Travis Land, SIOR, a principal with NAI Houston, works in
a city with big distribution buildings and costly leases. He has
another perspective on expenses.
“Normally, you are talking about investing $50,000 on the front,”
he says, “You would have had to pay the money anyway for
improvements once you signed the tenant. You might as well do it
ahead of time and be ready for a tenant.”
In Houston, one of the hottest industrial markets in the country,
and where there is a 5 percent or less vacancy factor, time is
indeed of the essence.
“We have a lot of speculative construction going on right now, so
if a new building's property isn’t getting the activity it needs in a
market that is moving so quickly, I recommend going ahead and
pre-finishing some of the project,” says Land.
A quick-fix enhancement works very well in the Houston
market,” Land continues, “because everybody needs stuff
yesterday. They want a nice new product, but they don’t want to
wait two to three months to move in somewhere because their
business is moving so fast. They don’t want to wait until the lease
negotiation is done. They'd rather move in right away.”
Land suggests a 5 percent to 10 percent build-out with a
conservative color scheme. In new construction, he recommends
adding some open cube areas.
“A lot of the big real estate investment trusts do this,” he says.
“When there is older space turning over, the REITs will replace
the carpeting and paint the interior warehouse walls to freshen up
the look. What it does is give you a leg-up on your competition,
plus it signals potential tenants that the landlord is willing to
invest in the building to keep it in good shape.
Outside of Charlotte, N.C., in an area called Ballentyne, there
were more office and industrial buildings constructed than
anywhere else in the country, outside of Manhattan, and a lot of
that space is going over to call centers.
As John Culbertson, SIOR, CRE, CCIM, managing partner
with Cardinal Partners in Charlotte, notes, “the broker is going
to have to be very familiar with the target users. For call centers,
there are fewer private offices and larger floor plates; brokers
need to show how older buildings can be retrofitted to reflect the
work style of the tenant.”
Call centers inhabit much more employees so mechanical
systems need to be enhanced, plumbing systems (including
bathrooms) have to be increased, and parking spaces added.
The latter of which can be a problem since a reused property
may have to be rezoned or permitted to reduce setbacks so as to
increase the parking ratio. Since the process is not expensive,
but time consuming, Culbertson recommends getting the process
underway instead of waiting for a tenant to sign a lease.
“All these changes will be done anyway, so landlords might
as well go ahead and do it ahead of time,” says Culbertson.
“Tenants have very limited abilities to understand the kinds of
improvements that will be implemented in a quick visit. It’s good
to have the space prepared as much as possible for the
In addition, the market for call centers is very competitive, so
if a landlord doesn’t enhance his building, it gets overlooked.
“When a tenant has three or four options and a couple of other
places have already enhanced, you are at a disadvantage if
you haven’t,” says Culbertson. As all brokers understand, but
landlords sometimes need to be reminded, the biggest enemy to a
commercial landlord is vacancy.
An empty building is money lost, says O’Healy. “Although
vacancy is the major problem in commercial real estate, many
landlords aren’t willing to bite the bullet and do what they need
to do to make their buildings competitive. They wait too long and
after they have lost a tremendous amount of income, they then are
dialing 9-1-1 and saying to you, 'what can we do?'”
The answer is always, invest in enhancing your space – a tenant
ABOUT THE AUTHOR
The SIOR Foundation is a 501 (c) ( 3) not-for-profit organization.
All contributions are tax-deductible to the extent of the law.
Promoting and supporting initiatives that educate, expand,
and enhance the commercial real estate community.
STEVE BERGSMAN is a nationally
recognized financial and real estate
writer. For more than twenty-five
years, he has contributed to a wide
range of magazines, newspapers
and wire services, including the
New York Times, the Wall Street Journal
Sunday, Global Finance, Executive
Decision, and Chief Executive.
"IF THE OWNER JUST DID A
FEW BASICS TASKS; PAINT THE
INTERIOR AND EXTERIOR, FIX
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