In the Akron/Canton real estate market, what’s old is new again. Many companies have taken a chance on a redeveloped older building and turned bad news into a great opportunity.
“When Lockheed Martin decided to increase efficiency by selling its building in Akron and leasing back a smaller portion for its operations, it left a big hole,” says Terry Coyne, SIOR, CCIM, an executive vice president with Grubb & Ellis. “But that opened up space for other companies, and there are as many jobs in that building now as there were when Lockheed was the sole tenant.”
Other examples are everywhere. Canal Place is a 12-building complex in downtown Akron that used to be headquarters for The B.F. Goodrich Company. These buildings, originally built in the early 1900s, have been thoroughly updated and now house seven communications companies and three computer software firms. More people work there today than when the former tenant was at its peak.
When Rubbermaid left its facility in Canton, two Northeast Ohio companies filled the building right away.
Smart Business spoke with Coyne about how to take advantage of redevelopment and what to watch for when considering an older building.
How can you take advantage of this?
If you are thinking about moving, these buildings are a great, inexpensive alternative to new construction. The people doing the redevelopment are bringing a product that is excellent quality and fantastic value. So the next time you hear that a company like Lockheed Martin is doing a sale/leaseback and opening up vacancy, it may not be great news in the short term, but it could provide inexpensive space for the next guy in. Pay attention to bad news because it really might be good news from a real estate perspective.
Why should companies consider buying or leasing space in a redeveloped building?
You wouldn’t build these buildings today, because they have amenities that are specific to a manufacturing world that has passed us by for competitive reasons, and because of today’s focus on efficiency.
These buildings have cranes that are hard to come by, floors that are thicker than would be built today, and power distributed throughout in a way that FirstEnergy wouldn’t be too eager to do. These are amenities that — from a replacement perspective — would destroy your budget. But rather than being scrapped, people are taking the risk on redeveloping them.
As a result, they are giving great rates with plenty of amenities and tons of outdoor parking. It’s a built-in infrastructure that supports a lot more than you would ever need at a price you could never touch.
What concerns should potential tenants have before moving forward with this type of project?
Because of the age of the buildings, you need to be more diligent at the beginning. Try to shift the burden of physical maintenance — building, wall, structure, power, anything not specific to your operation —to your landlord, who is the expert in that business. Sometimes the landlord will ask you to maintain part of a building, and with these older ones I wouldn’t take that risk. The reason why they offer some amenities is because it would be very expensive to replace them. If the landlord asks you to maintain a big-ticket item that you wouldn’t normally see, like a transformer, say no. It could cost you in the tens of thousands of dollars to replace.
Also, a new building will have higher ceiling heights and bigger column widths which allow you to store products more efficiently. Many older buildings have lower ceilings and tighter columns. So you’ll be paying less, but you might need more square feet. If you are a manufacturing company that is not worried about ceiling height, then it’s no problem. However, if you are a distribution company, you need to figure out your cubic space requirement. This isn’t just floor space, but how high you can stack products, which is important if you are looking at converting old manufacturing buildings to distribution buildings.
Another issue to consider is the rate. Don’t just say, ‘Well for $1 per square foot, I can buy as much as I want.’ Be careful that you don’t get lulled into just looking at the lease rate and buying three times what you need. If you do it right, it should be a great deal, but these are questions you have to ask yourself before moving forward.
What about environmental issues with older buildings?
Whether you are buying or leasing, you should be much more aware of environmental issues. A lot of these buildings will have toxic substances like PCBs (polychlorinated biphenyls) in their transformers. That, along with asbestos, is a common issue you will see in old manufacturing buildings that you would never see in a greenfield development. So you want to be much more aware of the environmental issues, but don’t be afraid of them. You have to have your eyes open. These are manageable issues; they just are issues you have to deal with up front.
If a building has an environmental issue, it’s not the end of the world. It could be an opportunity to make money as long as you get the right environmental consultant to manage it. So often the average guy looks at it and says, ‘No way, I won’t even consider it.’ That’s not smart. There are experts in the environmental field who can help you manage around it and as a result, you can get a good deal. Don’t just run away; you could be running away from a good opportunity.
Terry Coyne, SIOR, CCIM, is an executive vice president with Grubb & Ellis. Reach him at email@example.com or (216) 453-3001.