Most properties do not stay the way they’ve been built. Shifts in the real estate market, demographics, and the way people live and work over the years play a major role in whether a building stays in high demand or has trouble renting at the market rate. Even with proper maintenance, building systems eventually become outdated and new competing properties come into the market.
When a building gets old enough or starts to underperform in the market, owners looking to maximize their return have to make the decision whether to sell the property for better performing assets. But there is another strategy they can utilize: real estate repositioning.
What is Real Estate Asset Repositioning?
Real Estate Asset Repositioning is the strategic use of renovations and capital improvements on properties in order to change their place in the marketplace. This can range from renovations that upgrade a building to be more in line with modern buildings, to a complete overhaul that changes the building’s purpose. At VERTEX, we provide this type of real estate development consulting across the nation. Our experienced team of construction and real estate consultants can help ensure you get the highest possible return from your assets by providing you with thorough best-use analyses on existing land and buildings.
Significant Benefits of Asset Repositioning
There are many benefits of asset repositioning. Below are some of the major ones you can reap in the process of “redeveloping” your existing property.
Improving Building Performance and Energy Efficiency
Tenants and business owners have become more acutely aware of the costs of utilities in the space they lease and live in. With the rise of green buildings, clients now factor in expected energy costs on choosing to stay or move to a different building.
A property that goes through repositioning will reap much of the energy efficiency benefits that newly constructed buildings have. With the help of your real estate consulting team, you can commission a property condition report tailored to repositioning and capital improvements, giving you a list of action items. Those building performance action items can subsequently be tackled through retro-commissioning of building systems and/or replacement of components with higher energy ratings.
The end result is you as the owner can simultaneously reduce consumption and making the property more enticing to potential occupants. Furthermore, installing energy-efficient illumination qualifies building owners for tax deductions as high as $1.80 per square foot.
Green & Healthy Building Design Benefits
Building and landscape design practices have made great strides this past decade in both creating green (sustainable) buildings and properties that facilitate healthy living and working environments. There is now a wide range of building sustainability certifications the real estate asset owner can choose to pursue or incorporate design ideas from such as outdoor shading, occupancy sensors, daylighting, xeriscaping, and more.
Taking steps to transform an old building with high consumption and a reliance on fossil fuels into a green building that adheres to sustainable practices is sure to reap the benefits of asset repositioning and provide a considerable return on investment.
Improved Building Aesthetics
When renovating a real estate asset that is intended to become an income producing property, it always pays to make it look as good and as modern as feasible. Asset repositioning goes beyond getting new paint, flooring, and fixtures.
Investing in common areas, site design improvements, and a well-designed façade improvement can make all the difference if your goal is to attract new tenants or retain current ones. Even if the building is deemed historical, real estate consults can help you navigate the hurdles to improve the building exterior while staying within the aesthetic boundaries.
Repurpose Opportunities
When it comes to the benefits of asset repositioning, your real estate advisory team can help you find opportunities beyond simply improving the building. Markets change over time – since the day the property was built, the surrounding area may have changed dramatically.
Your advisory team can help you explore creative ways your property could be transformed to serve a new purpose and a new real estate market segment. A warehouse can become a trendy disco or brewery. A historic factory building could be re-envisioned as a unique and creative office space. A big-box retail store and its parking lot could be transformed into mixed-use apartments with food and entertainment space. In fact, some regional shopping centers in California are already in the process of repositioning themselves.
Always keep your asset’s location and target audience in mind. If your building is located in or near an area that contains many tech-minded companies, equipping it with IoT technologies and amenities can go a long way toward attracting the young people who work at these companies. Likewise, if your property is in the suburbs, you may consider implementing family-friendly conveniences such as playgrounds or extra parking space.
Finance Benefits
The reasons mentioned above all contribute to improving your real estate asset’s performance. The key benefit of doing a repositioning focused remodel are two-fold: compared to new construction the project costs significantly less than pure replacement costs, and second, the timeline to remodel the properties and re-lease the spaces are relatively short. Repositioning your existing real estate assets can achieve higher rates of return than ground-up real estate development.
Also, typically the capitalization rates (cap rates) will be reduced thereby enhancing the rate of return. As a result, “value add” properties tend to be a highly positive real estate investment.
How Can VERTEX Help?
Are you in possession of property or a building that can benefit from asset repositioning? Or are you in need of a reliable assessment of facts from an experienced real estate consulting firm? VERTEX is the premiere team of construction and real estate consultants that assists clients at any stage of the construction and real estate development process. To discuss your specific situation, please contact us.
This article was originally published by Xpera Group which is now part of The Vertex Companies, LLC.