Suburban office buildings remain many investors primary acquisition target.
These investors reason that a suburban office building will almost always be a good buy. Careful choices must be made, as there must be a demand for office space in the area and a gradual increase can be made in rents. The long-term demand for office space looks good.
Suburban vs. Downtown
Suburban office markets has outpaced downtown markets because the suburban markets have the advantage of lower cost of land and the economic feasibility of constructing smaller buildings. Consequently, the national suburban office vacancy rate has decreased.
The Overbuilt Property
When an investment property is located in an overbuilt area, the marketing effort must have good planning and direction. Just throwing large amounts of money into advertising can be a waste. Rather than broad advertising, a more direct action is required by keeping the local brokers who specialize in leasing constantly updated about the amenities of a certain property. This may be the best way to make it more marketable.
Here are some other ideas:
• Choose the management company carefully. The agency must be professional enough to give service as exclusively as if this building was the only property represented. They must truly know the unique benefits of this building and must be enthusiastic about it.
• The outside appearance and landscaping must be first rate. Before anyone can see the inside, they see the outside and it has to be inviting.
• Stay away from quick fixes, The professional approach is to stress the positive features of a building and work with potential tenants to match the criteria the tenant feels are most important to him.
• Contact all tenants in nearby buildings and invite them to compare this building to their current location. There are always some who are nearing the end of their lease.
• The management company must use imagination and do unconventional things to periodically get the building into the spotlight.
The Older Building
When you look around a community, you will usually find a number of properties that need to be upgraded. Investing in an older building, with the plan to bring it up to date for an increased return on the investment, must be examined carefully. This is where an experienced building inspector is needed.
Some existing owners do not recognize the increased return that they could get or do not want to make the necessary investment. Often these buildings can be acquired at a price that reflects the return based on the current condition and income.
Here are some things to consider before the purchase:
• When a building is quite old, structural changes may be needed for safety reasons. Before you purchase the building, a professional engineer should make an inspection. This can determine whether the building is structurally sound and what changes, if any, will have to be made. Is the expense of these changes in your budget?
• Functional changes and mechanical replacements can reduce costs in an old building and increase efficiency. Look at the wiring–will it need to be replaced to provide safety for modern electrical and computer equipment.
• Old heating and air condition systems will usually be inefficient and cause high maintenance costs, and should be replaced.
• Aesthetic improvements as simple as sprucing up of the property can usually be done at a relatively little cost. When an investor is looking for a quick resale, this type of improvement may be done rather than some of the others. Cleaning up the property, inside and outside, adding new landscaping, installing new flooring inside, installing new lighting and repainting the building inside and outside can be enough sometimes to make a quick, nice profit.
When an investor is looking for the proper investment, older commercial buildings in good neighborhoods often look better for a long-term commitment than new construction. When a property is modernized, rents can be raised substantially.
