$6 Million South Florida Revitalization Transforms Underperforming Asset in Strong Submarket

[ By Neil E. Merin ]

For many years, Golden Bear Plaza, a 246,000-square-foot, three-building office property located in Palm Beach Gardens, Florida, was considered one of the premier office properties in South Florida. The project, which bears the name of tenant Jack Nicklaus's worldwide corporation, is situated on over 10 acres of land on US 1 near a prime east/west transportation artery. It was built to the highest specifications that included 300-square-foot office terraces overlooking the ocean and Intracoastal Waterway, tiered balconies overflowing with bougainvilleas, reflecting pools with fountains, granite Romanesque columns, underground parking and more. The last sale of the building in the late '90s had been a record $52.1 million, but the property was not well maintained thereafter and fell into significant disrepair. The once premier property became 45 percent vacant and the owners put it up for sale. Golden Bear Plaza had been on the market for 12 months and under contract once for $42 million in a deal that never materialized.

NAI/Merin Hunter Codman suggested to pension fund advisor BPG, Ltd. of Philadelphia that the property was clearly an underperforming asset in a strong sub-market that others had discounted. Since so many corporate executives in South Florida were locating their personal residences in exclusive communities near the Intracoastal, there remained a market for luxury office in that area. NAI/Merin Hunter Codman expected that market would grow rapidly and brushed off notions that the only viable office market in the area was a business hub five miles inland near the Interstate highway and a major regional mall.

BPG, Ltd. shared that vision and purchased the property for $32.5 million in late 2003, financed by a $28 million acquisition loan with the remainder coming from the firm's discretionary investment account. NAI/Merin Hunter Codman embarked on an ambitious $6-million revitalization plan on BPG, Ltd.'s behalf.

Pension fund advisor BPG, Ltd. acquired the 246,000-square-foot Golden Bear Plaza in Palm Beach Gardens, Florida, for $32.5 million in late 2003.

A Cascade of Esthetic, Structural Issues
Golden Bear sits over a 119-car garage, where neglected expansion joints had cracked. The soundness of the structure was at stake and repairing those joints became an extraordinary engineering feat. Getting to the expansion joints meant tearing up the huge signature plazas, which led to a nationwide search to find aged bricks to match those being discarded. One of the buildings also needed a new roof resistant to strong Florida winds. Add to that the re-engineering of the balcony planters, which looked great but were leaking onto the building's facade, and the need to "de-commission" an enormous obsolete ice-making plant on site. The list of significant alterations needed went on.

Re-leasing efforts were to begin immediately, so the first task was a thorough exterior cleaning, because it would have the most immediate esthetic impact. The entire facade was pressure cleaned, with an application of a light acid wash and algaecide. Immediately the three Golden Bear Plaza buildings lightened in appearance by almost 50 percent, returning to their original pink-hued color.

Next up were the windows. Golden Bear Plaza is a sea of burgundy-trimmed windows - more than 1,500 in total - but the aluminum window frames had faded from their original vibrant color. Electrically bonded paint was applied to refinish the frames, or mullions. That meant that each aluminum piece had to be electrically charged, with the new paint then holding an opposite charge that would fuse to the metal, to the tune of over $200,000. The company obtained a five-year warranty against fading.

Demolition and renovation of the East tower nearest to the Intracoastal began at the same time as common area renovations in all buildings. The East tower had previously been occupied by a single user, and the space was not conducive to the targeted executive office market. The space was demolished and reconfigured, divided appropriately for executive suites. On one floor, the company created a series of 1,000- to 2,000-square-foot speculative suites for move-in condition. That $150,000 investment proved wise, as almost all the suites were leased within six months.

Target market assumptions were proving to be correct -- executives wanted to be near their luxury communities, some within Golden Bear Plaza's sweeping views. The company is currently implementing the same strategy for a second floor.

Meanwhile, interior common areas in all three buildings received their own makeovers, including new wall finishes, carpeting and designer lighting; rich wood tones added to marble entrance areas; and renovated bathrooms with nickel-plated sinks provided the finishing touches. While the interior touches and facade refinishing helped spur on more leasing momentum than the property had seen in years, the significant challenges of critical structural upgrades to the buildings still had to be addressed. A key consideration was to minimize possible problems and costs in the future.

