Office Building Redevelopment
Real estate success is not always achieved using the original listing. Sometimes a new direction is needed to enhance the opportunity for success, and leave behind past failure. This new direction can be achieved in many ways: innovation, remodeling the location, re-purposing, or restructuring the business plan. The following paragraphs are a case study that describes the redevelopment of an office building in Pensacola, and the success it brought to all parties involved.
Section 1: Creativity and Innovation of the Office Building
At inception, this property was not listed or marketed for sale. The seller of the property had acquired the building years ago through a partnership that fell apart and for which he was tired of managing. His engineering firm occupied a small space in the building, and he leased a few other small spaces to acquaintances on month-to-month leases at rates that were well below market. The developer was a client of the seller on another project and had several meetings at this building while working together. The developer realized that the property had a great location and saw a vision of tremendous improvement and potential financial upside. He purchased an asset that, until this point, had a complex history of vacancy and failure.
The property has a great location, however the building itself, which was a former school, needed significant work to attain a sense of place and ease of access. The developer creatively re-positioned the asset through design modifications. Some of the major items included in the nearly one-half million dollars invested in the property were: re-designing the main entryway, improving the monument signage and visibility, repairing the roof, repaving/re-striping the parking lot, reworking the landscaping, shaping trees, completely renovating all of the restrooms, and providing substantial tenant improvements to the two largest spaces available. The asset transformed from a struggling office building, to an attractive, highly visible, thriving professional office building.
Section 2: Impact of the Office Redevelopment to the Pensacola Community
This project has had a positive impact on the community in several ways. First, this asset is the primary building that is visible as new visitors come to Pensacola and exit off of the Interstate 110 ramp. This redevelopment greatly enhanced the curb appeal of the property that in many cases is the first impression that visitors to our area encounter. Second, the renovations allowed for a local start-up medical records company to expand from twelve jobs to forty-two jobs in less than a year, for a net gain of thirty new jobs in the Downtown area. In addition, every single vendor associated with this project, including the lender, architect, contractors, & sub-contractors, were all local businesses. Furthermore, the immediate area in which the property is located has subsequently experienced tremendous growth. Newk’s Eatery will be opening their second location across street in the former Wentzel’s restaurant building. Also, the long-time vacant Pensacola Tech Park has recently signed its first tenant, a major aerospace industry supplier. The plans call for a $9 million, multi-story, class-A office building spanning approximately 70,000 SF on the 9.2 acre park directly across the street.
Section 3: Office Building Challenges that were Overcome
There were several major challenges along the way of this redevelopment project. The most significant challenge the developer experienced occurred during the due-diligence period, when the building’s largest tenant (and only tenant not on a month-to-month lease) unexpectedly vacated. This left an additional thirty-one percent of the space within the building that had to be leased to make the project financially feasible. As a result, all of the financial projections were negatively affected, which made financing much more difficult to obtain due to the limited existing cash flow. By providing a vision of what the building could become, and convincing lenders that the aggressive marketing campaign would be what it would take to get the building turned around, the developer was able to obtain sufficient financing to move forward with the project.
The second challenge occurred after the building inspections revealed that there was asbestos in one area of the building. This was an unexpected hurdle that added significant time and cost to the project. A final challenge arose after the building inspection was completed, which revealed extensive damage to the roof, indicating that the entire roof needed to be replaced. Three inspections and quotes from roofing contractors were obtained, and it appeared that this additional $150,000 expense was going to be a deal-breaker. However, the general contractor for the project was able to creatively devise a way to fix the roof at a much lower cost without having to replace it, allowing the deal to move forward.
Section 4: Success with the Redevelopment Property
The project overcame several major challenges, and became a major financial success for the developer. It also has allowed the seller to
realize a healthy gain from the sale and relieve him of unwanted management of the property, making it a win-win for all parties involved. An aggressive marketing and leasing campaign, coupled with the thoughtful renovations, filled the building with excellent new tenants ahead of the developer’s original projections. The developers and brokerage team were able to bring a 14,188 SF building that was only occupied by month-to-month tenants at below market rates (making it effectively 100% vacant) to 100% occupied at full market rates on long term leases within a year’s time. The combination of the lease-up and extensive renovations have turned this once tired and mostly vacant building into a thriving and beautiful landmark property within the community.
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About Sonny Granger – Sonny has more than 15 years experience in the real estate industry, with a special passion for commercial brokerage and development. Sonny is a licensed broker in Florida, Georgia and Alabama, and is one of four principals of SVN | SouthLand Commerical. Click here to view his full profile, or if you would like to contact him, you can call him at 850-434-7500, or email him at [email protected]