Office Building Renovation Checklist: Everything You Need to Know

Feldman Equities owns and operates large-scale high-rise office buildings located on the West coast of Florida. For Feldman, a renovation which results in a B+ isn’t good enough. Our goal is to bring every building we on up to a “Class A” condition.

Our theory of renovations is based upon what we believe is an overall winning strategy with respect to business in general. Our overriding policy on everything we do is to give the customer more than the customer expects.  When a customer is surprised by getting more than they expect, the impact is that they feel obligated to tell friends about what a deal they got and this is what results in our expansion.

Our renovation strategy follows this philosophy. Before we close on the purchase of a building that might be in a “B” condition, we analyze what the cost will be to bring the building to a “Class A” condition. We will not purchase the building if we don’t believe those economics are feasible.’’

Many office landlords that acquire a building, prefer to keep spending low and don’t necessarily have the commitment to bring the building all the way up in quality. Our view is that when we go the extra mile to “surprise on the upside”, the brokerage and tenant community respond with bringing us new prospects and lease renewals and expansions.

An added bonus to bringing up our quality of buildings is that we can make them more liquid if we elect to sell the property. Many institutional buyers will not buy a Class B building. When we bring the building up to Class A condition, we make it more desirable to be purchased by an insurance company or similar institution.

Related: An Introduction to Office Building Investing

Steps for a Commercial Building Renovation

Park Tower / Tampa, FL

Let’s break down exactly what steps go into a commercial building renovation, including Feldman Equities’ ten-point checklist.

A commercial renovation consists of two parts:

  • Capital Improvements: Beautifying the building itself. This typically includes the lobbies, the main restrooms, any exterior work, and any common-area or exterior lighting work. Even more importantly, we establish the longest list possible of amenities which will improve the lives of our tenants. Such amenities include very high-end fitness centers, first-class common conference rooms, 24/7 chill zones with soft seating, Wi-Fi and laptop bars, car detailing, shoeshine, concierge service, etc.
  • Tenant Improvements: Commercial office units usually don’t come pre-built with fixtures, walls and finishes the way apartments or houses do. The tenants usually get a bare box that they then upgrade to their own specifications. Interestingly, over the last 10 years we have made significant revisions to this “conventional wisdom”. When we buy an existing building, we often find raw tenant spaces that either have never been built out or have very dated build outs which include old lighting, old carpeting, wall configurations that are dated, etc. When we renovate a building, one of our most important budget items is to make all of the vacant spaces much more marketable by either pre-building the space or changing all of the finishes to the space to bring it up to a very modern look.

Incidentally, we refer to tenant improvements as “TI” and we refer to capital expenditures as “CapEx”.

One of the challenges that we deal with when we renovate our building is the potential disruption to the daily operation of the building. Existing tenants have to be sold on the value of the renovation plan. Even then, after months of exposed insulation and adhesive odors, expect to be pointedly asked: “How much longer will this take?!”. To help assuage this situation, we communicate often with our existing tenants showing them the beautiful renderings of the way the building will look post-renovation and we give them a heads up in advance about potential disruption.

How long does it take to renovate a commercial building?

Fair question. Like so many big questions, the answer is “It depends.”

Depending on the detail, the scope, and the traits we select, a commercial building renovation can take anywhere from 6 months to complete, all the way up to a year or more. The lead time required to procure materials can have a big impact. When you expect to receive your building materials matters almost as much as how much they will cost and how you intend to install them.

One of the ways that we deal with this is to order the “long lead” items very early in the process. You don’t want to start construction, tear up a lobby or staircase, and discover that you have to press pause and wait for components to arrive because you got the timing wrong.

This is especially true of A+ renovations that use premium materials. The rarity of the materials doesn’t just drive up the cost and increase the appeal of the property—these materials take a long time to find because they are rare!

In one of our projects, we selected a beautiful ten-foot-by-five-foot Carrera Italian tile—very large slabs, coordinated with each other with matching veins. At one point, we spent at least three months just waiting for the tile. It had to be imported from Italy. The whole project was dependent on this long lead item.

You don’t want to start construction in certain areas until you know that these materials will be on-site. This is to minimize the impact on the building and the existing tenants. The final product is beautiful and glamorous. The process is not.

Related: What are Typical Commercial Property Real Estate Management Fees?

Why is renovating a commercial building important?

A commercial building will not fill up, nor will it command high lease rates, if it is out of date. This is especially true of downtown high-rises, but it applies everywhere. You have to know your target tenant, and then you want to surprise them above their level of highest expectation.

More and more, we find that our tenants are smart, sophisticated tech industry professionals. Tech companies are one of the fastest growing consumers of office space. The staff that they hire are earning very high wages and may have worked for companies like Google, or Microsoft. They’re Millennials, and they don’t want to work in Dad’s boring office. They want to have cool spaces. Many of them decide where to work based on how “cool” the office looks.

