The property development project has flaws preventing it from working in the current market, but they are not terminal if it can be suitably repositioned. Repositioning often includes some redesign and a new approach to sales and marketing. There is no 11 herbs and spices recipe to reposition a development project in trouble. The idea is to find a more profitable feasibility and action its delivery without throwing everything out and starting again. Probably the best way to explain repositioning is to give some examples that I am familiar with across the real estate spectrum:
Residential
- Down spec’ing (reducing specification of mainly fittings and fixtures to a less expensive alternative) to reduce cost to appeal to a lower price point.
- Up-specifying to increase desirability for those at a higher price point.
- Decreasing home or apartment size to appeal to a lower price point and/or a higher investment yield (a smaller unit could cost much less to build than the corresponding drop in rental).
- Increasing home or apartment size to appeal to a higher price point.
- Joining homes together by duplexing or terracing to reduce cost or add homes.[1]
- Combining or splitting apartment units to create dual key opportunities (live in one, rent the other).
- Selling groups of sections or super-lots rather than individual sections, appealing to larger developers and builders.
- Joining sections to make suitable for larger homes.
- Subdividing sections into smaller ones, to make more affordable.
- Selling sections rather that house and land packages to appeal to owner builders and small-time spec builders.
- Reconfiguring homes or units to have more bedrooms in the same space, increasing rental income.
- Converting garage space into liveable area or vice versa.
- Adding commercial opportunities to residential developments. Include a home office. Make the ground floor of a multi-level home suitable to lease for retail or office. Create a gym space that can be leased. Include a valet and carwash service in the parking garage.
- Converting part of the residential to a hotel or serviced apartments, for example the top floors of an apartment building, with a separate lobby on the ground floor. Conversely, converting a hotel or serviced apartments to residential units for sale or long-term rental.
- Converting residential to student accommodation, student accommodation to a hotel, and vice versa.
Industrial
- Cutting larger industrial premises into smaller sellable or leasable areas.
- Turning industrial premises into managed self-storage facilities.
- Joining smaller areas to create larger premises.
- Increasing or reducing the office space provided with the industrial.
- Adding a residential use to the industrial premises, such as an apartment over light industrial units.[2]
- Partially converting to retail use; for example, on a main road frontage.
- Lifting the roof to increase stud height — effectively repositioning to a larger tenant market.
Office
- Decreasing or increasing contiguous areas to attract a larger or smaller (or more varied mix) of office tenants.
- Convert to serviced office space, rent by desk and business incubator type office space.
- Install exclusive stairs to join levels of a prime office internally — to reposition to larger multi-level tenants.
- Adding a retail presence to the ground floor of an office building either because it attracts a higher rent, or it helps to provide additional amenity to office tenants.
- Adding naming rights and signage opportunities to increase revenue.
- Adding a residential use to the office premises, such as an apartment over office units or making the upper levels of the office into apartments.
- Increasing common area spend (lobbies, elevators, toilets lighting, artwork, furniture, size space, luxuriousness of materials) and amenities (onsite gym, showers, roof deck) to attract higher class (higher paying) office tenants.
- Decreasing common area spend and amenities to decrease operating expenses to attract more cost sensitive tenants.
- Spending more capital upfront on low maintenance plant and equipment to lower ongoing tenant expenses.
- Embracing latest ‘hot issue’ for specialist or socially conscious tenants; sustainability, high technology or alternative transport.
Retail
- Decrease per unit size to allow for smaller tenancies at higher rents.
- Include different sized spaces to attract a varied tenant mix.
- Adding a residential use to the retail premises, such as apartments above, or live-work combination terrace home.
- Converting space to an office use to absorb areas where retail does not lease well (like the second level of most suburban retail centers). Offices, for example, can add retail patronage.
- Providing internal access to link harder to lease upper or basement space to ground floor retail.
- Adding naming rights and signage opportunities to increase revenue.
- Turning every surface and opportunity into an advertising revenue stream.
- Increasing common area spend and amenities to attract higher class retail tenants.
- Decreasing common area spend and amenities to decrease operating expenses to attract more cost sensitive tenants.
It’s all about repositioning the project
in line with current demand and supply.
[1] This overlaps with the re-planning option we discuss in the next chapter.
[2] This will more than likely be constrained by planning rules when placing a residential use into an industrial zone.
Restart #1: Intro
Restart #2: Continue As-Is
Restart #3: Clean Up and Dump
Restart #4 Renegotiate and Continue
Restart #5: Clean Slate and Continue
Restart #6: Consolidate and Segment
Restart #7: Restructure Existing
Restart #8: Reposition
Restart #9: Replan
Andrew Crosby
+64 21 982 444
andrew@xpectproperty.com
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