Warehouse to Wares: Vision for Vibrant Retail Destination Starts with Industrial Conversion

When Gregory Freedman and Daniel Lebensohn, Founders and Co-CEOs of BH3 Management, first toured the building that would become their recently completed Fabrick development, they decided on the spot that they would purchase it. While a split-second decision certainly isn’t unheard of in real estate deals, in this case the two were standing outside a dilapidated 1970s automotive warehouse that had been vacant for a decade, and located on a sparsely developed block in Fort Lauderdale, Florida — not the most inspiring landscape for a hip retail scene.

But in 2017, the developers, whose firm primarily works on projects in the Miami area, were looking ahead at the potential that Fort Lauderdale’s Progresso Village had to become a lively retail district, maybe even the next version of Miami’s infamous Wynwood neighborhood.

Looking at the rapidly developing Flagler Village just across the railroad tracks, Freedman and Lebensohn saw new apartment buildings rising rapidly and knew they could complement that residential growth by filling a crucial need for retail and restaurants in the area.

“It was a clear vision for us. Progresso Village is adjacent to Flagler Village and has liberal zoning for us to eventually have more density. It also gives us an opportunity to offer lower rents at a price point that’s affordable for the small businesses and local mom-and-pop shops that are being priced out of more traditional retail locations in Fort Lauderdale or even in Flagler Village,” Freedman told LoopNet. “We could create and curate this cool, mini Wynwood-type neighborhood vibe where we could also be a haven for local vendors and small businesses.”

BH3 believes in Fabrick so much that it moved its headquarters from Aventura, Florida, right between Fort Lauderdale and Miami, to the new 24,000-square-foot development. Freedman and Lebensohn say their gut renovation of Fabrick is more than an adaptive reuse project — it’s the catalyst for a neighborhood placemaking strategy.

As prices for traditional retail space began to rise in downtown Fort Lauderdale, the high rents were pricing out small local businesses, which Freedman said are the types of places people in the city want to visit, especially the millennial demographic that’s moving to the adjacent Flagler Village.

“The 20- to 30-year-old renters moving into the units being delivered in Flagler Village want to go to a cool boutique gym that’s not a franchise, or shop at unique stores — they want to create their own lifestyle that is in harmony with the products and services that are offered to them within the neighborhood,” said Freedman.

But while new apartments and renters were coming on the scene quickly, BH3 noticed that the area was lacking the crucial retail component that makes new developments attractive places to both live and play. “You had all this vertical development happening in Flagler Village, but those renters don’t want to eat dinner at a chain restaurant — that’s basically the antithesis of cool to them,” explained Freedman. “So everyone is living in what is supposed to be this cool up-and-coming neighborhood with nice apartment buildings, but when they go downstairs, their options were very limited.”

BH3 knew curating a development of local businesses would both complement and cater to the neighboring residents, while also making the area a destination that could draw shoppers from anywhere. BH3’s 6,262-square-foot headquarters takes up about 25% of the Fabrick building, and the rest of its nine retail storefronts, ranging from around 1,100 square feet to 2,366 square feet, are leased to boutique businesses including a gym, clothing store, tattoo parlor, hair salons and barbershops, a massage therapist, tapas restaurant, and candle making shop.

“It’s a great tenant mix. People come over here to go to their yoga class, and then pop into the salon and grab lunch. It creates a sense of walkability, and positioning the art on the back of the building, where the parking is, makes everything feel cohesive and creates a sense of arrival when you get here, which is really important in a neighborhood that these consumers didn’t historically assimilate with,” said Freedman. “But now they say, ‘I want to go there.’”

Though in its former state of disrepair, the warehouse certainly wasn’t anywhere that would draw a crowd. Freedman said they had to replace everything but the walls during the full gut renovation. The project involved installing all-new glass, open-air garage doors, a new roof and new plumbing, mechanical and electrical systems.

“We even had to cut bigger openings into the existing outer walls to get the level of natural light we wanted in the spaces. We spent multiples in renovation costs compared to what we actually spent to buy the property,” Freedman said. BH3 purchased the property in 2017 for $2.8 million according to sale records from CoStar, publisher of LoopNet, with total investment for the project coming out to $9.4 million including grants from the city, according to a 2020 news release from the Fort Lauderdale City Commission and Community Redevelopment Agency.

In its final step, BH3 landscaped the grounds around the building and adorned its walls with custom murals and art.

“We are big believers in art and it playing a role in almost everything that we do, and think it’s important that the local community puts their mark on our buildings,” said Freedman, noting that Fabrick isn’t the first project where the company has commissioned murals for building facades. “We did a full mural on the entire front of the building, and brought in eight local graffiti artists that each left their own imprint on the back of the building where the parking is, so everyone gets to experience it when they come here.”

While there are some differences, Freedman likens the vision for Progresso’s continuing evolution to the early days of Wynwood, the popular Miami neighborhood known for its industrial conversions, hot retail scene, and most notably, outdoor graffiti museum and mural art painted on almost every surface. The exemplary and successful industrial-to-trendy development informed BH3’s decision making for Progresso.

“We had two options for this building: either tear it down and build something new, or recreate the existing building into something new. We didn’t feel that this area was ready for new vertical development yet,” said Freedman, even though it was concurrently happening across the tracks in Flagler Village. “Wynwood had the same evolution, where it was low density at first, full of art galleries and local restaurants — still a little grungy, but evolving. Now the density is coming, and every developer from big cities wants to do a vertical project in Wynwood.”

BH3 decided to start on a small scale with one renovation that made the existing building hip and welcoming. “In 10 or 20 years I’m certain there will be a taller building next to us. But it won’t happen if we didn’t do this first. You have to validate the area, and people want to feel like they’re on the edge of something new, exciting and cool,” he said.

The neighborhood’s up-and-coming location, paired with incentives BH3 received from the city, allow the owner to offer rents that are affordable to small businesses priced out of downtown markets.

BH3 worked with the Fort Lauderdale City Commission and its Community Redevelopment Agency (CRA), whose mission is to incentivize developers to improve blighted areas by offering grants for infrastructure improvements or façade restoration. The CRA board approved $350,000 for the Fabrick project.

In exchange, the developer commits to offer rents that local businesses can afford. Rents at Fabrick are in the $20-$30 per square foot range, and while Freedman said the commitment to affordable rents isn’t exactly “formulaic in nature, you’re showing [tenants] a competitive analysis where rents [at Fabrick] are almost half the price of those across the street.”

Freedman said that retail tenants at Fabrick are signing on for seven to 10-year lease lengths on average, giving them long-term pricing stability in terms of both lease rates and operating costs.

The purchase was part of an opportunity zone deal, a tax incentive that encourages real estate owners to make long-term investments in distressed or low-income areas determined by the government. The required 10-year holding period is a critical reason why BH3 can offer affordable rents that keep expenses stable for tenants, said Freedman.

“People talk about rent in totality, and a big portion of that includes operating expenses. The biggest operating expense, roughly half of the costs, is real estate taxes, which get reset every time you sell a property,” said Freedman, explaining that trend started to pick up in the adjacent Flagler Village, where asset trading and price appreciation was ratcheting up taxes and therefore overall leasing costs for tenants.

“We have been able to assure our tenants that while expenses will increase over the years because that’s just the nature of the world, they might only go up by 3% or so,” he said. “Expenses tied to taxes won’t come as a surprise, and they won’t double or triple — while that increase can be incremental for some, it’s the difference for a lot of these mom-and-pop shops of whether they’re in business or not.”

It wasn’t an initial part of the decision when purchasing the new building, but as the vision started coming together, BH3 knew it wanted to leave its imprint on the project too — by moving its headquarters from a Class A office building in Aventura, Florida, to Fabrick.

And while the company was confident in the project and its future, BH3 leaders were hesitant about how investors might view their relocation to an evolving, industrial location. So, they decided to show them first.

When they took a group of investors out to the site to gauge their reaction to a potential move, Freedman said almost everyone in the group was immediately on board with the idea, and even the hesitant ones quickly came around.

“They said, ‘it shows that you guys want to be part of the evolution of the neighborhood you’re creating,’ which is one of the things that prompted us to actually make the move,” said Freedman. “We don’t just want to tell the story and say, ‘this is what we are doing for everyone else because they’ll think it’s cool.’ We are long-term bullish on this neighborhood, and we actually get to be part of its story ourselves.”