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Stop, Look - and Listen
The five most important improvements you can make after purchasing a distressed building
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Business New Haven
3/23/1998
By: Martin F. Schwager
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When a firm purchases a distressed commercial building, there is typically plenty to do. But what should you do first - and what can wait?
My first piece of advice is this: Don't do anything until you get to know your tenants and find out what's on their minds.
If a building has been neglected, a management company needs to be more aggressive than if the building has been a successful commercial venture. In a distressed project, building managers must put their initial investment of time and resources into safety and mechanical systems.
Here are the problem areas our company usually tackles when we take over a distressed building, in the order of their importance:
1. Safety systems. Because these are centered around life safety, they should be the highest priority, especially in a building that has had problems. Safety systems include fire alarms, sprinklers, public address, emergency lighting, exhaust fans, stairwells (with special attention to any lighting problems). This is where a building manager and owner have their greatest liability exposure.
2. Mechanical systems. Of equal importance is making sure that the building's environmental systems are acceptable and efficient. If the building has had financial problems in the past, there is a good possibility these systems have been ignored. We include in this category proper air flow, as well as the amount of fresh air coming into building. Electrical systems also fall into this category. They include wiring, panels, lighting, computer circuits and elevators. The roof and windows are also considered part of a building's mechanical systems.
3. Tenant-related concerns. These areas involve the aesthetics of a building and whether it is livable for tenants. They include tenant access to common areas, the configuration of hallways, décor, signage, lighting in common areas and heat and cold distribution within offices. I can't tell you the number of times when all it took was a few lights or an adjustment to the HVAC system to turn an unhappy long-term tenant into a cheerleader for the building.
4. ADA compliance. The requirements of the Americans with Disabilities Act have received a lot of attention in recent years. That may cause new building managers to think they should be addressed first. Not necessarily. You must show intent and a plan to address areas that do not meet these requirements. Some ADA issues - handicapped spaces in the parking lot, access to the building, public phone locations, elevator controls and bathroom fixtures - must be addressed quickly.
5. Change image of building. Building managers and owners often mistakenly give this area the highest priority when taking over a building. We suggest holding off on these common-area improvements until the first four areas are adequately addressed. Updating the bathroom also has a tremendous impact on tenants' impressions of the building. Proper venting, new fixtures and contemporary flooring and wall treatments can have instant impact on tenant morale.
Turning around the image of a distressed property takes time and money. But most importantly, it takes an ability to hear and respond to tenant needs. Resist the urge to change for change's sake. BNH
Martin F. Schwager, RPA is an asset manager for CPManagement, a full service real estate management firm, that provides real estate services to institutional, corporate, governmental agencies and individual investors. CPManagement has offices in Hartford and Merrimack, N.H.
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