Many owners and real estate investors have a preference for new construction. Clearly there are advantages, such as reduced risk and the result of a new product. The new building will be fresh and, hopefully, appealing to users. However, in the current market not many are able to justify building new. With some projections that our return to full employment (5% unemployment) may take as long as 7 years, what to do to stay competitive? The answer is to re-position an existing structure.
Re-positioning can run the gamut from a face lift to the core and bathrooms, to a gut-rehab, to adaptive re-use. When executed well, such a program can yield dividends in a more attractive product that performs better, is less expensive to maintain and may have positive PR of becoming a “green” building. With hot calls/ cold calls the number one complaint in office space, a better performing building will likely lead to greater tenant satisfaction and thereby more lease renewals.
Two examples of such work indicate lessons learned that may be applicable to projects that could arise within your portfolio. One is the gut-rehab of the George Howard Building, a County office building; the other the adaptive re-use of a former Montgomery Ward catalog house/ bulk storage structure into office with amenities.
The Howard building is a vintage 1976 County office building that was living on borrowed time. The exterior skin was woefully out of date, and major MEP systems on their last legs. The main lesson with this project, which is currently 75% through construction, is: what strategies make good business sense? (Although the owner is a County Government, the message was clear that we had to make judicious decisions, in particular given the current state of revenues. Garver Development Group is serving as the County’s Project Manager for this project.)
What did make sense was: high performance building envelope, high efficiency chillers, demand control ventilation and efficient lighting. Certain other systems are being put in place that will announce how green the building is, such as solar thermal domestic hot water and rain water harvesting, used for irrigation. While these measures require a first cost premium, a cost benefit analysis reflected a reasonable pay-back period. Other ideas that went by the wayside included a green roof and solar photo voltaic systems, as they were simply too expensive for a variety of reasons.
The Montgomery Park project, the redevelopment of which Peter Garver directed while with Himmelrich Associates, was a shuttered 1,300,000 square foot warehouse and retail building. This project yielded two major lessons: 1) don’t fight the building; and 2) take advantage of incentives and tax credits. Working with the existing building rather than fighting it led to systems such as access flooring and customized tenant improvement systems. The floor slabs of this massive poured-in-place concrete warehouse had sagged over its 80 years as much as five inches at mid span. The provision of an access flooring system provided an economical way to simultaneously level the floors and provide cable management for power, data and voice. This all was in a building with columns at 25 foot centers, tighter than a contemporary office building. The team developed systems for office work stations and ceilings that work with that module and provide the features that the users demand. The project was successful partially because of a variety of funding sources that included historic tax credits, brownfields funding and empowerment zone incentives. These programs enabled us to turn a hulk of a vacant building into a vibrant center of activity.
The common theme to these projects, and others, would probably center on: work with what you got. Don’t try to force a strategy that may have worked in another building or another part of the country. Work with the building, its exposures, its structure, etc. Each building presents certain advantages and disadvantages. Thorough analysis of these features, relative to the market, will indicate whether an asset is worth re-positioning– maybe even in these trying times!