Renewing Your Property’s Profitability

June 12, 2017

Across real estate types, markets, demographics and businesses, value is always key in securing and maintaining occupancy. Ask any tenant, and they’ll agree: they want the best amenities at the most affordable prices. So where does that leave commercial real estate investors who are holding B and C level space?

The answer: in the perfect position to launch a building retrofit project.

While location and market demand certainly factor in to the long-term profitability of any commercial real estate holding, intelligent design and effective repositioning can make dated properties marketable once more.

In some cases, this can be as simple as updating tech capabilities and making light aesthetic changes. In others, a top-to-bottom renovation, including HVAC systems, elevators, common areas, restrooms, lobbies and more may be required. Regardless of project scale, ensuring that your facilities are updated for convenience, efficiency and aesthetics, can attract modern tenants looking to secure a space that will help increase productivity, boost profits and improve job satisfaction.

The heart of any renovation or redesign must be focused on addressing building limitations and improving efficiencies to compete within the surrounding CRE market – all to attract greater interest from tenants and buyers. But the most effective building retrofit projects consider a potential property transformation from multiple angles, sourcing a team of real estate advisors and architects who can advise and adapt to match the market and create the greatest value.

On the broadest level, property owners should review the current market, tenant needs, building operations and financing before launching retrofit efforts. These factors include current rates for comparable properties, vacancy levels, demographics, applicable regulations, lease timing, financing terms, and current and future tenant needs. Each of these considerations can impact the overall success of the plan, so savvy property owners should ensure all real estate implications are analyzed and addressed.

Beyond these high-level considerations, investors will want to consider their approach to the project. If the building in question is the first in the area to update and upgrade, a first-mover advantage is secured. These buildings can often lock up premier tenants with a preference for green buildings, which helps to generate positive press coverage and establish a reputation for innovation.

Another approach is to re-engineer the market by successfully coordinating engineers, architects, lenders, contractors, agents and government officials to bring the necessary skills and resources to your project. By importing skills, educating stakeholders and lobbying to change established development patterns, property owners can establish themselves as a market leader.

No matter the approach an owner takes to secure approval for retrofit projects, stakeholders will want assurance of a positive financial outcome. Fortunately, analyzing the potential gains from retrofit projects returns several positive results. First, because building retrofits often involve upgrades in energy efficiency, the associated cost reductions can enhance net cash flows. What’s more, these projects often result in higher property values, as the revitalized building is more cost competitive, attractive to tenants and has a lower risk profile. With proper execution and planning, building retrofits can complement and magnify the owner’s investment objectives on almost every level.

Beyond the clear financial implications, these projects can ensure long term viability for a property in any market. For instance, a retrofit can protect a facility from regulatory shifts, as improved energy efficiencies will already meet updated energy codes or performance requirements. What’s more, energy price increases will make a smaller impact on the overall profitability of the building.

Retrofit properties will also be poised to compete with any new construction project in the area, and may even be more attractive due to a better environmental narrative. The sustainability of the facility appeals to millennial and generation Y preferences, and could better align with corporate and governmental leasing policies and environmental platforms.

Ultimately, building retrofits even improve liquidity for investors, as they are well positioned for quick sale. Stable tenant relationships and lease terms, up-to-date systems, applicable ENERGY STAR®and LEED®certifications, and preparedness for future regulatory issues and environmental requirements all make the property more desirable for a commercial buyer.

If you’re considering making upgrades, updates and improvements to your commercial real estate, the possibilities – and benefits – are numerous. The key is to work with a seasoned, professional team that can help you analyze the key factors impacting your project and identify the best strategy for moving forward. Reach out to the experts at Intelica Commercial Real Estate to talk about your building retrofit. Our full service construction and development advisory services ensure that your plans make way for greater opportunities and profitability in the current commercial real estate market.