Brad Blankenship: Evaluating Existing vs. New Product

I love the real estate business during the holidays; nothing happens. Even the Mayan apocalypse turned into just another holiday party. The fiscal cliff turned out to be more like a fiscal curb, and more 2012 crises were avoided (yawn), all while we were egg-nogging.

Of course, some of us failed to get the message. So when I was summoned to evaluate some properties for lease for a tenant, I took the holiday antlers off the Infiniti and went to work. This needed to be really good.

I compared two existing Class A office buildings constructed in 1999 against the baseline of a brand new, to-be-constructed Class A office building. The purpose was to find out what characteristics of the existing buildings created “intrinsic” value or obligation to the tenant.

Most would assume the to-be-constructed building would win in that evaluation, providing the tenant with sleek ceilings, generous restrooms and pristine common area finish materials from a region in Italy I can’t pronounce. Instead, we discovered untold riches in the existing buildings, both of which had undergone renovations.

Undiscovered from the tenant’s inspection, there were significant specialty systems that had been well maintained:

• Large capacity generators and UPS or uninterruptable power systems

• Computer room air conditioning equipment

• Central plant cooling redundancy

• Demountable partitions with sliding cockpit doors for private offices

• Full-service kitchen equipment

• New ceiling systems and direct/indirect light fixtures

Admittedly, nothing on this list will melt most people’s butter. My butter melted. The fully depreciated value of these assets, which would be left for the future tenant’s use, meant $1.5 million to $2.1 million in intrinsic value for the taker.

Assuming the tenant had opted for the new building option, they would have to pay for this out of the tenant’s allowance or cash. Translated to comparable cost on a 7-10 year lease, this is equates to approximately $1.30 to $1.80 per square foot in rent!

The existing buildings weren’t perfect; however, the savings above included offsets for minor deficiencies observed as well. Not all existing buildings are as well maintained or appointed as these were, but because these types of benefits are not readily pointed out or on your checklist when touring, they are often overlooked.

Ironically, these back-of-house items are the most expensive improvements a tenant can purchase, and most companies require them to operate and, of course, to prepare for the world’s next doomsday prediction non-event.

Brad Blankenship is managing director of project and development services for Cassidy Turley. Contact him at [email protected]


  • Hard to imagine that a prospective tenant would have to “discover” any of these assets. The landlords broker / agent should have highlighted all of them and their value to a tenant in marketing material and in every leasing pitch.