There is a cycle that almost every commercial property owner or property management company will experience. When a building is new, tenants are not difficult to find. As the years go by, however, the costs to run the property rise, and the building begins to look tired, dated, and less able to draw on consumer dollars. Tenants have a more difficult time attracting business and it’s harder in making ends meet with a shrinking client base, and turnover becomes frequent. The ‘For Lease’ signs on empty units do not inspire consumer confidence and so potential customers seek other venues and the cycle continues. The answer? Upgrading the commercial property.
One such property was a commercial plaza in Aurora, Ontario. When the long-time tenant of the restaurant portion closed up shop and moved onto other things, the entire plaza suffered. After all, it occupied 25% of rentable space in the plaza. Another tenant moved in but left again within a year. We needed to break the cycle and elected to reposition the building to bring it up to date and make it more approachable to prospective tenants and customers.
We started with Tillman Designs and several concepts that we brought to a prospective tenant, Locale, who liked it and signed up. Allowing them some input into what would be their business space created a more engaged and committed tenant. With final approval from the landlord, we settled on a design and considered various financing options to fund the project. Locale loved the end result, and today, reservations are hard to get.
Paul McVeigh, General Manager of Armadale Property Management, provided some advice. “Because a capital improvement has a long-lasting benefit to the property, the right way of financing it would be by way of mortgage.” McVeigh advised that waiting until your mortgage term comes due and then refinancing an increased amount would be a good solution if the timing works. The alternative would be to approach the lender. “Most lenders will refinance as long as you stick with them,” McVeigh said. “Usually you can move any penalties right into the refinanced mortgage. That way, the capital costs are repaid over the term of the mortgage which should correspond with some increase in rental income because your plaza is now more rentable.”
The build phase was not without its challenges. Peter Sestito, Property Manager for Armadale, outlined one of the concerns. “When you’re taking the front section of a building off and putting on a brand new piece, there are issues between the new and the old.” Additional roof work, concrete and brick issues, and foundation problems inflated the overall cost of the project. To make up for the overage and minor discrepancies between design and build, we had Rutherford Construction make some cost-effective compromises in materials that would not adversely affect the quality of aesthetics. For example, changing the exterior façade from exotic natural wood to a Canadian metal product that looked the same shaved $20,000 from the bottom line. “We were delighted with the outcome from all perspectives – visually, financially and operationally,” Sestito said. “Given the size of the project, that was an outstanding result.”
Since completing the project, the plaza has retained all of its current tenants, including TD Canada Trust, and had its vacancy filled with another large national brand tenant. It is fast becoming a community hub. This project was a clear success both from a business and a community improvement perspective. It was not only the smart solution; it was the right one.