The Power of Positive Thinking
The right attitude can make all the difference in property potential.
As an attractive, new multifamily complex nears
completion, leasing agents begin to show the property to prospective tenants. While
several buildings lease up quickly, one structure remains completely vacant. A
survey of prospective tenants who viewed the property reveals that nothing is
inherently wrong with the apartment building. The problem lies with the view of
the run-down property next door.
This situation could occur in any U.S. market - no matter
how luxurious the accommodations or how low the rent, no one wants an
unattractive view. Commercial real estate professionals frequently encounter
such challenging scenarios. Although it's not possible for every project to
meet tenants' requirements, savvy professionals can equip themselves with
creative strategies to help alleviate a property's less-desirable qualities and
highlight the positive ones. "Sometimes you have to figure out what the
customer wants before they know what they want," says Jay D. Verro, CCIM,
vice president of Larkin Commercial Properties in Albany, N.Y.
Messy Neighbors Create Unappealing View
Photo caption: Despite attractive landscaping abd amenities, Jay D. Verro, CCIM, needed to come up with a creative marketing strategy tp lease up this Latham, N.Y., apartment building.
photo credit: Jay D. Verro, CCIM
Verro found himself in a predicament that required the
ability to anticipate potential needs when one building in a multifamily
complex was not gaining any tenants. "There was one building that, despite
all the others leasing up at a consistent pace, just was not moving," he
says. "Despite this building being shown repeatedly, my leasing agents
were always asked what other buildings were available."
The view of the neighboring property, a 20-year-old
multifamily building with "deferred maintenance and loose pets running
around," was the reason prospective tenants were choosing other buildings
in the development. It was clear that something creative needed to be done.
"The typical things, like putting up blinds or a fence, did not take away
the main obstacle," Verro says. Realizing there was little he could do
about the other property, he decided to approach the leasing problem from a
different angle to meet the owner's lease-up criteria.
"I went to the owner with a radical concept for the
time . I suggested that we designate that building as a no-smoking
building," Verro says. Since the building was new construction and had yet
to be occupied, Verro only had to convince the subcontractors working on it not
to smoke inside and the units could be declared nonsmoking.
"Although reluctant at first, the owner agreed to a
two-week trial period to run with the idea," he says. Verro placed
advertisements proclaiming the building smoke-free and soon "the prospects
came out of the woodwork to tour the building." For several tenants, a
no-smoking apartment outweighed the unattractive view. To ensure tenants kept
the building smoke-free, an amendment was added to the lease agreements stating
that the tenant chose to live in a smoke-free building and no guests were
allowed to smoke inside or around the units.
The plan was so effective that the two-week trial period
was all Verro needed to lease up the building. "I was very pleased to go
back to the owner and tell him we didn't need an extension on the ad
campaign," he says.
Odd Space Seeks Tenant
Photo caption: A walk-in bank vault was rehabbed and converted into a meeting space for coffee customers in the downtown Pittsburgh coffee shop that Diane Baer Yecko, CCIM, helped renovate.
photo credit: Diane Baer Yecko, CCIM
When Diane Baer Yecko, CCIM, a broker at BT Property
Associates in Pittsburgh, faced leasing out a space with an odd footprint in
the lobby of a 17-story, mixed-use office and retail property, she knew it
would be a challenge. Located in Pittsburgh's central business district, the
space previously housed a bank but had no street visibility. "The space
was completely raw. It had no heating, ventilation, air conditioning, or
electricity. It had an old granite and marble floor with a huge bank vault
located in the rear," she says.
Yecko initially decided that a coffee shop would be a
good tenant because it required a minimal build out. "The foot traffic is
3,000 before 9 a.m. I canvassed and searched for a local tenant," she
says. Yecko previously had worked with a national coffee chain but knew it
wouldn't be interested due to the lack of street access. But she heard about a
local government employee who was interested in owning a business and had the
connections and ability to handle rehabilitating the space into a coffee shop.
"I enjoy taking my own raw space and the risk and vision of pushing it.
This project was my baby," Yecko says. Because of her passion for the
project, Yecko provided $17,000 of her own money for the rehab. "The
concept was a success. The décor had a funky, uptown espresso house feel,"
But after the rehabilitation was complete, the coffee
shop ran into other problems. "The tenant couldn't wait out the cash-flow
issues of a new start-up. He couldn't handle the shop along with his government
position," she says. After nine months Yecko closed down the shop. The
tenant signed the leasehold back to Yecko and she agreed to release him from
his debts to her. "He never paid one dollar back," she says.
After losing her first tenant, Yecko searched for a
franchisee with a proven track record. "I now had the luxury of choosing
the best-fit user. The space showed beautifully due to the previous
rehabilitation," she says.
It took 15 days to find a new tenant, a coffee franchisee
with 17 years of experience. "I hit a home run. [The new tenant] loved the
20-foot ceilings, granite floors, and the large walk-in vault that her
customers use for morning meetings. She sells her own artwork and crafts along
with her fresh roasted coffee."
she lost money, Yecko remains positive about her experience. "I took a
$17,000 risk that paid off. My rent stream is 50 percent higher than it was
with the original tenant, and I received cash for a turn-key operation."
She has plans to re-create this success with a past-its-prime, 4,000-sf dollar
store also located in Pittsburgh's CBD. "I closed [the dollar store] up
for back rent. First I got a money judgment signed by them, and now I am
applying the same strategies [as I did with the coffee shop]. I want to clean
out the inventory, retrofit it for a service user, and hopefully get some money
back to start over again," she says.