We renovate every commercial building we buy, so we can:

  • Increase prospect traffic.Prospective tenants always want to check out the shiny new office cutting its ribbon downtown. This increased traffic leads to increased demand for a limited supply of units, driving up our price per square foot and keeping occupancy high.
  • Streamline operations with the most cutting-edge office-building productivity hardware, software, and “internet of things” (IoT) gadgets. We want the building to be “user-friendly,” both for tenants and visitors.
  • Accommodate new equipment, including upgraded Internet systems and building Wi-Fi.
  • Increase energy efficiency. Decreasing energy use lowers operating expenses, increasing net operating income and the value of the property. Tax offsets may also apply to green buildings, driving up cash flow even more.

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Commercial Building Renovation Checklist

Castille at Carillon / Tampa, FL

The following ten phases inform every commercial building renovation project we take on. Here’s our checklist, followed by a detailed discussion of each item as they relate to our experience:

  1. Planning: What is the end goal? Who are our target tenants and what do they want? Are they traditional? Tech-leaning or traditional law and finance? Think about the architecture of the building and its surroundings, how it could impact the city or that specific area of town. Always think about how to maximize the experience of the tenants with the street and the immediate neighborhood.

Our tenants are looking to commingle, share experiences, and work with each other in a fun, dynamic, and productive workspace. Therefore, we want to incorporate collaborative spaces in our building where people can congregate and socialize. We also provide spaces where tenants can retreat from the hubbub of the workplace in private discrete areas.

One of the most important aspects of all of our renovations involve thinking about what a prospective tenant or visitor to the building sees from the moment they park their car to the moment that they arrive into the lobby of the building.  We think about every surface (vertical or horizontal) that they will see as they transit the lobby and get into an elevator.

We continue to focus on what the arrival sequence will look like when the perspective tenant or visitor arrives at the elevator landing on the particular floor they are visiting and the corridors that they walk-through to arrive at a particular tenant space. We refer to all of this visual experience as “psychography”, which literally means what the mind reads.

Another major part of the planning process is to assemble your team, which would include our lead architect and leasing and marketing personnel which will have input in the final design.

We will also want to carefully survey our tenants to find out what is needed and wanted before beginning the planning process.

  1. Conceptual Design: Next, we sit down with our architect to create a conceptual design. Sometimes we can be found guilty of telling the architect not to focus on a budget. We want to get the best that they can offer. When you give somebody a budget, you don’t allow their thinking and creative juices to flow freely. Our first pass ignores costs because we want to come up with a creative design that incorporates design, beauty, and efficiency.
  2. Schematic Design: The schematic phase goes into more detail: what finishes do we put in the main lobby? We focus heavily on which amenities we want to add to the building. Do we add a cafe? Fitness center? Bicycle rack? Carwash? Etc.

We zero in on the pricing for the project. This inevitably means scaling down some items from the “in-our-dreams” conceptual design phase.

During the schematic design phase, the budget comes into play. We zero in on the pricing for the project. This inevitably means scaling down some items from the “in-our-dreams” conceptual design phase.

Once these ideas are refined, we establish a budget and coordinate with company finance to determine the feasibility of the proposed renovation. The best ideas from the initial brainstorming sessions are brought into budget as close to their original concepts as possible.

City Center / St. Petersburg, FL

  1. Construction drawings (CDs): Once the schematic design is approved, we proceed to convert the initial schematic design into construction drawings with which the project can actually be built.
  1. 5. Mechanical, Electrical, and Plumbing (MEP): It’s now time to address critical building systems and the thorny knot of code compliance burdens they carry with them.

Vintage buildings from the ’70s, ’80s, or earlier must be brought up to code. Depending on the level of renovation, the Americans with Disabilities Act (ADA) may apply. The renovation may trigger other new codes that we have to comply with.

Sometimes, the cost of MEP upgrades can be equal to or more expensive than the cosmetic upgrades. Things that tenants don’t see can cost more than the fancy chandelier that they do see in the lobby. We have done extensive modernization to the elevator systems in almost all the buildings that we have renovated.

  1. Bidding Process for General Contractors: Now that we have a plan for the cosmetic and mechanical upgrades, we send the CDs to three or four general contractors in the area. They must be large enough to take on these kinds of projects. We get hard bids, then do a bid comparison.

Sometimes we agree to a guaranteed maximum price (GMP), or a “cost-plus” arrangement (cost of materials and labor plus a percentage markup for the contractor). We typically use an American Institute of Architects (AIA) standard contract, which is quite robust and protects both the contractor and us. AIA contracts also work particularly well for tenant improvements.

