Even with continued demand and short supply of quality industrial buildings, values appear to be hovering at their highs – but perhaps only in the short term. As landlords and sellers continue to push values and rents, buildings appear to be staying on the market longer. The recent Fed decision to raise interest rates may likely have little impact on increasing values, but business managers and owners appear to be feeling impact of the rising expense of real estate. The Great Recession is now behind us and values look poised to surpass pre-recession highs. Although there is much headwind to reaching these values (slowing Chinese economy, falling oil prices, rising interest rates, a presidential election, terrorism, etc.), Landlords can take preemptive measures to continue to push values and rents beyond the competition by making some simple investments back into their properties.
First impressions are everything, and an updated landscaping plan will appeal to most prospective buyers and tenants and make a positive first impression when their broker is touring several similar buildings. Creating a strategic property repair plan will complement each improvement, add clean lines and a visual correctness that will appeal to most business owners and managers making long term important decisions on where to locate their business.
#1. Landscaping: We all know that California is in a drought. Water companies are scrambling to comply with mandated State regulations to avoid fines. As an example, the Mesa Water District just announced new mandatory rules for residential home owners to reduce landscape watering from two days a week to one day a week. Many homeowners are trying to comply with the new rules by removing their lawns and replacing them with drought-tolerant plants. Landlords can take a clue from this and install new drought-tolerant plants to not only be socially responsible, but also give the property a modern, manicured look. This reduces maintenance costs as well as emissions from gas-powered lawn mowers and blowers.
#2. Exterior paint: The phrase, “lipstick on a pig,” has been around for a long time and is comical, but it is actually an effective concept and new paint should be part of a regular maintenance program. A freshly painted building looks clean and new. Modern color schemes look sharp and distinguish a building from the handful of others that will be shown. Repainting the building demonstrates good maintenance practices and inspires prospective tenants or buyers with the confidence that the building will be free of major problems.
#3. Asphalt: This improvement is more costly but amplifies the first impression of the building to prospective buyers or tenants. Simply adding a new black slurry coat and new parking stripes is a less expensive repair and will make the property “pop”. However, upon a second visit to the property, the prospect will likely notice any holes in the asphalt and may wonder what else has been “slurried over”. Do it right. Get several bids to repair or replace the asphalt before marketing the building.
#4. Roof: A leaky roof can be a nightmare for tenants and will likely cause a buyer to request a full re-roofing discount during the due diligence phase of escrow. Prospective tenants are more likely to pay a higher asking price for a building with fewer concessions because of a new water-right roof. This improvement gives tenants and buyers more confidence to move quickly to leases or purchase and sale agreements limiting time on market.
#5. HVAC: It gets hot in California and seems to be getting hotter for a longer duration of the year. Businesses want to make sure that their employees are comfortable so they can be more productive. An old HVAC system may stop working in the hot months, which is usually the same time that HVAC service companies are the busiest and repairs can be the most costly. Even though the AIR lease appears to be fair in handling of the cost of repair/replacement with HVAC, most tenants don’t want to ever have to consider that section of the lease and would sooner pay a higher rent or purchase price just for that peace of mind.
These simple improvements will give an advantage over the group of competitive buildings and may help to overcome certain inherent disadvantages such as location, lack of parking or low ceilings. There are several other improvements that we are recommending but this will provide the most “bang for your buck”. With these kinds of improvements, the landlord/seller can have the edge in potentially higher values and shorter time on market.