Buy Old, Create Young
EVERYTHING OLD…IS STILL OLD
Development is a great play for those who can handle multiple years of no cash flow and the real risk of 100% loss of their investment. Opportunity Zone investing helps lower capital gains taxes…but there needs to be dramatic success to ever get to that “lovely problem”!
For most real estate investors, the best mantra is “Buy old and repurpose for the young.” The downside of “old real estate” is that it is similar to our bodies as we age. We don’t suddenly just get “younger next year” without a consistent (and sometimes creative) investment of time and effort towards better.
WHERE TO BEGIN
Study your competition for what really drives their business… and not just for what they tout in their marketing.
a. Does a diving pool draw residents for an apartment, or is it just a costly liability?
b. Older office buildings, but with excess parking, may still only appeal to call centers, government service centers and other lower rental rate prospects (with heavy parking needs).
c. Salvation Army may do good in the community, but are they an ideal anchor tenant in a shopping center?
AND NOW FOR SOMETHING COMPLETELY DIFFERENT
Convert a little used pool to a skate board or paint ball park.
Create a state-of-the-art board room in otherwise dead space (e.g., basement area with no windows) for use by tenants for a nominal rate above free for twice/month use. If the space allows them to “show well” to prospects, they will pay up for future reservations…and their clients become advocates for your building.
Add pop-up stores at NON-Christmas times where what they sell is sufficiently unique to draw prospects for other tenants to the mall (e.g., an indoor farmer market).
Do you have tenants – lawyers, accountants, and insurance brokers - who benefit from startup businesses? Provide unleased space to a JV with the tenant, where they provide management, insurance, and utilities, and you split profit (if any). If nothing else, you now have a breeding ground for future tenants (as some of the startups grow to need their own office space).
Remove often broken fitness room equipment and offer yoga classes at 5:15 pm.
Churches have proven to be well matched with office buildings with empty space and available parking on Sunday morning and Wednesday evening. What other uses might be compatible for an owner of office/flex space? Parties hosted (outdoors) in the parking lot on a Friday night by a local brewery?
Add chairs in an empty shopping center space and allow local doctors to hold lectures for prospects (and hence lure prospective shoppers to your center).
Maybe that portion of the space set aside for the church which is not sacred (e.g. the pews) could be repurposed during the week for showing of independent movies?
Negotiate a “no joining rate” with the local gym and pay half of the monthly fee (e.g. it is only $15/month at Planet Fitness) for any tenant who pays their rent on time (teenagers will nudge their parents to pay on time so they can go to the gym).
Negotiate “free ice cream cone” or “discount on beer” …whatever will motivate tenants of any property to pay on time (even office managers need a little love to move your check to the top of the payment pile).
BOTTOM LINE. The world is becoming 24/7/365, and everybody seems to know everything about anything instantly (even if sometimes incredibly inaccurate). Owners of investment real estate need to become light on their feet and anticipate how they can profit from the “next new thing.” Tenant improvements will tend to have a shorter useful life (which may cause you to consider going for good rather than great and quick versus slow repurposing). And consider if you are your own worst enemy in your dealing with third-party property management and leasing. Are you demanding instant gratification when maybe a better path is to hear out their concerns about demand trends, which might suggest a different course of action.