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Aging structures need quality renovation.

Reprinted from the author's column "Design for Success" that appears in New York Construction News.

The article with the most impact on the importance of renovating older buildings was that by Lettice Stuart in the July 8 issue of The New York Times headlined "New Offices Bring Worry to Houston."

In it, Stuart describes how landlords are concerned over the construction of three new hi-rise office buildings, rising at a time when the city experiences an once vacancy rate of 22.5 percent.

"The new building" the author of this article asserts, "has raised fears that the city's high vacancy rates will be a long-term phenomenon, as tenants move to newer buildings and leave older ones empty."

The same journalist continues that "large tenants have been lined-up to occupy more than a million of the 1.4 million square feet of office space in these new buildings, but those tenants will leave empty space in other buildings."

Questioning this trend of new building construction, the author evaluates the vacancy rates of commercial space. The national level is 19.4 percent, or nearly 500 million square feet of vacant space. 29.6 percent in West Palm Beach, Florida, Dallas at 27 percent, New York at 17.4 percent, and Chicago at 17.4 percent.

This article comes on the heels of my raising the same question: Why the new building boom? Lettice Stuart concurs by asking: Why is Houston, which has 33 million of its 146.3 million square feet of office space already vacant, empty buildings for sale and rents at 1978 levels, building again?"

The answer to this question only confirms what every authority on the subject has been agreeing on as of late. High quality renovation for aging structures is imperative.

It is the only method by which they will retain existing tenants, in addition to wooing new ones. It is the only method by which it can survive the wrecker's ball. Answering Stuart's question, Donald L. Williams, a Houston real estate consultant affirmed that, "just because there is empty space doesn't mean it is what or where people want it", concluding he points out that, "the question is where the space is situated, what quality it is, and its layout and design."

Adding to those remarks, Tom Bacon, vice president of Hines Interests adds: "Technological advances are another important reason for continued construction in the face of high vacancy rates. A primary consideration for large companies" he said, "is the ability to route and re-route huge amounts of electronic and telecommunications cable vertically through a building." Concluding Bacon says, "Another advantage of new buildings is the advanced capability of air-handling systems which can reduce power cost by 75 cents to $1.00 per square foot." (These are savings estimated for Houston, New York savings would be substantially higher.)

Structures built in the 1970's or earlier lack energy conservation features along with other recently developed advantages. This deficiency in itself has doomed the older buildings, particularly the over-leveraged ones. Mere cosmetic redesigning of the lobby, elevators and corridors will never substitute for the real needs of today's sophisticated tenant. These cosmetic and shallow changes without providing for the technological needs of a knowledgeable tenant could be equated to pouring money into a bottomless pit.

While a pair of 18-story Towers sit empty in Houston's Galleria area, an area which happens to be a prime office area, rising new ones add to the skyline, shapes intended to accommodate new technologies capable of leading tenants into the 21st Century.

Are we experiencing the same thing happening under our very eyes in the Metropolitan area, and more acutely in New York City? From the two-story suburban office building to the Manhattan skyscraper, aging structures which are not upgraded are falling into disuse and obsolescence.

It is a sign of the times, where prospective tenants walk into a building holding a shopping list of requirements. The last thing they want is to be facing a number of problems down the road, after their lease has been signed. They expect landlords to be in full compliance with all codes and laws. It is the very factor, this tenant awareness, that makes landlords comply to all ADA edits.

The choice for them is either to comply or face long years of empty tenant space. Another important feature tenants are looking for when renting space is life safety systems.

The consensus is that tenants want these systems built-in. They vehemently oppose having to be inconvenienced with later-day installations nor with the costs related to the up-grading of the landlord's building.

A concept know as "cable management", while an integral part of any new structure, can easily be incorporated into older buildings with a minimal expenditure.

Though this negligible investment means a boost in a building's value, it is very seldom implemented. Likewise, pre-wiring a building for telephone, computer and other communication needs is a feasible investment with a great return for its landlord from the point of view of the tenant, whose expenses in that area will be reduced to a minimum, aside from providing flexibility.

Security is another sector which plays an important role in a prospective tenant's decision. It seriously influences the landlord to address the issue in the architectural sense, thus creating a more secure building.

Knowledgeable buyers scrutinize all such costs, incorporating them into the overall project. Costs for upgrading are sure to be deducted from the sale price.

While emphasis for renovations falls on the functional requirements of a building, the combination of a cosmetically pleasing facade, such as lobby and elevators, with the structural soundness is ideal.

When refinancing older buildings, lending institutions examine the built-in technological aspects and their adaptability to prospective tenants, assuring the building will be marketable and competitive.

A lending officer requesting anonymity, admitted that the mistakes of the past should serve as lessons so that they will not be repeated. Additionally, banks will pose more stringent requirements with relation to the Americans With Disability Act, before granting any funds for renovations. Even though it is questionable as to what is "reasonable accommodations" for ADA compliance, banks will adhere to the letter of the law.

This, so that they cannot regretfully look in hindsight, and discover that

"reasonable accommodations" is interpreted as many thousand of dollars in excess.

Just like tenants take a long hard look at how they are investing their money spacewise, so should landlords of aging buildings.

They should ask themselves if their property meets today's technology standards, for the cost of providing these technology requirements is minute versus the damage that can result out of not having them.

Going back to the article we examined earlier, we discover that it is so easy to build in Houston because land is cheap and plentiful, and building restrictions almost nonexistent. Precisely the opposite is true of New York, where the advantage lies in renovating, because of the high cost of land and new construction.

The advantage is all more significant when the building is altered and the hi-tech options plugged in. The reason is that you have the best of both worlds in one inexpensive move, the charm and beauty of an old world exterior combined with the latest in a technologically-sound interior.

Steven P. Papadatos, President Steven P. Papadatos, P.C.
COPYRIGHT 1992 Hagedorn Publication
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:reprinted from 'Design for Success' column in New York Construction News
Author:Papadatos, Steven P.
Publication:Real Estate Weekly
Date:Sep 30, 1992
Previous Article:Is your renovation breaking copyright law?
Next Article:Antidotes for ailing real estate.

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