FEATURE ARTICLE, OCTOBER 2008

IN WITH THE OLD: REPOSITIONING ASSETS
Owners gain geat value by repositioning buildings.
Rick DuPraw and Daniel Ulbricht

In Chicago, the popular adage, “If you build it, they will come,” consistently seems to hold true. With 3.5 million to 4 million square feet of new office product coming online in the next 18 months and large corporate users vacating space to move into the new buildings, how will older buildings compete?

The CNA Center’s repositioning strategy involved a complete change in the building’s function as it was turned into a building for multiple tenants.

The answer is repositioning. Based on Leopardo’s work in this field, three common repositioning strategies — an aggressive renovation and modernization; a complete change of function (i.e., single tenant to multi-tenant); or a change of user type (i.e., office to student housing) — have been identified.

A well-executed repositioning strategy adds tremendous value to a property, and helps building owners and agents maintain existing tenants, attract new users and be more competitive in a tight marketplace. The most critical element of repositioning success is early planning and collaboration by the entire project team, including building managers, leasing agents, brokers, architects and contractors. Once the team of experts is assembled, a number of considerations and factors need to be analyzed as part of a comprehensive repositioning strategy, including market competition, estimated cost of improvements, anticipated return on investment, local demographics and the targeted tenants.

Depending on local market opportunities, location and the commitment level of the owner, repositioning projects usually fall into one of three categories:

Aggressive Renovation/Modernization

Flooring (carpeting), painting and landscaping upgrades can quickly and affordably make buildings more attractive, while some owners may need to completely gut and remodel the structure. Additionally, older buildings may require upgrades to bring the space into compliance with the Americans with Disabilities Act. In many cases, modernizing a building with state-of-the-art technology and data infrastructure is necessary.

Change of Function

From time to time, owners will elect to change the building’s purpose, such as transitioning a property from leased tenant space to office or residential condos. In some cases, the owner may want to take individual floorplates, or the entire building, from single-tenant to multi-tenant use.

Change of User Type

The 35 E. Wacker building, a 1920’s-era Chicago landmark on the National Register of Historic Places, went through a repositioning in the form of delicate and precise historical renovations to the lobby and façade.

In an attempt to attract a completely different pool of tenants, owners may elect to change the building’s user type. Some examples of this repositioning strategy are modifying warehouse space for loft offices or transforming office space into student housing.

To lure the largest pool of potential tenants, a technology infrastructure that is both flexible and powerful is a must. Upgrading multiple infrastructural components at once makes the most sense from a logistical and financial perspective — for example, when owners of older buildings install sprinkler systems, there is an open ceiling opportunity to also upgrade technology, mechanical or electrical systems.

Equally important to end users are 24/7 data centers and system designs that are capable of delivering cabling to multiple office configurations. Because of seemingly constant advances in technology, the architect and contractor have become pivotal players in the technological success of a repositioning.

Other common office tenant demands in older buildings include new conference centers, fitness centers and mixed-use offerings of restaurants and retail. Conference centers are extremely attractive to smaller tenants that don’t have the space for their own boardrooms.

The American Dental Association (ADA) owned its own building, located at 211 E. Chicago St., since the 1960s. The ADA recently executed a 150,000-squarefoot repositioning strategy that included a new lobby, eight floors of modernized space and state-of-the-art technology.

In terms of aesthetics, the lobby sets the image for the entire building. Given that tenants will judge books by their covers or buildings by their lobbies, it is important to invest in the space where tenants first walk through the door.

The bottom line is that a well-orchestrated repositioning strategy is imperative if an older building wants to compete with new Class A buildings, as well as stand out from a crowd of vacant buildings. With the right team of experts collaborating on a repositioning, the transformed building will catch tenants’ eyes with Class A amenities and aesthetics, and seal the deal with lower rents and much better value than newer buildings.

Rick DuPraw is senior vice president of the Interiors group and Daniel Ulbricht is the director of strategic accounts at Leopardo Construction, a firm with extensive repositioning and renovation experience.

©2008 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.