PROPERTY management Case Studies
SIERRA REAL ESTATE CASE STUDIES REINVIGORATING 648 BROADWAY Property 648 Broadway Commercial building 50,000 SF 10 floors Owner-managed for over 25 years Sierra Real Estate assumed management from ownership in September 2009 Challenge Significant rent arrears Over 15-percent vacancy rate Building-wide improvement program more than 1 year behind schedule and substantially over budget Solution Established and implemented efficient rent collection procedures Reviewed building improvement program Redesigned capital improvement plan to reflect NoHo tenant environment Implemented an aggressive marketing program to effectively attract higher paying tenants Renegotiated contracts and completed renovations at reduced cost Evicted non-paying tenants Result Within 18 months of assuming management, the building achieved near 100-percent occupancy, significantly increased rent rates and revenue, effective collection procedures were in place, and more than $1 million in savings from adjustments in the building improvement programs were realized. Today The building operates at nearly 100% occupancy with rents increasing over 50% in five years. Lobby, hallway, and restroom, renovations were completed in 2013. SIERRA 3
SIERRA REAL ESTATE CASE STUDIES A BUILDING RESTRUCTURED Property 43-45 West 55th Street 16,000 sf mixed-use property Challenge An underperforming asset When Sierra assumed property management in 1996, the building had a stated annual rent roll of $313,000; less than $200,000 was being collected The property was in poor physical condition, with over 400 outstanding violations Neither the building nor its tenants had been registered with the Department of Housing and Community Renewal Solution Chronically delinquent tenants were evicted, including a bankrupt restaurant and rent-regulated apartment occupants Vacated spaces were renovated and re-rented, increasing the rent roll The property s severe structural and maintenance issues were resolved Legal issues, including a 12-year delinquency on building registration, were resolved Result First year of Sierra management: Recovered possession of six apartments Evicted two retail store tenants Re-leased the vacated retail space at significantly higher rent Rectified most violations Significantly upgraded physical infrastructure of the building Registered it correctly with the Department of Housing and Community Renewal Today Current rent roll is $732,000 per year Rent payments collected are 100 percent 4 SIERRA
A GOOD INVESTMENT Property 1594 York Avenue (501 East 84th Street) 5-story walk-up 2,200 sf of ground floor corner retail 10 apartments above the retail space Purchased in 1997 Purchase price: $1,050,000, with a $750,000-mortgage from Immigrant Savings Bank Challenge Despite good bones, property suffered from long-deferred maintenance Substantial number of outstanding violations at time of purchase Retail tenant s rent was significantly under market Most apartment rents were low All apartments were rent regulated Annual rent roll was $228,000 at time of purchase Solution Sierra re-negotiated retail tenant s rent Considerable upgrades to the building and the apartments were performed Several rent-regulated tenants were replaced through buyouts and legal actions for non-primary residence and illegal subletting Result Property began producing favorable returns every year since purchase By 2004, the rent roll had increased to $348,000 Property sold for $4,027,000 in 2004, when rents reached a maximum and stabilized in the current market; Sierra did not believe rents were sustainable for the long term Today To minimize the tax impact on the sale, Sierra performed a tax-deferred 1031 like-kind exchange and purchased a similar property with proceed from the sale. All investors in 1594 York received returns more than eight times their initial investments. SIERRA 5
SIERRA REAL ESTATE CASE STUDIES REPOSITIONING A 1920s OFFICE BUILDING TO COMPETE Property 875 Avenue of the Americas Northwest corner of 31st Street Commercial building Class B 243,000 RSF 25 floors Sierra Real Estate assumed management in 2000 Challenge The building exterior was dark with age The building interior was worn and tired Elevators were old and slow Lighting was inefficient Available space was not aggressively marketed for re-lease Rentable square footage measurements were inconsistent Operating expenses were high Solution Initiate capital improvement plan Upgrade public spaces, including bathrooms and corridors Upgrade main lobby, including new fixtures and finishes Modernize six-passenger elevators Modernize one freight elevator Clean brick and stone exterior Install new operable windows in tenant suites Install high-speed internet connectivity Retrofit property with energy-efficient systems Establish rentable square footage (increase from 208,000 to 243,000) Marketing campaign to attract higher paying tenants Renegotiate service contracts Upgrade retail storefronts Results Operating expenses decreased by 15% Rent rolls doubled in five years Higher grade of tenants occupy space Today 875 Avenue of the Americas is an appealing and attractive property to credit-worthy tenants. It now competes with the new developments that have gone up in the neighborhood. Available spaces are now marketed aggressively and professionally. 6 SIERRA
HALE AND HEARTY Property 12 East 46th Street 8-story low-rise office building in Midtown 37,000 RSF Class B Built in 1915 Well-situated location near Grand Central Terminal Challenge A long-term restaurant tenant, Qdoba Mexican Restaurant, announced it was closing all its Manhattan locations. Sierra Real Estate owns and manages the property; we were willing to allow Qdoba to break its lease only if a new restaurant tenant, able to pay higher rent and with comparable credit, could immediately take the space. Solution Hale and Hearty, a soup and sandwich restaurant had just lost its lease nearby, on 47th Street between Fifth and Madison Avenues because the building was being demolished. Our leasing brokerage affiliate (Lee NYC) accomplished the transaction to relocate Hale and Hearty and meet ownership criteria. Result Our property management approach for the building is to install only qualified tenants in the building; our leasing approach is to locate suitable tenants in the shortest period of time. The Hale and Hearty lease transaction was completed in four weeks, and an amicable surrender of the Qdoba lease was achieved. Today The building will have a new credit-worthy and always busy restaurant on its ground floor to serve as both a building amenity and a neighborhood amenity. Construction is scheduled to begin in December 2013, in advance of the demolition of Hale and Hearty s current space, so it can move into its new space with no down time or loss of customers.
