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A new face for a warehouse.

A New Face for a Warehouse

Most property managers love a challenge. But would you want a challenge quite this big - a 40-year-old former warehouse, vacant after two years on the market, a gutted shell of 30,000 square feet with irregular-shaped spaces, no improvements, a half-finished lobby, and dirt floors in some areas?

To make your assignment even more interesting, throw in the fact that several other property management companies have attempted to lease the building, and all have failed. And then, of course, there are the usual givens: a soft market, a limited budget, and a very cost-conscious owner.

I found myself in this situation when our firm, Crane/Sachar Realty & Management Company, took on management and leasing responsibilities for a four-building package of properties owned by a prominent southern California lending institution. There were several unique properties in the package, but I drew the assignment of managing and leasing the most challenging one of all this converted warehouse in downtown San Diego.

The solution

Now, 16 months later, the building is 57 percent leased and occupied, with several other leases close to execution. Our success with this building came about not through any miracle or magic, but by applying a fundamental approach based on "power leasing."

Rather than grouping two or three small building together under one "spread-too-thin" leasing agent, our firm assigns a full-time, on-site property manager/leasing agent to each, building. This manager makes an intensive, all-out marketing effort, which usually leases up the property quickly.

Many building owners and leasing companies question the economics of putting a full-time leasing agent on-site at a small building, but our firm's approach, which has proven successful many times, is based on the following logic:

* Only an on-site person can really get to know the immediate market, analyze the competition, and become familiar with local real estate brokers.

* Only an on-site person can thoroughly know the strengths of the property by "living" with them daily.

* Only an on-site person can pay attention to important details on a day-to-day basis, such as clean windows, attractive grounds, signage, and general curb appeal.

The building was at a disadvantage in terms of its relationship with the brokerage and business community. Past problems with completion dates, lease commitments, and adverse publicity all led to a lack of confidence in the project. The situation further confirmed the importance of having an agent on site.

Analyzing the property

Originally built as a warehouse, the building was remodeled as an office in 1984. The old Mission-style exterior of the building is of concrete and stucco construction. The interior ceiling and second floor construction incorporates exposed, massive wood beams. The first level flooring is concrete slab, while the second level is plywood flooring. There are areas of the first floor with only dirt floors. Ceiling heights vary from 7 feet to 40 feet in the building.

It occurred to us early on that the lack of consistency in the building could work to our advantage. We found that we could offer unique office space unlike the conventional office building.

An inspection revealed many obvious and potential problems with the physical and operational condition of the property. The following had to be addressed either immediately or in the near future:

* Corridors. There were no existing corridors in the building. A decision would have to be made as to when and where to build them.

* Lobby. A previous interior designer had tried to achieve a high-tech look for the lobby by using a combination of metal, brick, and carpet for the flooring. Workmanship and installation of the materials was extremely poor, and upkeep of the flooring proved to be impossible. On several occasions, visitors and prospective tenants asked if the floor was temporary.

* HVAC. Twenty-one heating and air conditioning units had previously been purchased and placed in different areas on the roof. This was done without any knowledge of how large or small the tenants might be that would occupy the building in the future.

* Lighting. Interior lighting was adequate, but there was a lack of exterior lighting which left the building very dark at night and posed a possible security problem.

* Transients/homeless people. Because the building had been vacant for so long, many transients had made entrances and doorways their permanent homes.

In addition, the building lacked appropriate signage, the leasing office was in complete disarray, prior construction work had left vacant spaces messy, several exterior doors had broken locks, interior and exterior areas of the building needed painting, and the landscaping needed maintenance.

We were well aware that a great deal of time, work, and planning would have to go into the project in order to make it work, but we felt confident about the project and believed that all of the problems were solvable and our efforts would be rewarded.

Ownership's goals

Our assignment was to fully lease the building. We were also instructed that we could perform tenant improvements only after a lease was signed. This posed a problem for those prospective tenants who needed to occupy within 30 to 45 days and were unable to wait for construction of a suite.

It was recommended to ownership that "spec" office space be constructed, but ownership's limited budget would not allow for this type of expenditure. This was not unreasonable, especially considering the property's ongoing expenses, lack of rental income, and debt service, all of which resulted in a negative cash flow.

Thus, in order to achieve ownership's goals, we needed to come up with a plan to lease the building up quickly. At the same time we would need to control capital expenditures. Careful planning, coordination of efforts, and attention to detail would be essential in achieving ownership's goals.

Managing by plan

After determining ownership's goals and objectives, we produced a carefully thought out management plan and budget. The plan and budget were the benchmarks by which we could measure ourselves and by which ownership could measure our performance on a regular basis.

In our plan, we addressed all of the issues previously mentioned along with other essential matters. An improvement of the physical and operational condition of the property was deemed a priority, due to the commitment made to institute the leasing program immediately. Various contractors and vendors were asked to inspect and give reports on the HVAC, electrical, roof, plumbing, and sprinkler systems.

Once we gathered all the information, we discovered that there were repairs to be made to the roof and sprinkler system and that in order to avoid problems in the future, it would be wise to implement preventive maintenance programs.

We also felt it was essential for successful leasing to improve the aesthetics of the property immediately. Cosmetic improvements included cleaning windows, painting exterior and interior where needed, changing address numbers to ones that were larger and more visible, and adding brightly colored flowers to the main entrances of the building.

