Making outdated Class B and C office buildings ‘relevant’

By Liz Wolf

Landlords of functionally obsolete Class B and C office buildings are looking for ways to differentiate their product; one way is undertaking cosmetic overhauls to appeal to creative companies.

Twin Cities brokers and developers say it’s important to invest some capital to update these buildings to make them relevant in today’s changing office market.

 “If you don’t continually invest in your building, keep it relevant, keep it in the light and keep it something that’s desirable, at some point you’re going to end up paying a penalty for that by not having a full building... or by having to sink really large amounts of money into your building to make it functional again,” says Scott Tankenoff, managing partner at Minneapolis-based Hillcrest Development.

Also, amenities are key to appealing to today’s firms.

“We have to provide the amenities and type of space that people will say, ‘Wow, not only do we want to be here, but our employees want to be here, and I can use this space to attract the right employees and retain them,’” Tankenoff says.

Here are examples of local repositioned properties:

Pentagon Park at Highway 100 and I-494 in Edina (renamed The Link). Hillcrest acquired this outdated 700,000-square-foot, 15-building campus and is transforming it into hip, funky office space targeting Millenials.

“Pentagon Park is an amazing location with these really tired structures that had not been invested in for a really long time,” Tankenoff says. “So they really were dilapidated; they were blighted.”

Hillcrest razed many of the more visible buildings facing Highway 100 and renovated six other buildings – taking non-functional space and creating funky, trendy space by exposing ceilings, creating more light and replacing tired carpet and color schemes.

“We’ve stabilized six buildings totaling just over 300,000 square feet and we’re at around 90 percent occupied,” Tankenoff says. “We redid all the common areas… The buildings were predominantly vacant. We redid all the tenant spaces, updated all of the mechanical, all of the roofing. We redid the parking lots and landscaping, and added a variety of amenities like bike storage [for employees using alternative transportation]… We really tried to make it relevant.” He says they made the buildings fun and edgy, and put in a lot of glass.

“We did things that people weren’t doing in suburban locations,” Tankenoff says, adding that firms today are looking for space that will attract and retain employees, provide amenities and services, and allow people to recreate.

“For some people, recreating might be a gym; for others it might be being adjacent to a park and trail system, to be able to get on your bike and shower at your building,” he says. 

Hillcrest’s master plan for The Link calls for more than 1 million square feet of new office space, some retail, parking and open space integrated with an adjacent park that will be formed from the now-closed Fred Richards Golf Course. The city also wants some housing on the site, which Hillcrest is investigating. Bloomington-based Cushman & Wakefield/NorthMarq will market and lease the new office space.

Tankenoff says the new offices will have the same type of “relevancies and amenities” as the renovated buildings.

Wirth Corporate Center in Golden Valley  

“Taking functionally obsolete B and C buildings and finding ways to differentiate them is certainly a trend that we’ve been following and something we’ve been encouraging landlords to take a look at,” says Steve Shepard, vice president of office brokerage at Colliers International, Minneapolis-St. Paul office.

One example is the 75,000-square-foot Wirth Corporate Center, which M.A. Mortenson owns and Shepard leases. Shepard says it’s just minutes from Minneapolis’ “incredibly hot North Loop where users have basically run out of office space. This is kind of the next building out on the Highway 55 corridor,” he says.

Shepard says before the renovation, it was a Class B building that had no real character; it was dark with a cold interior.

“It had a lot of grays and blues that felt like outdated ‘80s financial space,” Shepard says. “What Mortenson has done is put in a new lobby, new common corridor areas, really taken out all of the grays and blues and darkness and exposed the ceilings in some areas. They have a polished concrete floor just to give it a little more edge. There’s also strategic use of internal glass to make the area seem more open and brighter.”

Shepard said while it’s not warehouse district-type space, it has a finished quality that can appeal to tech companies and creative companies, which are really being driven by the Millenial workforce.

Prior to the overhaul, the building had one 3,500-square-foot tenant, and within the next month it should be 98 percent leased.

Like Tankenoff, Shepard encourages landlords to provide an amenity package.

“A lot of the workforce now – whether Millenials or otherwise – wants convenience next to their workplace,” he says. “We had a lot of interior, old windowless space and transformed that into a self-serve cafeteria with fresh foods refreshed daily. We added a 2,000-square-foot fitness center. All open spaces are connected to the Wi-Fi with comfortable seating areas for informal break-out meetings. There’s a training center and a more formal conference boardroom.”

The building also has bike/ski storage and locker rooms, since it’s near the Theodore Wirth Recreation Area golf course, bike and ski trails.

“That’s something we see as really differentiating that building as a location near the Theodore Wirth Park system,” Shepard says.

