tenants.

That is because at the same Planning Board's February meeting another project was proposed:

A plan from a different developer to construct three commercial buildings on a land parcel ~1/2 mile south of the former Walgreens.

Including two of the tenants — Panera and Chipotle — that had been proposed for the repurpose of the Walgreens building.

So why did the Walgreens-to-multi tenant strip center fail (at least for now)?

Maybe Panera and Chipotle felt more comfortable with their freestanding prototypes rather than the unconventional look and layout that was planned for them in the Walgreens building.

Or perhaps the tenants had second thoughts about the site plan, access, parking and unique drive thru set up in the drugstore adaptive reuse.

It is certainly possible that final costs came in too high to make the project financially viable.

But perhaps the key reason the proposed multi-tenant conversion — and others like it — have not succeeded?

Execution risk.

Even if the acquisition price of the former Walgreens and the proposed renovation cost appeared to work “on paper,” execution risk and complexity are much higher with a multi-tenant repurpose of a single tenant building.

For instance, five different leases need to be negotiated and five separate spaces built out — all on a compressed timeline.

If even one of the five leases fails to materialize…

Or if the lease-up period takes too long…

Or if any (or all!) of the buildouts exceed the pro forma cost there may be a lot of additional unplanned work and expense.

And, quite possibly, no developer profit.

Compare this to a single tenant reuse of the former Walgreens:

One lease, one tenant buildout and no landlord work to demise the space.

In other words, a more straightforward deal to underwrite and a much more straightforward deal to execute.

Given the sheer number of former drugstore buildings currently on the market (and soon to become available), others will likely consider and even attempt multi-tenant drugstore conversions.

But these will likely be in “land scarce” infill areas with few available greenfield development opportunities.

For most owners and developers of vacant drugstore buildings, though, a multi-tenant conversion is just too hard.

And not worth the risk.