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Keeping competitive in lean times.

The greatest challenge for owners and managers in this economy, they say, is to keep buildings rented and in tip top shape. Properties not only must be in compliance with regulations, but owners must keep existing tenants satisfied and attract new ones.

Richard M. Stone, manager of Big Six and president of the New York Association of Real Estate Managers, said some current issues include Local Law 10 and Americans with Disabilities Act compliance, electrical and thermal costs, and problems with residents and tenants that affect the current obligations.

The owners are less inclined to want to spend if they don't have to, Stone observed.

"A lot of our members are in the affordable housing sector and there isn't and hasn't been much governmental support and concern about affordable housing in general," He said. There are too few resources for those who have need."

In this sector, he said, there are limited funds and it is difficult to raise carrying costs and rent in this environment. Most of the members, he said, are looking for ways to cut costs and raise revenue.

Rochelle Captan, is the manager of Amalgamated Warbasse Inc. a Mitchell Lama co-op in Brooklyn which encompasses five buildings with a population of 8,000 people.

"Everything is a challenge," she said, "and every day is a challenge,"

This project is 28 years old and while building systems and such things as underground piping are deteriorating, the residents are also becoming older and need social services. Since the piping carries both cold and hot water, their replacement is underway to control leaks. State money is helping with that and other fascia and terra cotta replacement.

Captan said they are also thinking about enlarging a small shopping center in order to get more income and more services for the community.

Many owners are turning to renovation and "repositioning" work to keep their buildings competitive and it comes at the same time contractors are cutting costs.

One large real estate company is laying off personnel but considering making capital improvements in their properties, said Roy B. Klein, P.D., vice president of the Yates Group, an exterior restoration firm.

"They felt this was the best time to invest in this kind of work," he said. "By buying projects now they were getting much more for their dollar so they could get more done than they would be able to do in three or four years."

Although a Mitchell-Lama development, Trump Four in Brooklyn built up enough reserves to begin extensive work including roof repairs for around $600,000 and window and terrace doors work for a little over $1 million. P. Leonard Jones, general manager Trump Village Section 4 Inc., noted,

"It's a nice tidy package of work and if we had done it 10 years ago it would have cost a lot more," he said. "There are contractors out there that are not working, so when we undertook the bidding process, we ended up with favorable bids."

Jones said he has taken the opportunity to install a private cable system that provides door security and allows the project to get a message into every living room. They are also modernizing all 12 of the elevator cars.

"We thought it would cost $1.5 million but now we will save about a third," he said. "This is the time to do something like this."

There are also many programs to take advantage of, he said, including Con Ed rebates on motors and lighting and the J-51 program for residential buildings that Jones is seeking to use to qualify his 8,000 windows.

"The next thing we will do is new roofs," he said. "Now is the time and it maintains the value."

Ned Gargiulo, president of Sterling Services Company, a metal and marble restoration and maintenance concern, said owners should be concerned with the preservation of their asset even if only to keep it in an attractive condition.

"In an expanding market of vacancy, buildings are seeing they must become more competitive with similar buildings," he said. "Tenant retention has become the most important thing that an owner has to do."

"In such a horrible market for leasing," Gargiulo noted, "a building needs its best foot forward. Building owners are minimizing expenses but more astute owners realize you can only cut so much and they see a need to keep up things that are a focal point of the building."

Commercial tenant retention lowers costs significantly, Gargiulo explained, because the owner does not have to go through a time period without a tenant or expend additional money on tenant improvement letters.

Many buildings built in the 80's have put buildings built in 60's and 70's at a competitive disadvantage said Joseph F. Harkins of Cushman & Wakefield. He has been overseeing a multi-million dollar capital improvement program at 100 Wall Street, which is owned by Hexalon Real Estate of Atlanta.

"Renovation is something we like to call a repositioning," he said. "The rationale was that the real estate market has softened, and softened to a point that only the premiere or well-positioned properties will capture or accommodate or win or lure the corporate tenant."

While the 20-story building, constructed in 1969 as a corporate headquarters, could capitalize on its prestigious address, it needed modernization. It became imperative to do so, Harkins noted, if they wanted it to remain a premiere building and retain tenants such as County NatWest Inc., Banca di Roma, Swiss American Securities and other international banking and securities firms.

The repositioning improved the appearance, lobby, plaza, elevator cabs and concierge desk both cosmetically and aesthetically. They also "reinvigorated" the building systems and added emergency generators, he said.

"It's begun to work," Harkins said. "In a tough real estate market we have recently attracted a two-floor tenant, Waterhouse Securities. They've come to the building because we have successfully repositioned it to compete with more modern buildings."

Howard R. Kronland AIA, manager of construction for the Shorenstein Company East, is teaching a course on renovation and construction management at New York University's Real Estate Institute.

"Construction costs are low and competition is keen and we're getting better prices," Kronland noted.

Buildings are upgrading for telephone and fiber optic, he said, and tenants have increased demands for electricity.

"Everyone has a computer and a need for outlets and power," he said.