The Atrium and the Concorde Executive Center

“We have five suburban Class B buildings and the question is always how do you maintain and refresh them?” asks Aaron Barnard, senior director of office at Cushman & Wakefield/NorthMarq.

“You’re constantly renovating and updating common areas and the HVAC and building systems; you’ve got to keep it up to speed because of the demands on office space,” Barnard says.

Barnard also says landlords must appeal to today’s workforce – and while that in includes Millenials, it’s a much wider spectrum.

 “I call the Millenial word the “M” word because I truly don’t believe it’s just the Millenials—all of us are changing how we work, live and play,” Barnard says.

“One of my biggest examples is people aren’t retiring at 60, 65 or even 70 but they may throttle back to more of a part-time, give me a ‘hotel cube,’ a place to touch down – but I’m going to be in Florida or Arizona half the year.”

So there’s a major change in how we consume office space, and the overriding trend is there are more people in less space, Barnard says.

“We don’t need 12x12 or 12x15 private offices with closed doors anymore. They’re expensive to build and people don’t necessarily overhear the conversation they should overhear with their teammate, because they’re in separate rooms,” he adds.

So how do you make obsolete buildings appealing? Amenities continue to top the list.

You want to have a truly dedicated conference space that’s in a central location of the building that “truly money has been spent on,” Barnard says. It should be able to be converted into a classroom for training purposes and it needs high-definition projectors and screens.

“Adjacent to that, you want a true lunch area that’s not in the basement with two vending machines and two plastic tables and chairs from Ikea,” Barnard says. “Instead, it’s a nice, first-floor space with ample lighting and access to the main lobby. And you want a place to truly congregate. You want to have a place where you can get up and wander out of your smaller office space.”

Barnard says if you’re in a heated race to win a tenant and you have a better amenities package, you may be able to drive more rent and attract that tenant because they will see the value.

“They might say, ‘Hey if we office here and there’s a decent amenities package within the building, when I find that employee I want to hire, they’re going to look beyond just the money. They’re going to want to come work at a place with all those little things because they all add up to more value to the bottom line.”

Barnard has two examples of suburban Class B buildings in the planning phases of renovation—The Atrium in Bloomington and the Concorde Executive Center in Brooklyn Center.

“We’re looking at multiple conference rooms and dedicated training rooms that can double as a secondary conference room,” he says. “We’re also looking at a soft-seating area with free public Wi-Fi and high-def TVs. In addition to enhanced vending, we’re creating a situation where you can bring food trucks to the buildings one day a week or one day a month.” They’re also planning large workout facilities.

Printers Exchange Building and Maytag Building

Minneapolis-based Saturday Properties LLC, launched earlier this year by former Greco Development vice president Brent Rogers, has two historic buildings under contract with plans to close in first-quarter 2016. He has started the historical tax credit application for redevelopment of both buildings and is repositioning them as creative office space.

Rogers is acquiring the Printers Exchange Building, currently known as the Rockler Fur Building, in Minneapolis’ Warehouse District and the Maytag Building, currently known as the Gardner Hardware Building, in the North Loop.

Sam Maguire, leasing associate for Jones Lang LaSalle’s Minneapolis office, is marketing and leasing the buildings.

 “I’ve been playing in the North Loop sandbox for a while at Greco and decided to go out on my own and started Saturday Properties in spring. These are going to be our first Saturday-branded projects,” Rogers says.

“Both of these buildings have really been under-utilized, you could argue for 50 or 60 years,” Rogers continues. “They have not been full or vibrant. Particularly, Printers Exchange is in desperate need of a significant makeover just to maintain the health of the building. This would not be feasible without the historic tax credits to repurpose buildings that otherwise are just functionally obsolete.”

Rogers is calling the space “creative office” because that’s the type of users they think they’ll attract.

“It’s the kind of companies where employees are in their jeans and they’re having conversations as opposed to closed-door private meetings,” Maguire says. “There’s more brain-storming involved. It’s away from your own private office to open collaborative workspace.”

Rogers says the buildings’ amenities really are the neighborhoods (retail, restaurants and recreation) surrounding them. Also, both buildings will have first-floor restaurants, roof decks, bike parking and showers.

“And since these are going to be full historic renovations, we’re going to basically keep and reuse all of the cool historic characteristics like exposed brick and original windows, high ceilings and exposed concrete -- but we’re also going to have all new systems,” Rogers says. “The elevator will be new and modern. All the heating and cooling will be new and modern and we’ll bring in new electricity.

“You’re getting the best of both worlds,” he adds. “It’s not like you’re moving into a 100-year-old building with 100-year-old systems. You’re getting modern efficiencies along with the historic charm.”


Posted at: 9:56 am on December 1st, 2015

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