Transwestern: Property Improvements Maximize ROI

Identifying the most valuable capital improvements and investing in relevant upgrades can give owners the highest return on investment, reported Transwestern, Houston.

“Occupiers are increasingly drawn to commercial property that reflects their brand and culture, sometimes called ‘statement space,’ and to amenities that attract and retain talent,” Transwestern Principal Reed Christianson and Vice President Erin Wendorf said in the company’s Net Your Maximum ROI by Implementing Popular Property Improvements report. “Organizations that see real estate as a strategic investment for their business seek the sort of cutting-edge environments that sway employment decisions across generations, and particularly for Millennials, which last year became the largest segment of the workforce.”

The authors cited British research firm Leesman’s report that Millennials are driving new approaches to collaboration space, building amenities, workplace flexibility and location vibrancy. “As a result, many companies are willing to pay significantly more for a ‘cool’ atmosphere that maximizes the tenant experience, fosters collaboration and inspires productivity and loyalty in employees,” they said.

For example, Shorenstein Properties’ 1.2-million-square-foot, three-building Washington Square project in downtown Minneapolis has outperformed expectations after a $20 million capital improvement program, Christianson and Wendorf noted. “At the 22-story 100 Washington Square, an LED-backlit staircase leads to a widened main entrance and new coffee shop, creating a pedestrian-friendly street-level presence,” the report said. “A modern grand staircase leads to the second-story main lobby level that connects to an eight-mile skyway system linking buildings throughout downtown Minneapolis. Several indoor and outdoor shared amenity spaces provide additional common areas for tenants that are leasing less square footage per person than in years past.”

Shorenstein Properties removed the ceiling on the fourth-level amenity floor to create a 14-foot high space with exposed ductwork and reclaimed wood walls, the report said. “An uninviting café that had long rows of sterile white tables was transformed into a more functional space with a variety of seating options to support a greater range of activity, from the formal to informal,” the authors said.

Outdoors, Shorenstein Properties converted an under-utilized plaza into a multi-purpose space with a coffee shop, bocce court and Zen garden with water feature, the authors said: “Extensive landscaping, LED lighting, Wi-Fi and electrical outlets throughout make the plaza both a ‘third workplace’ and a relaxation space. A comparable comprehensive transformation also is underway at 111 Washington Square, which was vacant before the work began.”

The authors said converting the older property into an urban campus environment “struck a chord with occupiers,” especially those in technology, finance, advertising and consulting. Occupancy increased from 81 to 93 percent at 100 Washington Square and from zero to 65 percent at 111 Washington Square during the first 16 months of renovation and net rental rates increased from $11.25 to $16.25 per square foot–30 percent above pro forma rents–they said. 

“While this return isn’t guaranteed for every modernization program, investors that offer a product addressing the latest needs and desires of today’s tenants are more likely to meet or exceed performance objectives and elevate their prominence in the market,” the authors said.