Office Properties

Page 22

— Office Properties Quarterly — July 2015

Building Upkeep

n today’s real estate market,

many owners and investors are

looking for cost-effective ways

to create value from aging or

dated properties.With more

than 76 percent of Denver’s office

space built prior to 1985, along with

the forecast for 45,000 jobs to be

added this year, the outlook has never

been stronger for better use of these

buildings. Add soaring new construc-

tion costs to the equation and the

opportunity looks even more compel-

ling.With this abundance of older

inventory in our market, these proper-

ties are attractively priced, but many

investors are not aware of the options

available to update older construction

trends such as exposed aggregate,

unattractive brick or metal-panel sys-

tems that are nearing the end of their

life cycle.

In some cases, these properties do

not support the expense of a com-

plete façade replacement, and unless

investors are aware that there are

cost-effective renovation alternatives,

opportunities often are missed to

acquire or update a building that may

be easily improved to attract higher

lease rates or a better sales price.

If you are considering these types

of undervalued properties, look at a

variety of renovation ideas early in

the due diligence process and don’t

default to decades-old assumptions;

it could mean the difference between

profitable deals, overpaying or not

participating at all.

With advances in product technol-

ogy and the creativity of owners,

architects and contractors, we have

completed numerous projects that

transform a variety of properties. The

options available offer almost unlimit-

ed flexibility in terms of design, archi-

tectural enhance-

ment, color and tex-

tural updates, which

allows owners and

investors to better

compete with new

construction trends.

These alternatives

typically shorten

renovation cycles

and minimize dis-

ruptions, allowing

owners and tenants

to return to normal

operations faster

than traditional

methods. Bringing

a property from a Class D or C build-

ing to a Class B property or bring-

ing an aged Class A building back to

competitive form can be cost effective

and flexible.With rents rising from

5 to 8 percent last year and capital

remaining affordable, the market’s

aged inventory is attracting plenty

of attention, as evidenced by recent

transactions in Lakewood and in the

Highlands from NewYork and Califor-

nia investors.

One option to improve the look of

a older building is to paint or coat

exposed aggregate and unattractive

brick, which is a common look in our

market and dates to the 1970s and

1980s. Painting or coating does not

create maintenance issues. Further,

it can protect those surfaces from

dirt, water damage and more costly

repairs, while changing and updating

the look of the property.While this

may be contrary to what we used to

think, there is no reason to live with

dated or weathered properties that

are not marketable and to miss out on

acquisition opportunities.

We see an abundance of metal-

clad buildings in our market, which

often are recognized as the silver- or

black-finished office properties. The

properties present potential inves-

tors with sometimes deal-breaking

cost assumptions when it comes to

replacing the faded, weathered pan-

els, standing seam-metal roofs and

window mullions. However, there

are solutions, including field-applied

fluoropolymer coatings, such as PPG

Coraflon. These solutions, while not

cheap, can be a fraction of the cost of

replacement and provides a 30-year

durable finish to allow for design flex-

ibility. Because of this long lifespan,

these types of renovations may be

treated as a capital expenditure ver-

sus maintenance costs, allowing own-

ers to amortize the expense over time.

This is good news for owners and

investors who hold, acquired or

are considering buying these dated

properties, assuming that there were

limitations in terms of value poten-

tial.Whether the goal is to extend a

building’s life cycle, better position

an asset for resale or to move into a

more profitable leasing category, the

possibilities are much greater than in

previous cycles.

Unlocking value for improved investments

Jim Diaz

Business

development,

Denver Commercial

Coatings Inc.,

Denver

Photo courtesy Denver Commercial Coatings

The Petroleum Building after a metal

panel system update.

Property: 555 Zang St., Lakewood

Project: The 130,000-square-foot

office building, built in 1978, need-

ed to enhance the asset’s perfor-

mance and make repairs.

Updates:

• Aggregate panels repaired and

coated for a façade revitalization

and envelope improvement.

• Stucco finishes added for

design enhancement and repair.

• Gutter covers, metal detail and

crown moldings added to com-

plete the design update.

Property: The Petroleum Building

Project: The 197,000-sf Den-

ver office building, built in 1956,

needed an update and repairs.The

challenging extant building enve-

lope presented cost-prohibitive

recladding of the aging-ceramic-

panel skin.

Updates:

• Complete refinish of ceramic-

panel cladding, providing a cost-

effective alternative to replace-

ment.

•Trim and sealants repaired and

recoated for a clean, modernized

appearance.

•Windowmullions and design

features refinished to complete the

update and refresh storefronts.

Before and After