Charles Mc Intyre, senior vice president of Schroder Real Estate, who teaches asset management at the same institution, said they buy underperforming assets and through renovation and repositioning, add value.

In particular, an extensive lobby renovation done by Structure Tone at 15 East 26 Street, which fronts on Madison Square Park, has significantly improved the building.

"This building was uniquely positioned to be repositioned from a terribly managed secondary building to a well managed primary building," Mc Intyre said.

While certain buildings are beyond fixing up, Mc Intyre believes the company would look at buying another office building in New York City. "Having success in the real estate market is like having success in the stock market," he said, "you have to buy low and sell high. You have to have enough room left to have money for renovation and come out with a satisfactory result."

Construction costs are also going down and Mc Intyre estimated that if they were trying to do the same amount of work in this building three or four years ago, it would have cost 20 percent more.

The experts, agree that buildings are getting more value for the dollar. Klein of the Yates Group, which is an exterior restoration firm with expertise in ornamental, facade, window and roof solutions for the exterior envelope, said their prices are less than they were in the 80's.

"The price has become very important," he said, "and it's a function of the market."

Klein cautioned that whatever kinds of improvements owners are doing should be done correctly and then maintained.

"We do most of our work in residential co-ops and people will spend a large sum of money to do a capital improvement and then walk away from it," he said. "Do the right job, even if it's on a lesser scale, and once you've spent the money try to maintain it."

Sterling Services conducts on going environmentally safe restoration and maintenance of architectural metal, marble, and stone. President Ned Gargiulo said their facade refinishing protects and safeguards the building against atmospheric ingredients leading to oxidation and beautifies the building. They are also called into upgrade lobbies, which Gargiulo said helps puts forth a different picture of the building

One interesting job is the restoration of all the flag poles at the Rockefeller Center in preparation for the coming skating season. "With the breakup of the Eastern Bloc, we now have so many countries formed that the new flagpoles stand out like a sore thumb," Gargiulo laughed.

One Rockefeller Center building, owned by JMB Realty Corporation, underwent an $6.5 million lobby renovation. The design incorporated mahogany paneling, dramatic lighting and commissioned artwork. Since then, 572,000 square feet of leases, including renewals and new tenants were signed.

Some buildings are taking advantage of renovation work to install branch waters meters, said Water Waste Prevention Company Inc. President, Barry D. Cooper. In this manner, he explained, commercial tenants can pay for their fair share of the water and sewer costs. Cooper took over the presidency from his father, Irving, who passed away a year ago.

Water Waste reads the meters and prepares the invoices and can even bill their own fee proportionately into the tenant's bills. Cooper said offices should be submetered for water-cooled air conditioning, either for summer air conditioners or for air conditioning covering computer usage. All commercial businesses should be metered, he added.

Local Law 10 requires all buidings above six stories in height be inspected every five years by a licensed architect or engineer. Any conditions deemed hazardous have to be corrected immediately and the city requires a plan for other maintenance so that if people are complying with the law, they now have a plan to implement, said Klein.

Klein cautioned that Local Law 10 inspections are only required for the front of a building and within 25 feet of the public. "None of the buildings must be inspected in the rear," he added, noting that sometimes work should be performed there to both keep up appearances and to ensure it is safe.

While Local Law 10 resulted in a rash of ornamentation being pulled off, now, owners and boards are realizing they can fix or replace these decorations and they add value to the property.

Leonard Piekarsky, general manager of the Mutual Revelopment Houses in Manhattan, better known as Penn South, is undergoing Local Law 10 work with their own maintenance people. By developing a creative response to terrace work that would have cost the Mitchell-Lama co-op some $1.3 million, Piekarsky is saving money and avoiding scaffolding that would have had to completely surround the ten 21-story buildings.

Piekarsky recalled: "When we heard the numbers we said to our engineering and architectural people, Antonucci and Lawless, can't we do something else? In lieu of putting in concrete, with our own forces we removed the concrete lips and are now putting in aluminum boxes that match. But we can do it within the terrace and are serving $700,000 to $800,000 dollars."

Yates is currently restoring the Fred French building at 551 Fifth Avenue, one of the largest terra cotta restorations being undertaken in New York City. "It really makes a building stand out and people can take pride in that sort of thing," Klein said.

Kronland said Metropolitan Life is putting a lot of money into the landmarked Fred French building with an ongoing program. Managed by the Shorenstein Company, Kronland said, the major concern is doing work at times that will not aggravate the tenants and cause them to look at competing buildings with lower rents.

"It's a fine line you have to walk of getting things done on time and keeping them informed," he said.

"All of a sudden two elevators are not working or the air conditioning is shut down for a day so you have to keep them abreast and try to schedule things when it is not inconvenient," he said.

Kronland said it is costing more money because they have workers coming in at night and on the weekends.

"You also get hot sweaty workmen with tools and you get people all dressed up in business suits and you don't want to mix them," he said. "It becomes a major headache."
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:advice on commercial building rental
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Sep 30, 1992
Previous Article:Abrams Benisch opens in CT.
Next Article:Hallmark Marketing leases in Purchase.

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