A 100,000 sf building which was built in the 1970’s was built on top of a 5 story parking garage. The street level entrance sat 35’ back from the street up under the 2nd floor of the garage and was difficult to find unless you knew it was there. The building had not been updated in many years; however the submarket was one of the most desirable submarkets in the city. Therefore, rates in the building were significantly below the potential market. In addition, the owner of the office building (Cindy’s client) owned only the air rights. The street level of the building was owned by a TIC and there were 2 retail tenants occupying that floor. The TIC had paid too much for their first floor and had run out of money. There was a Reciprocal Operating Agreement which dictated that no additional office space could be created in the building without both parties’ agreement, but did allow for renovations to the building as long as the other party granted consent if it affected their portion of the property. The TIC owner had been difficult to deal with previously and, having no money it was anticipated they would continue to be difficult to deal with.
In order to reposition the building, it was critical to create a street presence and a sense of arrival. The building needed a traditional lobby with high end finishes to help it compete in the class A space in that market. Despite not owning the first floor, Cindy and her owner felt the capital improvement was necessary to achieve higher rental rates, improve occupancy and create value. Cindy orchestrated the creation of a design to bring the façade of the garage down to street level, thus enclosing the exterior “garden” space under the garage to make an entry and a lobby with guest seating. In doing so, the design created additional office space on that floor that the lower owner’s tenants could expand into. Although the lobby creation benefited the upper floor owner, the newly created office space benefited the lower owner and their tenants. Therefore Cindy asked the lower owner to participate in the cost of the renovation.
Despite the lower owner’s original written and verbal agreement to pay for approximately 40% of the cost, they later reneged on their agreement leaving the upper office owner to pay the entire cost. The benefit to the building and our repositioning strategy left us no choice but to continue with the renovation. However, Cindy anticipated that the first floor tenant would want to expand into the newly created office space and knew that when they did they would need the upper owner’s consent. When they did approach for our consent Cindy was able to negotiate compensation in the originally agreed upon amount. The improvements to the aesthetics of the building were striking and immediately yielded new leasing activity at improved rental rates. Furthermore, when a full floor tenant vacated the building a few years later, the office owner was able to release the space at almost $10.00/sf above what the previous tenant had been paying. Several years later, the building was sold at a price far in excess of the original purchase price and subsequent capital expenditures.
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