Increasing occupancy in a vacant office complex

9 Replies

We are considering the purchase of a 50% occupied office complex that is an REO. About 30,000 sq ft total rentable sq footage. It is class B+, the existing tenants are very stable and medically oriented. We'd like to move in more medical tenants, but that may be a challenge, above all, we'd like to see long term, stable clients. Also, if it matters, if we acquire the property, we'll own the quorum, and can become the HOA, which means we can take in the income and manage the park as we see fit.

I'd like to rank these by highest effectiveness, lowest cost, here is an unordered list of ideas.

Hire a well connected leasing agent, and offer them a handsome commission In fact, the leasing agent that we may hire, may not be the "best" agent for the job... Do commercial leasing agents do co-ops on leases? Can we attract other leasing agents that have ready clients?

Offer below market rents or generous TIs to get occupancy up to market. Increase rents over time within these contracts. Once occupancy is up, begin increase advertised rents. The current owner (the bank) would not budge on rents, asking $12-$14/ft/yr, which is "market price." We can make a profit by charging as low as $5 (we don't want to shoot ourselves in the foot though).

Add a crosswalk. There is a shopping center with dining options across the street, but no cross walk attached to the sidewalk along the entire complex. I will look into having a cross walk or two added. Aside from increase quality of life for the tenants, it can cause "good" rubbernecking as people slow down for the cross walk.

Improve the signage The current signage is unsatisfactory, it is small and hard to read from far away or even across the street. Something like this 1, or this 2

Invite food trucks I am not sure if the area has enough traffic for a food truck business, but I want to try to invite them to try it out during the lunch hour. I think the tenants would get a kick out of it.

Build/offer covered parking Potential tenants might get a kick out of shaded parking, for themselves, and their customers, and it isn't that expensive. Can use pipes and sheets, or metal roofing.

Value add tenants Like office supply, printing, Mailbox etc, drycleaning, other ideas?

Solar panels Not sure if this is profitable, will only do so if it is... Although perhaps some tenants might give a damn, i'm not willing to bet on it. If this can be done in a way that we increase our bottom line, then I'm for it. If not, then I'm not. Will need to get an estimate.

Website List businesses in the park with their contact info, pictures, and vacancies, generate leads for vacant units.

You might also research the government incentives available for using solar energy. It might tip the scales to the profit side.

@Ben Bakhshi

I lease commercial real estate.  It is a very demanding job.  I get paid a salary (very minimal) and commission on the net aggregate of the deal.  It's super competitive too.  I do a lot of free marketing (craigslist, loopnet, etc.) and I reach out to the Brokerage community.  With the brokerage community, their commission is a lot higher (like 5 to 6%).  Your leasing agent that you hire has to have tough skin and the ability to market extensively.  In addition, I often do things to keep the current tenants happy / satisfied...things such as a monthly newsletter and an annual appreciation day.  Hope this helps and good luck.

Your ideas:

Idea 1 - You can set this up a number of ways. You can hire a firm to market your center.

www.boma.org

http://www.sior.com/

The firm can lease the center up. You sign a leasing agreement which is different from a management agreement. Key issues will be the total amount of commission and WHEN it is paid. For instance if the total commission is 6% then when is that paid?? Lease signing, lease rent commencement once build out is completed and place opens, as the lease progresses through the term of the primary lease period.

You can have all at once or a combo of above with certain amounts. You need to make sure the co-op offered to other firms are at least 3% and maybe 4% if the leasing brokerage filing up your center isn't doing the whole deal themselves.

For TI's you have to heavily vet the tenant. Free rent is preferable if the tenant is not a sure thing. This way you do not spend tons of money for the TI's and have them go out in 1 year etc.

Also leasing companies like to build in a re-up fee if the tenant does option renewals down the road. Try to eliminate that out. You could also have no leasing company and put up a sign that says call owner and "leasing brokers protected". This means if they bring you a tenant you will pay them etc.

Idea 2

Below market rents you go a little under current market to attract tenants and then move closer to market in the next few years. You also need to check existing tenants and make sure leases are at market or under market for what they are paying. If they are over market they likely will hit you up for a reduction or they will move to a cheaper place paying market rents.

Example the bank is selling to you at a 9 cap on current income but 40% of your tenants are fixing to roll on the leases. The rate they are paying is 20% above current market rates. You need to mark that income down to todays rate for your offer or below.

Idea 3 & 4

The crosswalks and signage you need to check on what is allowable and the cost. Certain tenants might have lease provisions where based on time they get the top spot. So there can be arguments among tenants as to how much exposure each business gets with the sign and the size etc. 

The other ideas are okay. I would worry about parking to tenant ratio. Doctors offices tend to have lots of parking needed and usually at the same time of the day. The bank is claiming 14 a sq ft but as you said is half empty. You have to look at other office complexes that are full and see what rate they are getting and is location comparable to yours.

A value add tenant for a professional medical complex might be someone like Quest Diagnostics...someone that does blood work.  Depends on the type of tenants in there now.

This is a strategy that I am thinking about doing for retail strip centers. I can buy some located in nice areas for $100 psf and aggressively cut the rent to get the thing leased up and over time as the tenants get comfortable in the location, push the rent up.

That's all I've got @Ben Bakhshi  .

Maybe during due diligence ask existing tenants if there's something missing nearby that they need.  Also ask them if they would use the crosswalk if you put one in because you'll probably need to hire an engineer for a traffic study to determine what type of signs/signals are needed for the crosswalks.

Coffee shops are always welcome if there isn't one around.

This post has been removed.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.