We bid the project and select the right contractors for the project. During this bidding process, “value engineering” “(VE) changes are sometimes made to the drawings to find more cost-effective options that do not diminish the creative designs, which were initiated at the schematic level.

  1. Scheduling: Obviously, we want to complete our renovations in a timely manner. This is critical because the loss of rental income from vacant space is extremely costly. In order to achieve the goal of on-time construction, we lay out a detailed construction schedule. The delivery dates of the so-called “long lead items” are shown on the schedule. The schedule also determines the final construction cost because longer duration projects mean more labor costs.

We also use the schedule as a tool to inform our current tenants of the renovation project, and as a marketing tool to build excitement for prospective tenants. Sometimes, by the time the lease starts, they’ll have a brand-new lobby, a brand-new fitness center, a brand-new cafe, etc.

  1. Procurement: As mentioned before, the procurement of materials requires precise timing because we won’t start construction before the necessary items arrive. The schedule created in Step 7 helps a great deal.

Our general contractor will make all the necessary purchases. All the labor, materials, and equipment should be lined up and ready to go. We make sure to ask to see the purchase orders as these should reflect products that correspond to your set specifications and all initially agreed-upon prices. We work hard to avoid oversights, because product and material details can quickly add up in commercial projects.

  1. Construction:

The planning and pre-construction phase is finally over. It’s time to get out the sledgehammers and nail guns. The construction phase may encompass improvements to:

  • We believe strongly in the psychological advantage of starting with the lobby. Even if the rest of the building is outdated or in tatters, guests who walk into a sparkling lobby get hit with an instant “wow” factor.
  • When a prospective tenant or visitor is thinking about the quality of a building they are visiting, they will look around at the walls and the floors of the elevator cab. Because of this, we always upgrade the elevator cabs to a very high-end finish.
  • Restrooms. These can often get overlooked, but a beautiful, clean, inviting restroom can transform a building. We spent a lot of time thinking about the lighting and cleanliness of our bathrooms in pride ourselves on having the best office bathrooms in town.

Park Tower / Tampa, FL

  • One of the items that we have recently discovered has a huge impact on the value of our office building is the quality of the main entrance doors. We recently installed a high-tech glass door system in our Park Tower building in downtown Tampa. These glass doors are 9 feet tall with large modern stainless-steel handles. This is the kind of door you might see at the entrance to a Microsoft headquarters.
  • The same space with different lighting often looks completely different. Upgraded lighting is a big part of every renovation project we take on. In recent years we have learned that new LED lighting with a very high Kelvin rating can simulate natural sunlight. This transforms offices and lobbies into much more modern looking areas.
  • Landscaping and Exterior. Because we buy downtown high-rises, we are often contributing to the hardscape of the downtown district, which is a great feeling and a responsibility that we take very seriously.
  • Tenant Engagement. Now things get delicate. We inform the existing tenants of our plan. We typically create beautiful renderings of the final product, so when a tenant walks by a torn-up lobby, they can visualize themselves walking through the final product. We tell them “I know this is going to be a difficult time, but if you stick with us, you’re going to end up with such a beautiful building that every visiting client will compliment you. Some tenants may even wonder how you can afford rent in such a beautiful building!”

The key to success of every construction job is the art of prediction. Predicting such things as when materials will arrive to the site or when men are available for the next task, is the “choreography of construction”.

  1. Tenant Improvements

Tenants typically have a lot of leeway for the improvements they make to a commercial leasehold property. However, we generally prefer that tenant improvements (TI), should complement our own renovation plan. We don’t want a tenant build-out to like Versailles while we’re aping Apple Cupertino in the lobby.

With respect to the vacant spaces, we make them much more marketable by either pre-building the space with a very modern wall layout. If we elect not to demolish the existing walls, we will bring all of the finishes of the space up to a very modern look. This will likely include all new modern LED lighting, new carpeting, all-glass walls, some open ceilings that give extra height to the space, new modern glass entry doors, etc.

Conclusion

City Center / St. Petersburg, FL

Commercial building renovation is a massive undertaking. For the uninitiated, it can seem overwhelming. However, with the right system, realistic expectations, and the necessary budget, it is doable. Here at Feldman we have a world class team that has decades of experience and a track record of success.

Our commercial real estate investments succeed when we exceed the expectations of exacting tenants, fostering long and fruitful relationships with the professionals who attach their businesses to ours. High renovation standards help us reach that goal, allowing us to add value for our tenants, achieve consistent occupancy at premium rental rates, and if we so elect, make the building much more attractive for the next buyer.

Santiago Bartolome – Executed Vice President of Development and Construction wrote this article.

Related: The Ideal Holding Periods for a Real Estate Investment

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