Upgrading a property is an investment, but it can pay big dividends
We’ve all seen homeowners give their places a facelift before putting them up for sale. They paint rooms, swap out light fixtures and perform other upgrades to give the house more appeal to prospective buyers. Maybe we’ve done it ourselves.
So, what about commercial real estate? When someone gets ready to sell or lease an industrial, multifamily, retail, or other commercial property, do they spruce things up?
Some do, some don’t.
Trying to save money doesn’t always work
The ones who don’t upgrade usually reason they’d prefer to forego the fix-it-up expense and let the new buyer or tenant absorb whatever costs that process entails.
Sometimes that strategy works. But often, it backfires: The property sits idle with no prospects, costing the owner much more than the fixup costs might have.
A better plan of attack
I usually recommend doing whatever is necessary to sell or lease the property in a timely manner. For example, I once worked with a condominium owner who had four contiguous units for lease. They had been occupied by the same tenant for about 35 years and showed significant wear. The owner was reluctant to invest in an upgrade and, as a result, all the units sat vacant for about six months – no interest whatsoever.
After a time, I talked to the owner about increasing the property’s appeal by performing some upgrades: removing the 1980s wallpaper, painting everything with a smooth finish, replacing the flooring. I also recommended swapping out the old bathroom fixtures, toilet, sink cabinet and hardware.
The owner completed this work and, after the first showing, he had all four units filled to three separate tenants. That’s the power of first impressions.
Besides making cosmetic changes, it can also help to make a commercial property more energy efficient. That includes upgrading incandescent light fixtures with modern ones that consume less energy, or installing plumbing fixtures that save on water.
Another improvement that creates positive first impressions is to make restrooms compliant with the Americans with Disabilities Act. Of course, that’s more expensive than applying a new coat of paint, but it often pays off in a quicker sale or lease.
It can also be helpful to upgrade vacant land to make it more marketable. I once had a five-acre lot listed; it was zoned agricultural but was in an up-and-coming area. We considered changing the zoning to commercial to increase the number of potential buyers. An upgrade doesn’t always have to be physical.
A worthwhile investment
I enjoy helping commercial real estate property owners understand the market, mitigate risks related to their specific asset and implement the necessary actions to achieve their investment goals. So yes, I do encourage my clients to look at how they might increase the marketability of their offerings. It may cost time and money up front, but it’s usually worth it in the long run.
Diane Lawson, CCIM
Senior Investment Advisor
941-780-6136 / Diane.Lawson@svn.com