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Unlocking Building Value Through Repositioning

One of the most striking buildings on Chicago's skyline is CNA Center. Since it was built in 1972, the 1.3 million sq. ft. red tower has operated as a single-tenant structure. During the past few years, however, its lone occupant, business insurer CNA, has become more strategically focused, concentrating solely on its property and casualty business.

The result is a smaller company with approximately 250,000 rentable, vacant sq. ft. in its signature Chicago tower. To fill that space, CNA made the decision to open the building to multiple tenants for the first time.

Market conditions are forcing many owners of slightly older Class-A and B properties, like CNA, to reposition their buildings. A well-orchestrated repositioning strategy, however, will add significant value to a building's bottom line and allow it to compete head-to-head with newer buildings — retaining tenants and attracting a larger pool of potential users.

Targeting tenants

Planning for a repositioning requires early consultation and collaboration among myriad players: asset managers, leasing/facility managers, brokers, architects, engineers and contractors. The objective is to analyze market competition, identify key demographics, estimate improvement costs, and project a return on investment.

Determining which tenants to target is critical to the success of any repositioning. Based on a demographic analysis, the repositioning team can determine what tenants are most attainable for the property and then execute the strategy.

CNA contracted with The John Buck Co., Leopardo Construction and Powell/Kleinschmidt architects to develop its repositioning strategy, an approximately $60 million investment. After the repositioning is complete, the CNA building will be billed as a Class-B building with Class-A features.

Amenities and aesthetics

Repositioning can take many forms. Depending on local market opportunities, location and the commitment level of the owner, the repositioning may only take the shape of painting, flooring (carpeting) and landscape upgrades to make the building more attractive. Other owners may need to completely gut and remodel a structure.

In many cases, modernizing a building with state-of-the-art technology and data infrastructure is necessary. Repositioning the CNA Center, for example, will involve a complete change in the building's function. Targeting government professionals, educational and corporate tenants, the building will be remodeled to include new conference and training facilities.

In Chicago, not only are vacancy rates hovering close to 20%, but more than 5 million sq. ft. of new Class-A space has been added to the downtown office market in the last three years.

To lure the largest pool of potential tenants, a technology infrastructure must be flexible. Equally important to end users are 24/7 data centers and system designs that are capable of delivering cabling to multiple office configurations.

Other common demands by tenants in older buildings include enhanced efficiency of mechanical and electrical systems, fitness centers and mixed-use offerings of restaurants and retail. Conference centers can be particularly attractive to smaller tenants, who don't have space for their own board rooms.

In terms of aesthetics, the lobby sets the image for the entire building. CNA understood the value of its lobby and built a “lobby within a lobby” so that new tenants can enjoy a completely separate entrance, lobby and address. As part of the remodeled lobby, an existing glass curtain wall will be extended 50 feet — almost all the way to the sidewalk — which added 5,000 sq. ft. to the existing 15,000 sq. ft.

Bottom line

A well-orchestrated and executed re-positioning strategy is imperative to make older buildings competitive with new Class-A buildings as well as stand out from a crowd of vacant structures. Scheduled for completion in early to mid-2007, the repositioned CNA Center in Chicago is already generating buzz in the brokerage community.

Successful repositioning projects will catch tenants' eyes with Class-A amenities and aesthetics, and seal the deal with lower rents and much better value than newer buildings.

Rick DuPraw is senior vice president of the interiors group at Leopardo Construction.

Greg Gerber is principal of The Strategic Advisory Group of The John Buck Co.

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