SIERRA REAL ESTATE CASE STUDIES 72-76 Greene Street, New York, New York BACKGROUND In late 2012, Chicago-based L3 Capital and Washington D.C-based ASB Real Estate Investments purchased this 5-story, 43,000 mixed-use building in the heart of SoHo. Immediately upon acquisition, we were engaged to deploy our property, asset and project management teams, as well as our Lee & Associates NYC office leasing team, to help reposition this premier Soho cast iron property. DEVELOPMENT One of the initial decisions to be made by ownership was whether or not to buy out any of the three (3) residential rentstabilized tenants on the top floor of the building and, if so, how best to monetize the space. The initial strategy contemplated by ownership was to simply convert the residential units to condominium units. After we performed an analysis and compared the potential returns for both residential and commercial uses, it was determined that a more efficient strategy would be to take advantage of the commercial market. Pursuant to our new business plan, ownership proceeded to buy out one of the residential tenants for a healthy seven figure amount. We then converted the space to office, with the help of our construction management team, and signed a long-term office lease with a credit tenant at over $80 psf as a result of our leasing team s efforts. In addition to this lease signing, since acquisition, the building has been fully leased to national retailers and other quality fashion and technology office tenants. We were also engaged to undertake significant major repairs and building system upgrades, many of which would typically strain tenant relations absent clear communication and a calculated plan to minimize disruption to the building s tenants operations. For example, the building is divided as such so that there is one elevator servicing the north side of the building and one elevator servicing the south side of the building, with no access between the north side and the south side except on the occupied 2nd floor. The elevator servicing the south side was entirely replaced with a new hydraulic elevator. The other elevator was remodernized and a new cab installed. Although the projects were not performed simultaneously, each project disrupted the tenants and resulted in no elevator service for several weeks at a time. We managed the disruption by directing traffic to the stairs serving the building using a doorman and placing temporary air-conditioning in the stairwell. On the heels of this work, NYC required the sidewalk be removed and the structural members of the vault and the sidewalk be replaced. This required coordination with the NYC Department of Transportation and Department of Buildings, the Landmark Preservation Commission, the tenants to insure the work was phased in a manner that was the least disruptive to their operations and access. Other base building work included the upgrade to a 1 million BTU boiler which provides heat to the entire building; a new fresh air intake system, window replacements and façade restoration, all of which required approvals and coordination with the Landmark Preservation Commission; the installation of new intercoms and elevator access control; new upgraded main electrical and gas services; and strategic and cost-efficient roof repairs to abate major building leaks. VALUE CREATED Four (4) years after our teams were retained to manage, reposition, upgrade and tenant the property, the building is worth over 200% of the acquisition price. 8 SIERRA
SIERRA REAL ESTATE CASE STUDIES 875 Sixth Avenue, New York, New York BACKGROUND 875 Sixth Avenue is a 25 story, 248,000 square-foot office building located on the northwest corner of 31st Street in the Penn Station submarket. The property had been managed by Sierra Realty since its acquisition by the then owners in 1977. During the initial period of ownership, little money was invested to upgrade the building. In 2000, the principals of Sierra Realty jumped at the opportunity to acquire a 70% interest in the building, recognizing the unrealized potential of this building and understanding the value that could be added by an aggressive repositioning of the property. DEVELOPMENT Upon Sierra s controlling interest acquisition in the building, Sierra embarked on a program to upgrade the building, reinvigorate the leasing program and reduce operating expenses. Capital improvements included replacing over 900 windows, upgrading the entrance lobby, refreshing of all building corridors, elevator lobbies and bathrooms, replacing and modernizing the six passenger elevators, and installing a quality security system. In addition, the building was remeasured and loss factors were increased. Efficiencies were created to enable Sierra to successfully negotiate a 2.5 person union staff reduction with Local 32BJ, resulting in an operating savings of over $200,000 per year, and the building s heating system was converted to a dual gas/oil burner - two prime examples of how significant operating expense reductions were achieved. Smaller, noncredit tenants were replaced over time with more credit worthy tenants as a result of a successful leasing program. High-speed, redundant broadband service was also introduced into the building to better serve the tenants increased needs. The final step in the revitalization of this building will be the repositioning of the ground floor retail space. Currently, the retail space is occupied by a number of small retailers. This was consistent with the character of the neighborhood. However, over the past several years, the neighborhood surrounding the building has been transformed with the significant development of a number of residential and hotel properties on adjacent blocks. Sierra has positioned the building so that it will be able to create a significant, high profile retail space on the first and second floors of the building. VALUE CREATED The property now generates significant monthly cash flows to its owners. This property will continue to be owned as a legacy investment by current ownership.
Sierra Real Estate 600 Madison Avenue, Third Floor New York, NY 10022 212.776.1200 www.sierranyc.com