Printer Friendly

Project repositioning: the challenge of the '90s.

In the 1990s, "repositioning" is destined to become the catch-all phrase among real estate circles, much as asset management" was the byword of the 1980s. And with good reason. More buildings than ever before will be competing for a select group of tenants. Even if a project leases up initially, it will compete against newer buildings to retain its tenancy.

As we all know, that scenario is already too familiar. Buildings ten or even five years old are searching to find tenants for significant blocks of space. What makes this task harder is the diminished position many of these buildings occupy in the market. No longer are they the newest and brightest on the block. Moreover, with significant concession packages offered by newer projects, older buildings must compete for the same tenants-or, at the very least, keep the current tenants from defecting.

To succeed, these older projects need, as the industry now describes it, to "reposition" themselves. While the term may have an unfamiliar ring, we have all been witnesses to or victims of it in other industries.

What is repositioning?

For purposes of our discussion, let us use a simple definition. Repositioning will mean any program undertaken to improve a building's competitiveness in the market and ultimately enhance its value. Examples of repositioning in the consumer products industry include new packaging, advanced new" formulas, or the enlistment of new spokespeople with whom targeted audiences can identify.

Components of repositioning programs for real estate may include upgrades of a physical plant, architectural changes, or cosmetic improvements, The critical element of any repositioning program, however, is the marketing communications effort, which must alter perception of the project to facilitate lease-up or ensure retention of current tenancy.

When is it time to reposition?

The answer, one might say, is embarrassingly obvious: when slipping below acceptable levels or when reception to the project is less than expected. In actuality, by the time these events occur, repositioning is at best a stop-gap measure, which may halt the bleeding, so to speak, but will never heal the wounds.

The key to successful repositioning is long-term planning-establishing in advance a strong and formidable presence in the market rather than allowing the market or tenant defections to dictate the strategy - The framework for accomplishing this long-term presence is an asset management plan, developed at the outset of each assignment and updated annually. Produced in concert with the ownership, this plan analyzes all factors that affect a project's value and proposes detailed measures to meet or exceed the ownership's investment objectives.

Begin with a thorough analysis of the market. Supply is obviously a critical issue, as are anticipated changes to current levels of supply. Likewise, the analyst must determine the project's competitive position using broker comments and sophisticated measuring instruments with specific reference to its location, quality of finishes, and tenancy.

Projecting the future competitive status of the property is more complex. This requires a comprehensive analysis of current leases, their expiration dates, the state of the physical plant, and the appeal of the project. The effect of new announced projects and their impact on the property's competitiveness must also be factored in.

Using principles of valuation, the project's current value and its expected value at specified time frames is determined. If indicators suggest that the value of the project will fall below ownership's objectives, the asset manager should develop a repositioning strategy to reverse the tide and meet the owner's criteria.

What determines strategy?

The factors that adversely affect the value of a project naturally form the crux of any repositioning strategy, and they, no doubt, vary from project to project. If the next five years, for example, will bring a shift in the central business district, location may become the focus of repositioning. The strategy may include targeting tenants from different industries for whom a central location is not so critical or supplementing retail amenities in the building to offset the disadvantage of a less central location.

If an anchor tenant has left, then cosmetic improvements might be required to improve finishes on multi-tenant floors. In all instances, the challenge is to determine which elements of the building can be improved to increase appeal, secure higher rents, sustain maximum levels of occupancy, and meet ownerships objectives.

Depending on the extent of the repositioning program, certain issues about the building must be addressed.

If major physical improvements are required, can the property sustain them?

Can building systems support the technological needs of targeted tenancy?

And finally, will zoning permit these changes?

What makes repositioning work?

As the word implies, repositioning, in the final analysis, depends on successful project marketing to communicate the "new" and "improved" aspects of the project to prospective tenants. Otherwise, response to the project will remain below expectation. Where many repositioning programs fail is not so much in delivery of an improved project, but in communicating those improvements.

Critical to all repositioning strategies is determining the appropriate message to the marketplace. The message, which is often summarized in a single 'marketing line;' should focus on the specific change you wish to project to prospects. Thus, a well-located building that has undergone cosmetic improvements might use a line such as "new elegance at the same address." A building seeking to attract a new type of tenant might develop a marketing line appealing to those industries, such as "the new center of the garment district'"

All communications materials must state, document, and support that message. Frequently, a repositioning statement is adopted but somehow disappears from all collateral materials.

The building tagline may carry a succinct expression of the repositioning statement, but the brochure will simply present the information in a generic fashion, cataloging building parts in textbook fashion.

And even when the advertising campaign reasserts the repositioning statement, public relations efforts often do not. Eager to get "free" press, media representatives may lose sight of the repositioning statement and deliver a different or mixed message to the press--one that may fit the press' editorial needs, but not those of the project.

In any successful repositioning program, the final burden falls upon the marketing team to deliver a clear, consistent package, which not only tells a new story about the project, but does so in a creative manner.

In summary

In the last analysis, repositioning is a simple concept, but one that requires thought and consistency to implement. The strategy begins with a clear assessment of the ownership's objectives and the property's ability to achieve them. If a property is performing below expectation or if anticipated changes in the market threaten its potential value, repositioning is required.

