Thursday, Jan. 31, 2008

Investing in the ultimate fixer-uppers

Remodelers capitalize on 18th- and 19th-century barns, mills and homes

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Tom Fedor⁄The Gazette
Timothy S. Hogan is vice president of Hogan Cos., a land brokerage business in Annapolis. Hogan owns the 1770s John Derr House, a historic structure in the Dearbought Community near Walkersville that was recently restored by Brunswick contractor David Blackman.
As the county’s office and housing market continues to soften, some Frederick County builders are shifting gears to remodeling, including renovators tackling historic buildings.

While about 90 percent of office and retail tenants prefer the conveniences of new quarters, others seek the charm of renovated older buildings and enjoy their structural flaws as character, said Timothy S. Hogan, vice president of Hogan Cos., a land brokerage business in Annapolis.

Hogan is scouring the market for a small business or a bed-and-breakfast to lease his 1770s John Derr House, a historic structure in the Dearbought Community near Walkersville that was recently restored by Brunswick contractor David Blackman. The 6,500-square-foot house is listed on the National Register of Historic Places and is protected by the Maryland Historical Trust.

Like many older structures in the heart of new development projects, the Derr House was slated to be demolished before several residents successfully pushed to preserve it. Dearbought developer Thomas Natelli donated it to the Frederick County Landmarks Foundation in 2003, which turned it over to Brunswick contractor David Blackburn; he then sold it to Hogan for $799,500.

The Derr House is Hogan’s personal investment, but his company is under contract to purchase the four-story Kelly Mill behind the nearby Ceresville Mansion on Liberty Road. The deteriorating stone structure will likely require between $700,000 and $800,000 in upgrades, including installing electricity, to convert it to modern office and retail space, Hogan said recently from the site’s littered parking lot.

‘‘A lot of our focus now is redevelopment,” Hogan said. His company ‘‘made a conscious decision five years ago that we would always be a brokerage firm, but why not invest in what you know? It’s not just about making money. It’s about improving the area where you work and live.”

Preservation efforts will include saving machinery from the building for display in what Hogan envisions will be a roughly 5,000-square-foot restaurant on ground level.

‘‘We are a for-profit business,” Hogan said. ‘‘Even though it will cost a lot of money and time to renovate, we think it’s a good long-term investment.”

Hogan Cos. last year brokered a $79 million land transaction with Toll Brothers in Clarksburg, its third major deal for the developer. While other brokers are downsizing, Hogan Cos. has hired six employees in the past four months, bringing its staff total to 35.

The company’s renovation projects in Frederick County include a 19th-century church on Middletown’s Main Street and several historic structures in the city of Frederick.

‘‘We’re really looking to invest more in Frederick,” said Hogan, who was raised in the historic Margaret Scholl House on New Design Road. ‘‘We want to add value and improve the community.”

Prices of historic buildings do not fluctuate as much as homes in newer subdivisions because their supply is limited and demand for them is steady, said Frederick appraiser Wayne Six of Six & Associates Inc. Many historic homes have weathered the housing market downturn well, he said.

‘‘With the older historic buildings, there are fewer of them and the houses are all a little unique,” Six said. ‘‘Some segments [of the housing market] do a little better, and historic homes are one of them.”

With the market for his luxury custom homes on the decline since last year, Mark Lancaster of homebuilder Lancaster Homes of Frederick has also ‘‘made a concerted effort to market to remodeling” and cut back on building.

‘‘The remodeling sector is as strong as it’s ever been,” Lancaster said.

In the past decade, Lancaster has tackled only a few historical renovation projects, including three Civil War-era homes in Middletown and a historic home on South Street in Frederick. Renovating antiquated buildings demands major investment, he said, especially when builders must conform to historical regulations. Instead, Lancaster has started to target the market for homeowners wanting upgrades.

‘‘When you’re dealing in the historic area, it’s extremely expensive remodeling,” Lancaster said. ‘‘You have to do a lot of preservation work. It’s an extensive permitting process. ... It takes a special person to do it.”

Roughly 40 buildings built between 1750 and 1900 were on the market in the Frederick area this week, listed between $165,000 and $1.5 million, according to Stephen Mackintosh of Mackintosh Realtors in Frederick.

Several potential tenants — from restaurateurs to a veterinarian — have approached Hogan to lease all or a portion of the Derr House, priced at $11.25 per square foot. So far, he said he has not found a match.

‘‘It has to be someone who likes quirky, neat structures,” Hogan said. ‘‘Fast forward 10 years, I could see myself living here. ... I thought it was a nice investment.”