Value Add techniques for older flex/industrial spaces?

[Jason Turgeon]

Here in Boston, we have a fair number of older warehouse/light industrial spaces in the 5000 - 25,000 sf range. They tend to be in sort of gritty neighborhoods, not necessarily unsafe but not super appealing to retail business or banks or high end offices. And they tend to have fairly limited parking, since we're in a dense urban area. I see these regularly on loopnet (I know, I know, but there aren't great places to look for commercial deals late at night with a beer).

Here are couple of examples, chosen more or less at random: 

https://www.loopnet.com/Listin...

https://www.loopnet.com/Listin...

These are intriguing to me. I don't want to get into the development game, tearing down old buildings and building new ones. Way too hard in Boston. But I have been thinking that maybe there's a way to get some of these and do some value add to them to make them more attractive to tenants and get a higher rent, thus boosting my equity. BRRRR, but not for residential.

I have a pretty good handle on what improvements add value to a residential property and how much those will cost. But I am less sure of what prospective tenants in this type of space want and how much to budget for those improvements. 

So what are your favorite ways to increase the value/rents of this kind of small class C space? I can't fix the locations or add parking. But I can paint exteriors, dress up the landscaping, restripe the parking area, upgrade electrical and lighting and HVAC, add or subtract windows and doors, put down epoxy flooring, freshen up tired office spaces and restrooms, etc. However, I only want to do this if it will pay off in higher rents. 

In your experience, does any of this stuff make a difference? Is there some thing or set of things that tenants really want in this kind of space?

[Andrew Tripp]

So, working on getting one of these types of deals under contract right now. We have a seller/user who is vacating to a larger building. And we are going to put a good amount of money into the space to get it back to market at an achieveable rate. And then re-fi out at some point after stabilization (probably Year 4 or so). Our basic redevelopment thesis is taking the building from a single tenant to a multi-tenant setup because it has four units separately metered and rough plumbing/HVAC for four offices. The value adds break down into exterior and interior. On the exterior, we're doing a facade facelift, monument signage, parking lot repairs, minor restoration of the dock aprons and some minor tuckpointing. On a psf basis, these aren't bankbreakers and make the property look more modern (i.e. curb appeal). On the interior, we're putting in sprinklers, HVAC upgrades, possibly electrical upgrades to support heavier power users and doing new office buildouts. The roof also needs work, but not a tear-off. Candidly, we're still wrestling with scope/cost as we speak, and I would call it a moderate rehab. Now, I should mention that we also are applying for a pretty lucrative property tax incentive that we are eligible for here locally for doing all this rehab work. So its worth it to the projected stabilized NOI, and the deal really doesn't work without the incentive. Not sure if there is something comparable in your market?

This is just an example.  What kinds of improvements attract tenants the size you are shooting for is going to be very market specific, so the starting point is a good broker who is very familiar with all the inventory in that particular submarket.  

Happy to discuss further offline!  Good luck, this type of investment is fun and challenging.