January 9, 2013

Make Improvements to Improve the Value of Your CRE Investment

Craig Trbovich Commercial Real Estate –

Recently I wrote about 5 Ways to Increase the Value of Your Commercial Real Estate Investments, which included ideas to:  increase rents, make improvements, change building use, decrease expenses, and approve tenants.  This week I am going to expand on the second way, making improvements.

Making improvements to your property may be one of the most obvious ways to increase the value of your commercial real estate investment, but can also be one of the more difficult to quantify. If you spend $50,000 to repaint your building, what value, if any, does that add to your investment?  Conversely, other improvements, installing solar panels to save electricity costs provide a more direct benefit to your bottom line and the value of your investment.

Improvements can include a wide array of items ranging from cosmetic, to minor upgrades to significant rehab projects.  Keeping your property maintained and the common area up-to-date can do a lot to attract new tenants, command higher lease rates and retain tenants.  Depending on the condition of the property, maintenance and minor upgrades may do more to maintain value than add value, which is just as important.   The bottom line is have a long-term plan that you review at least annually to maintain, upgrade and improve your asset so that it will provide you with a maximum return on investment.

Here are a few areas to keep in mind:

  1. Appeal – Does the property show too many signs of age and deferred maintenance?  A good place to start is the common areas where often the improvements are relatively inexpensive.  New paint and flooring, resealing and striping the parking lot, landscaping, building directory and suite signs, and new light fixtures are great examples of areas that can improved at a modest expense that greatly enhance the look of your property to prospective tenants.
  2. Features – Can you add features that can be used as selling points or for charging additional fees?  Covered parking, a common conference room, security lighting or gates, monument/building signage, charging stations for electric cars, vending machines, and high-speed internet are examples of desirable features.  These improvements can separate your property from the competition and can also provide extra income in some cases.
  3. Tenant Improvements – If your vacant suites have not been updated in a long time, a few spec suites can go a long way to bring tenants to your building, achieve higher lease rates and reduce the lease-up time for vacancies.  Choose the suites and layouts carefully to create a common size and layout that will appeal to a wide range of tenants.
  4. Mechanical Systems – Improving the efficiency of your utility systems can save money and directly improve your net operating income.  Solar power, energy efficient HVAC and lighting systems, roofing upgrades and water management systems are examples new technologies that can help reduce your operating expenses.
  5. Major Renovations – Examples of major renovations include adding a parking garage to increase parking, lobby and common restrooms overhaul for an office building, or a new façade for a retail center, replacing heating, cooling or elevator systems, and replacing windows, doors and the applicable frames.  The feasibility of a major a renovation will take time, planning and careful analysis.  Some questions to consider:  can you justify an increase in rents or reduction in operating costs to pay for the improvements?  Should the building be razed and redeveloped? Should you finance the improvements?

As you can see, there are many creative ways to improve your property.   If you have other ideas that have been successful for you, please email me or post on my blog at www.craigtrbovich.com.  For a no obligation analysis of your property, please call me at (408) 522-2799 and “TrboCharge” your investment real estate today.

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