To lure lessees, try sprucing up the old place
When Kevin R. Barrett saw the abandoned Walmart on U.S. 13 in North Dover, he instantly recognized its potential.
“It’s across from a regional mall and a stone’s throw from the casino and racetrack and adjacent to a successful Sam’s Club,” said Barrett, a principal in KLNB of Towson, Md. “It’s not so much about the property being blighted, because we could tear the whole building down. There were attractive retailers who were not in the area and they wanted to come. Location, access and visibility are all conducive to success for retail.”
The front third of the Walmart building was razed for a parking lot. Next spring the rest of the site will be home to Petco, Ulta Beauty, Five Below, Shoe Carnival, Outback Steakhouse, Ross Dress for Less and OshKosh B’gosh-Carter’s.
It’s happening all over Delaware. Dozens of developers are giving their buildings makeovers to attract tenants. In New Castle County, the vacancy rate for newer Class A space is 10.3 percent and the rate for older Class B space is 22.8. Asking rents are $26.42 per square foot for Class A and $19.87 for Class B in Delaware’s northernmost county, according to Jackson Cross. In Dover, the current market rent for office space is about $15-$16 a square foot net, said Phil McGinnis of McGinnis Commercial Real Estate Co.
But what improvements are leasing gold? What commercial upgrades are the equivalent of a luxe new bathroom when you’re selling your house?
Curb appeal should be at the top of the list, said Rick Kingery of Collier’s International. “You need to get people in the door, right? So what can you do to change people’s mindset about the building? Its curb appeal. Its exterior. You’ve got to get them in the door before you can sell them anything. You’ve got to start from the outside and then work in.”
His example: Keystone Property Group put a new skin on its 19-floor office tower at 919 N. Market St. adjacent to the Hotel du Pont in the heart of Wilmington’s central business district. “They totally changed the exterior look,” Kingery said.
“The first impression is critical, ” said Kerry R. Haber, with the architectural firm of Bernardon. “Curb appeal is very critical. The most important thing is to look at your property in a holistic way. You want to look at the interior and exterior finishes and maintenance and, essentially, have a master plan for your building, rather than having a piecemeal approach, because everything you do affects something else in your building.”
Haber said the No. 1 complaint in the tenant world is the heating and air-conditioning system. “It goes without saying that you have to have a good, efficient heating and air-conditioning system before you have anything,” he said.
Maintenance is high on Haber’s list of essential repairs: “With older buildings, the materials can deteriorate over time, which is just natural, and it can allow water into the building. Once someone sees there is evidence of leaking, they’re not going to want to rent that building,” Haber said.
Welcoming exteriors and warmly lit lobbies woo tenants, Haber said. Many of Delaware’s older brick buildings can be renewed by just pressure-washing them, he said., and, if the exterior is not in good condition, it may be reclad with metal architectural panels for a contemporary look. The advantage: The panels are completely additive. All the work is done from the outside ,so there’s a minimal disturbances to the existing tenants and no relocation is necessary.
“Proper landscaping is one of the most cost-effective ways to transform a building and make sure that’s it’s interesting,” Haber said. “We actually find, in many buildings, the landscaping was planted at the proper size, but, over the years, it’s been allowed to become overgrown, and, in some cases, can hide a building. One of the worst advertisements you can have is to have your building hidden.”
Signage is important – inside and out. “Exterior signage is really important, Haber said. “The ability to have proper signage can be very important. For many tenants, their name on the building is very important.”
New efficient windows, natural light, new warmer lighting, wider upper-floor hallways, attractive bathrooms and well-tuned elevators are also on tenants’ wish lists. Kingery said tenants love Energy Star ratings and green features, but they usually don’t want to pay for them.
“You have to go back to who is your target tenant base and what would matter to them,” Kingery said.
Haber said some developers have more foresight than others, and they are the ones who will call before there’s an exodus. “These are people who have a fully leased building but will say, “˜I want to retain my clients. I know my building is getting older and I’d like to refresh it.’ “
Kingery said Brandywine Realty Trust, with one of the largest real estate portfolios in Delaware, routinely clears the walls and changes out lighting fixtures in buildings that sit for a substantial time.
Kingery said building owners will get the best bang for their bucks if they discern which tenants they are chasing before they start. “I think of it like this – you wouldn’t go on a safari and not know what you were hunting. You need to know what’s the best fit for your property because they’re the ones who are going to pay the highest number for it. If you don’t get the best fit, then you’re going to have to compete on price, and, when you compete on price, you end up losing because, if you do land a tenant, it is not at the numbers you need to be a profitable landlord, or as profitable as you could be if you had the right tenant.”
Increasingly, companies are willing to pay more to get the buildings that work best for their businesses and their employees, he said. “If the building is not ideal for your business, why are you going to go there? You have to be economically incentivized to be there,” he said.
KLNB’s Barrett said Delaware’s no-sales-tax status is a draw that makes properties here attractive compared with similar properties in New Jersey or Maryland, especially when you get close to the state’s borders.