PreservationGroups Want Discounted Price
Photo caption: Today the Pierson Farm, the site of a
particularly bloody Civil War battle in December 1862, is planted with
soy beans. While the barn was built after the battle, the small farm
house on the property may have existed in 1862.
photo credit: Alexander Long, CCIM
Buyers already were interested when a client brought a
100-year-old family farm to Alexander Long, CCIM, associate broker with
Weichert Realtors in Fredericksburg, Va., to market. The well-appointed,
industrial-zoned property sits adjacent to a Civil War battlefield park. For
years, Civil War preservation groups had shown interest in purchasing the
property, known locally as Pierson Farm, as it is the site of an 1862 Civil War
battle - an especially deadly fight during which an estimated 5,000 men were
killed, earning the farm the local nickname "Slaughter Pen."
Despite its location next to Fredericksburg and Spotsylvania
National Military Park, Pierson Farm was not protected by the government.
Unless Congress moved to place it within park boundaries, the military park
could not legally buy or accept the property as a donation, according to a
report in a local Fredericksburg newspaper.
In addition to its historical significance, the land
parcel has other defining characteristics. "It's one of the best
industrial properties [in the area] since it has excellent topography,
utilities including rail at site, and is open land with few wetlands,"
Long says. The land also is adjacent to a small airport.
Long's client wanted to sell the 207-acre tract at market
value, but also wanted to avoid battling with preservation groups. "The
Civil War groups had been trying to buy the property for years at below market
price. ... Usually these negotiations are hostile and negative. At the
beginning an effort was made to work with the preservationists but not to give
them control over the negotiation process," Long says.
Unwilling to sell the property for less than it was
worth, Long and his client actively marketed it to private developers through a
Web site. "We came very close to selling the property to a developer. At
the last minute, the preservationists came through with a better offer,"
The farm went on the market in December 2005 and in
February 2006, Tricord Cos., a local home developer that has worked to preserve
other regional battlefields, signed an agreement with the Civil War
Preservation Trust to purchase Pierson Farm for $12 million and sell most of it
to CWPT at cost. In June 2006, Tricord Cos. closed on the property and agreed
to turn it over to CWPT to be preserved with "no strings attached."
For more information on the arrangement between Tricord Cos. and CWPT, visit
Once Tricord Cos. became involved the deal moved along
quickly. "They brought to the table financial resources, a comprehensive
knowledge of the area, and the wherewithal to move quickly to take the property
off the market," according to CWPT.
Actively marketing the property to private developers
helped encourage the Civil War preservationists to work quickly to come up with
the funds to buy the property at a fair market price without causing an angry
confrontation. "We learned to keep emotion out of what can be an emotional
situation with regards to the historic claims and also the owner's attempt to
preserve value," Long says.
Luxury Property Has No Potential Tenants
A gated community with a fitness center, pools, tennis
courts, and 200 luxury apartments doesn't sound like a challenging property.
But when her company was hired to manage a Norman, Okla., multi-family
property, Edye Hahn, executive director of MaxCap Property Management in Salt
Lake City, learned the complex was only 54 percent occupied with 34 units
expected to vacate soon.
It became evident that there were several reasons the
class A apartment complex was not fully occupied. In Norman, which is home to
the University of Oklahoma, "Many of the apartment communities are student
housing and those that are not have a high percentage of students," Hahn
says. The luxury apartments, which feature crown molding and European
cabinetry, were too pricey for students. And the complex's location - on the
edge of town - is too far from Oklahoma City to make it an easy commute for
"We needed to do extensive research to even find out
who our prospects would be, where to find them, how to advertise to them, and
how we would fit into the market," Hahn says. While the primary objective
was to attract any traffic to the complex, Hahn also needed to find tenants
that would meet the luxury apartments' qualifying criteria.
Since both students and professionals make up large
portions of the area's demographic, Hahn sought out leasing agents that could
appeal to both. "I hired upper-graduate students to handle leasing. I
needed people who carried and conducted themselves in a professional manner
that would make prospects, whether student or adult, feel comfortable,"
The graduate students, who were involved in university
clubs and organizations, were in touch with what was happening on campus.
"We had to use every available resource to introduce ourselves to the
University of Oklahoma campus," she says. The students were well-equipped
for the challenge. "It was easy for [the students] to decide the
appropriate places for us to advertise or make connections where students,
parents, faculty, and staff would be made of aware of us. We advertised in every
campus publication and newspaper, and sponsored university activities."
With the campus life covered, Hahn turned to the rest of
the community with a massive marketing plan. They contacted local businesses
and other apartment complexes for referrals and corporations to see if the
property could help meet their corporate housing needs. "We paid personal
visits to the mayor, the police chief, and the economic development
corporation. We contacted relocation services and partnered with ReMax to offer
up to $4,000 in rental credit which would be applied to closing costs on home
purchases. We sent mass e-mails and sponsored Norman's annual Weather Festival
and a blood drive," she says. One of the most unusual ways Hahn found to
garner publicity was to invite the Norman Police Special Weapons and Tactics
team to use empty apartments in training exercises.
While all of the publicity, referrals, and advertising
drove traffic to the site, it didn't
necessarily add up to full occupancy. "A closer look at the market
rents indicated that we were still out of market. There was no doubt that what
the complex had to offer was worth the asking rents, but if no one could afford
them, they would sit vacant," Hahn says. To attract tenants, a one-time
rent concession was given to new occupants. We're banking on people falling in
love with the community and not wanting to move," Hahn says.
The renegade marketing and rent concessions paid off. A year after
MaxCap took over property management, "the property is full, rents have
been raised, and any notices to vacate are preleased," Hahn says. But the
company remains an active presence in the community. "We have not reduced
our marketing and advertising budget and have not reduced our qualifying
standards," she says.