What determines the elements and extent of the strategy is a thorough analysis of all factors that affect the property's value and the development a program to enhance that value. To varying degrees, this program may include physical and architectural changes or simply cosmetic improvements. In all instances, it requires long-term planning and ultimately a clearly focused and targeted marketing communication program to make it successful. One Cleveland Center:

A Study in Value-Added Repositioning

One Cleveland Center is a 31-story, 595,000-square-foot office building in the city's central business district. It was originally built as a single-user facility, but that tenant never took occupancy. When our firm assumed management and leasing of the project, it was only 30 percent leased after three years. Negative perceptions in the brokerage community compounded a lack of cooperation or interest in the project. No marketing plan was in place.

Our task was to develop a marketing and leasing plan that would invite broker participation, increase the project's competitiveness in the marketplace, and create an office building that was unique from both an aesthetic and an operational viewpoint. primary long-term consideration was maintaining the building's competitiveness against newer projects, whose expected completion was the early 1990s.

A problem that demanded attention was the building's physical appearance. Since it was designed as a single-user building, the common areas had little appeal and the finishes were insufficient for a Class A building. all of the building standards were upgraded. This included new ceiling tiles, improved lighting, new carpeting, and wall covering in the corridors, as well as renovating elevator cabs with new wood finishes and flooring materials.

An inherent design problem was the shallow core-to-window-wall depth. This heightened negative perception and left many with the false impression that design flexibility was limited. An example of how that aspect of the building could actually enhance office design was displayed in the marketing office. Here, we simply rotated the wall toward a diagonal and thereby emphasized the length of the space, its dramatic impact and functional ease.

The lobby posed its own challenges. An immediate consideration was design continuity, as it had been throughout the building. The exterior was essentially high tech, clad in aluminum and glass. The lobby not only failed to make a strong, favorable impression, but also did nothing to reinforce the intended architectural statement of the project.

Another problem was a raised platform in the center of the lobby, initially intended for informal gatherings. The platform, however, was poorly incorporated into the design and was a visual barrier from the exterior of the building. The security desk was located behind the escalators, which contributed to poor sight lines at the entrances. Visitors entered the building unnoticed and, conversely, had difficulty locating the desk.

The decision was made, therefore, to renovate the entire lobby. Contrasting gray and white granite pavers replaced brick ones. Lush landscaping was added. Elevator lobbies were refinished in marble. A new security/information desk was built, and the platform was eliminated to restore the openness of the three-story atrium lobby.

A final architectural solution was creating a separate entrance for the health facility above the garage. Originally, entrance was through the main lobby, thereby limiting the club's visibility and obscuring traffic patterns in the lobby.

All construction was completed under budget and on time with minimal inconvenience to the existing tenants, something that was particularly important to re-establish credibility of the project as an institutional-quality building.

That, of course, was only half the formula.

The other half was returning to the marketplace with a "new" product and re-enlisting broker participation. We began by establishing an aggressive leasing plan, offering generous commissions/ tenant concessions, and competitive lease rates. At the same time, we developed a unique amenity package that framed the content of all brochures, mailings, and advertisements.

The first aspect of the package was the special services offered by the building, similar to those provided by the concierge of a fine hotel. These included dry cleaning pick-up and delivery, desktop dining, floral delivery, hotel referral, limousine transportation, mailing services, and referral services for audio-visual equipment, foreign language translation, secretarial support, plant rentals, and day care.

We also focused on the full amenity package of the building-covered parking, conference room facilities, a 400seat auditorium, banking, printing, travel services, and a fully equipped fitness center.

The comprehensive scope of our package was unique to the Cleveland market. And our collateral materials highlighted that. We developed a series of tenant-testimonial advertisements and mailers, affirming the building's superior services. The brochure featured these distinguishing aspects of the project. Promotional efforts and special events were designed to heighten awareness of these services.

Within months it became clear that our program was succeeding. We had created a new niche in the market for One Cleveland Center. It came to be known as the one building "Where Service Comes First." More importantly, less than 12 months after unrolling the program, occupancy soared to 87 percent, and the property's value increased 32 percent.

While market conditions will inevitably dictate the strategy and components of any repositioning program, One Cleveland Center serves as a convincing example of how a coordinated, multi-disciplinary approach can create value for a struggling property.

More than anything, our success depended on identifying the critical issues, recognizing windows of opportunity in the market, and above all, enlisting the cooperation of in-house engineering, construction, architectural, leasing, marketing, and management personnel in the implementation of the repositioning program.

We must stress, however, that cooperation began at the top, with ownership at Metropolitan Life Insurance Company. They had clear objectives and helped us mold those objectives into an ambitious, yet realistic, repositioning strategy.

Jim Gartin is senior regional manager and senior vice president of Rubloff Institutional Real Estate Services in Chicago.
COPYRIGHT 1990 National Association of Realtors
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:includes related article on advertising techniques; real estate marketing
Author:Gartin, Jim
Publication:Journal of Property Management
Date:Nov 1, 1990
Words:2061
Previous Article:Let there be light.
Next Article:Let's go shopping.
Topics:

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters