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From Rags to Riches: A Tale of Three Cities, Commercial Properties

Patterns. When you do something often enough, you start to see patterns. That’s what has happened with the Allegiancy team over the past 25 years as they have managed various real estate assets around the United States—they found these 3 patterns:

  • Properties without cash needing maintenance
  • Properties in distress from lack of attention with more than fundamental problems
  • Properties with tenants threatening to leave, new tenants not signing on

Allegiancy recognized these patterns in three properties they took on in 2009 in Atlanta, Georgia; Columbia, South Carolina; and Phoenix, Arizona.

 

Situation No. 1: Atlanta

PROPERTY: Breckenridge Exchange Atlanta, GA

ASSET TYPE: 145,000sf multi-tenant flex/ office property

OWNERSHIP STRUCTURE: Tenant in Common ownership structure

THE ISSUES: Paralyzed by lack of money, the property owners and manager were desperate and skimping wherever they could. They hadn’t added any new leases in two years. The property looked uncared for. Tenants had lost all loyalty and unpaid rent had reached tens of thousands of dollars.

OUR APPROACH: Spend a little, gain a lot. Allegiancy met with the tenants and property manager to walk the property. They immediately saw several low-cost, high-impact improvements that could add curb appeal and signal tangible change.

Allegiancy had all the curbs painted which instantly improved first impressions. Rather than replacing the large entry sign, they took out overgrown trees, cut back bushes covering it, and power washed it. They had all the budgeted flowers placed at the entrance of the property for maximum impact. Essentially, Allegiancy undertook a few simple projects to demonstrate leadership and visible progress to tenants.

THE RESULT: Happy tenants, new leasing. This care shown to tenants gave them confidence and boosted new leasing efforts. The owners were saved tens of thousands of dollars in legal fees to fight tenant defections. And Allegiancy actually leased more than 30,000 square feet of new space over the next eight months in a market with a 20 percent vacancy rate. This property’s value was soon restored.

 

Situation No. 2: South Carolina

PROPERTY: Farrow Road Columbia, S.C.

ASSET TYPE: 95,000sf multi-tenant office building

OWNERSHIP STRUCTURE: Tenant in Common ownership structure

THE ISSUES: The tenants were seriously concerned about the lack of maintenance of their building. But the cost of needed repairs had overwhelmed the property manager and owners.

For example, the roof was leaking and the low bid to fix it was $100,000. New gutters had been bid at $15,000, and new painting was estimated to cost $40,000. This was all money the property didn’t have.

OUR APPROACH: “Talk to the Boot-In-Dirt.” As is their practice, the Allegiancy team reevaluated the issues and re-bid the work with new contractors.

With the roof, they hit paydirt. Allegiancy had seen a lot of roof issues around the country. They knew that most office roofs are flat and leaks are generally around the perimeter—meaning that the entire roof usually doesn’t need to be replaced.

By climbing up on the roof and talking with the actual roofers, Allegiancy found that was once again the case. That’s when they heard, “We could really fix these leaks around the edges, and you’d be good.” At a cost of $19,000, not $100,000. Similarly, Allegiancy found gutters for $1,500, not $15,000, and determined that much of the paint work could be reduced or deferred.

With the money saved, Allegiancy could then address more pressing tenant issues including landscaping and pest control.

 

Situation No. 3: South Carolina

PROPERTY: Farrow Road Columbia, S.C.

ASSET TYPE: 95,000sf multi-tenant office building

OWNERSHIP STRUCTURE: Tenant in Common ownership structure

THE RESULT: Money Saved, Value Earned. The Allegiancy “shoe leather and elbow grease” approach saved Columbia property owners more than $100,000. That savings meant the property could survive. With minimal spending, they addressed tenant concerns and secured the property’s stable future.

 

Situation No. 4: Arizona

PROPERTY: Phoenix Peak, Phoenix, Arizona,

ASSET TYPE: 90,000sf multi-tenant office building

OWNERSHIP STRUCTURE: Tenant in Common – Fund ownership structure

THE ISSUES: Phoenix Peak looked tired and sad. In fact, its lobby and elevators told a story of wear and neglect, but bids to renovate them came in at $98,000.

Under the experienced leadership of Allegiancy, renovation instead became a thorough cleaning, fresh paint, and new artwork (leased) mounted throughout the building. This approach worked wonders with minimal capital spending.

OUR APPROACH: Ask “Why?” The lobby turned out not to be an isolated case. The building also had a malfunctioning building controls system. Replacement was recommended, but the lowest bid was $120,000. Allegiancy kept asking “Why?” and digging deeper to understand what was really needed Allegiancy found an Internet-enabled thermostat control system for $15,000 that solved the problems and greatly improved efficiency.

By asking “Why?” often, listening to tenants, and using their own expertise, Allegiancy selected a few other low- cost, high-impact projects, including targeted landscaping, refurbishing insides of elevators, and upgrading the HVAC control system.

THE RESULT: Value restored. Within a year, this property was performing well financially and building cash reserves. Existing tenants were satisfied, and many renewed and expanded their leases. New leasing was reinvigorated, and occupancy went from 70 to 95 percent. The owners were ecstatic because they hadn’t had to pay for the improvements out of pocket, and their property was actually generating income. Property value went from a 2009 appraisal of just under $6,000,000 to a 2011 sale price of $10,250,000.

 

Patterns Identified, Lessons Learned

“AFTER YEARS OF DOING THIS, YOU LEARN THAT THE RIGHT SET OF IMPROVEMENT PROJECTS CAN AFFECT EVERY ASPECT OF A PROPERTY. WE LOOK TO MAKE A NOTICEABLE DIFFERENCE QUICKLY SO THAT TENANTS AND PROSPECTIVE TENANTS IMMEDIATELY FEEL GOOD ABOUT THEIR PROPERTY ‘HOME.’” -CHRIS SADLER | PRINCIPAL

Allegiancy principal Steve Sadler added, “Our two hallmarks are: we ask ‘why?’ and ‘we meet with the actual boot-in-dirt.’ We are always probing to determine why a property is doing something and to whose benefit. Then we talk to the people actually doing the work, face-to-face, eyeball-to-eyeball—the asphalt guys, roofers, tradesmen. That’s when you get the real story.”

Steve concluded, “It turns out that the little things do make the huge difference and acting like a property owner is the key to building long-term success. In short, we just do what the owners would do if they were here.”

 

If you aren’t getting this level of service, this attention to detail, this dedication, and this level of success with your current asset manager, then call Allegiancy to be your advocate today.

CALL US 1-866-842-7545

10710 Midlothian Turnpike, Ste 202, Richmond, VA 23235

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