Selecting professional help

Our first step was to select a professional advertising/public relations company, a competent contractor with experience in rehabs, and an architect/space planner willing to work in close cooperation with the contractor.

Unfortunately, a contractor and architect were already in place and stepping all over each other's toes. After two weeks of constant miscommunication, we came to the conclusion that they were trying to sabotage each other With permission from the owner and from our upper management, we started over with compatible contractors (whose references I checked personally). These two people formed the nucleus of our winning team.

Once we had our team in place, we went to work. We were faced with many challenges but were confident that there were solutions to those challenges. Here is how we dealt with some of the problems mentioned earlier:

* Corridors. The building was a shell, and there was no real division of space. Yet, it was difficult to determine the number of corridors to build and where to build them because we did not know the space requirements of future tenants. We felt that many of the larger spaces would be subdivided into smaller ones.

Our decision to wait on constructing corridors proved to be a wise one. We found a tenant interested in leasing half of the first floor, which would eliminate the need for a corridor on that side of the building. If a corridor had been constructed, ownership would have found themselves in the position of having to make a decision to tear down the corridor in order to accomodate the tenant's space needs or risk losing a very large tenant. In either case, ownership would have suffered a financial loss.

* Lobby. We were aware that ownership had previously spent thousands of dollars on the design and renovation of the lobby. It was money poorly spent because of the poor workmanship and low-grade materials used. The new interior designer was aware that we wanted to make some positive changes but it was essential to keep expenses low.

Her suggestion was to keep it simple, but attractive. She recommended that we remove the existing flooring and replace it with a level-loop carpet (this type of carpet wears well in high-traffic areas), repaint the lobby, build two larger planters, and add a few free-standing plants. We implemented these changes and were pleased with the end result. With a small outlay, we now have an attractive lobby, which makes a positive statement for the rest of the building.

* HVAC. Our contractor advised us that it would be necessary to relocate most of the 21 HVAC units to different areas on the roof.

* Lighting. Additional lighting was added to the exterior where needed.

* Transients/homeless people. It would not have been cost effective to hire a full-time security guard for a 30,000-square-foot building. We found a patrol service that would check the building on foot every three hours. This proved very effective and virtually eliminated the trespassing problems. The patrol service, coupled with the additional exterior lighting, was very beneficial to the security of the building.

* Handyman. A reputable handyman in the area was hired part-time to clean out vacant spaces, paint, and do miscellaneous repairs and maintenance around the property.

* Landscaping. Additional landscaping and flowers were purchased to add more color to the project.

* Signage. A sign company was selected to implement a signage program that would be compatible with signs already in existence at the building. This was done to keep ownership's costs to a minimum.

Intensive marketing

Bob Crane, CPM, president of Crane/Sachar, prepared an intensive marketing plan to accomplish the property's goals. His plan called for the same type of marketing program that would have been applied to a larger property.

Our primary marketing technique was direct mail with follow-up phone calls. In view of our tight budget, we had a professional advertising agency bypass an elaborate brochure and produce a one-page, 8 1/2" x 11" full-color flyer with a dramatic photo of the building on the front and a fact sheet with a map on the back. Two brief cover letters were also prepared, one directed to real estate brokers and one to prospective tenants.

It was determined early on that the building would attract prospects such as specialty retailers, restaurants, architects, accountants, and attorneys. Therefore, the direct mail was aimed at those specific target tenants.

A self-addressed business reply card was also incorporated into every mailing. At first I questioned the need for a business reply card when our phone number was prominently shown on the flyer and the mailing went only to nearby prospects. However, the agency's belief that some people would rather write than call proved to be correct.

Each month, direct mail was sent to one or two target tenants groups, depending upon the number of prospects in each group. Mailings were followed up either by phone or in person. Many of the businesses had kept the flyer, but never gotten around to calling or writing.

Walk-ins also proved to be another good source of prospects. Many prospects told me they would not have bothered to take down a telephone number in order to set up an appointment to see our space. They liked the convenience of being able to walk into our staffed, street-level leasing office and inquire.

Publicity articles placed in several of the San Diego-area newspapers also helped our efforts. Contacting real estate brokers in the immediate area also proved to be very effective.

Conclusion

Eighteen months later, the property is producing income, its market value has been greatly enhanced, and a building which was considered a while elephant is now an integral, attractive part of San Diego's revitalized central city.

With total lease-up in sight, I am looking forward to my next assignment, knowing that whether it is a large or small building, I will have a successful, proven approach behind me. I would not mind, though, if my next building turned out to be a little less of a challenge.

Deborah Chapman is a properly manager and leasing agent of commercial property for Crane/Sachar Realty & Management Company. Santa Ana, California. Ms. Chapman joined Crane/Sachar in 1986, when she assumed on-site management and leasing responsibilities for a San Diego property. Ms. Chapman holds a bachelor's degree in general business administration and is a licensed California real estate broker.

PHOTO : Much of the building's interior remained unfinished, making leasing more difficult and rapid move-ins impossible.

PHOTO : Lobby improvements including replacing the damaged flooring with carpeting and installing plants and a built-in directory.

PHOTO : Completely renovated, this 40-year-old former warehouse now houses retail and office tenants in an attractive Mission-style setting.
COPYRIGHT 1989 National Association of Realtors
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Author:Chapman, Deborah
Publication:Journal of Property Management
Date:Mar 1, 1989
Words:2271
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