Adams principal: upgrading properties improves tenancy - investment in upgrades and improvements is key - Brief Article

There is no better way to assure that a building is the most attractive on the market than to put capital investment into upgrades and improvements.

During the height of the real estate market, Adams & Company, serving as' leasing and managing agent, was responsible for $20 million in building improvements. Now, while the citywide commercial vacancy rate is 12% to 14%, these buildings enjoy an approximately 2.5% vacancy rate. Also the rents are higher than they were four years ago.

The most conspicuous type of improvement is to physical space, including the lobby, elevators and windows. But often the unseen upgrades are just as valuable. Installing a new electrical system and fiber optic and communication wiring can open your building to a whole new type of tenant who requires high-power systems.

How do you know if the 'juice is worth the squeeze?" To determine whether improvements are cost effective we analyze each of our properties and decide which ones need upgrading most and where within the building to start.

For example, we determined that a major renovation was justified for 1115 Broadway to give it a proper presence on its up-and-coming Broadway location at the corner of 25th Street. The lobby, the first thing people see, was too small to attract the sort of tenants we thought the location and building deserved.

We vacated a wholesale/retail novelty shop on the ground floor and demolished the store and lobby, which we replaced with a larger, more elegant one. We leased ground-floor space to rapper Jay-Z for an upscale restaurant! lounge, which, as restaurants often do, will attract higher-end retailers for the stores, provide a cleaner look and upgrade the tenancy for the building. We also recommended the installation of new storefronts, which has a similar effect.

As all of the buildings we represent are pre-war, many of them pre-WWI, there are always improvements to be made, and ways to increase earning potential. With 110 West 40th St., we had an old, tired and worn-out building with small tenants at a phenomenal location. At the height of the market, around 2000, we were getting around $26 to $27 per SF and figured it was time for the ownership to start putting money back into the building. Prior to that we were in the $16 to $17 per SF range.

On behalf of the ownership we replaced the lobby, elevators, bathroom and hallways and put in all-new stores and storefronts. Now we are getting $28 a SF.

If we hadn't done the work we'd probably be back in the $17 a foot range. But most important, in this difficult market the building is 99% occupied.

Restoring several buildings in an area can reposition the entire neighborhood in the marketplace, attracting a higher echelon of tenant and bigger rents. One such neighborhood is the Fashion Center, once the exclusive domain of companies like Donna Karan, Calvin Klein and Tommy Hilfiger.

The Fashion Center BID began a campaign to improve services in the area and make it an attractive destination for New Yorkers and tourists. Adams & Company, which has a particularly strong presence in the neighborhood, followed suit, upgrading interiors, refurbishing lobbies, modernizing elevators and other systems, and installing new windows in the buildings we manage.

As a result, these buildings attract law, entertainment, advertising, public relations, architecture and other traditionally Midtown tenants, in addition to the apparel and accessory companies. Buildings in the Fashion District are commanding as much as $30 a SF, and are filling up.

By reinvesting in the infrastructure and appearance of these buildings, the entire neighborhood becomes more desirable, and even the "B" and "C"-class buildings get better tenants and higher prices. And this lifts the real estate market in New York City as a whole:

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