Structural Surprises and Preventive Measures
Golden Bear Plaza has about 500 linear feet of expansion joints that separate each building, allowing movement in the structure, not just for wind in hurricane-prone Florida, but also for temperature variance. Florida can actually see as much temperature variance as parts of the Northeast. In winter, it can hit the high 80s during the day and then drop into the 40s at night, if a cold front pushes through -- a wide enough variance that the shock needs to be absorbed by expansion joints. In the case of Golden Bear Plaza, those joints had to be repaired and re-waterproofed.

As the task of removing Golden Bear Plaza's brick plazas to access the joints proceeded, the company learned an important lesson for both future new developments and revitalizations: order enough stock of critical items, such as pavers, to replace the same should structural repairs necessitate their removal. As the project manager said, "When you start tearing up a building deck, you never know what you will find."

In Golden Bear Plaza's case, the company had to search incessantly for brick pavers that would match the ones being torn up, as the original supplier was no longer in business. When a match was finally located, the order was doubled for future needs. Having the strength of institutional capital behind Golden Bear Plaza gave NAI/Merin Hunter Codman the capability to think far ahead.

The upper terrace planter boxes, which were leaking and had stained the exterior of the building, had to be repaired. In the process, however, the company discovered that the cascading bougainvilleas were the wrong plant for the building. The large, leggy roots had become so compacted that they had eaten through the original waterproofing and were cracking the concrete. Fortunately, a replacement plant wasn't difficult to find. After re-waterproofing the planters and installing new irrigation systems, the company planted a new variety of dwarf bougainvilleas that have limited root growth, but are just as showy.

The lesson learned from that experience: local knowledge is key in redevelopment planning, right down to the expertise of the landscape architect. An automatic chemical feeding system was installed for minimizing plant upkeep in the future.

Additional preventive measures for the future were in place. Florida's policy, for quite some time, has been that no new non-indigenous trees are to be planted -- and many such existing plants must be removed. Residents found out why, after the recent spate of hurricanes. Non-indigenous trees (such as the carrotwood, which Golden Bear Plaza had on property) do not have the necessary root system to withstand strong winds. All such non-indigenous trees were removed in the redesign, replaced with species more appropriate for Florida weather, such as Royal Palms. The 100-year-old oaks on the property, however, remain standing and, hopefully will continue to stand for another 100 years.

The fountain pools were resurfaced and replaced. Tarnished aluminum signage was replaced with long-lasting titanium. A great side benefit is that titanium catches the sunlight so well that the Golden Bear logo is quite visible from the road.

Two other major structural upgrades were needed: the roofs and the leftover ice-making plant. The roof on the East tower was replaced; the new one came with a 15-year guarantee. The other two roofs had been previously replaced; "pull tests" were conducted to ensure that they could withstand high winds. All of the roofs also had obsolete chiller plants that no longer served any function. While the cost of removing the large equipment was not minor, it was deemed cost-effective because it opened up space that can be used for today's high-tech office needs.

Finally, the ice-making plant was "de-commissioned." The custom-designed heating/cooling plant was an anomaly that made ice at night to cool the building during the day, but could not produce ice and air simultaneously -- totally inflexible for today's executives who often want 24/7 access to a building. The ice system was removed and the heating/cooling plant was overhauled, increasing its efficiency. Though the overhaul cost nearly $130,000, that amount in energy savings should be recouped over a relatively short period of time. The energy management system (building brain) was upgraded, with direct digital controls installed - which can be viewed directly from a computer screen -- to control temperature and air flow. As tenancy rolls over in other buildings, each suite will be updated similarly.

Golden Bear Shines Again

The $6 million renovation of Golden Bear Plaza included major structural and esthetic upgrades. The property is expected to be fully leased less than three years after the purchase date.

All of these upgrades were completed in less than one year and nearly one-half of all previously vacant space was also leased in that time. Golden Bear Plaza is an excellent example of a landmark site falling by the wayside, only to be singled out by a savvy investor who saw its potential, followed through on its vision and returned the property to its signature status as one of the region's most desirable office properties. A vision and safeguards are in place for the property's continued structural integrity. The company expects that the property will be fully leased within 2-1/2 years of the purchase date -- a great turnaround, and an investment that should serve the pension fund client very well.

Golden Bear Plaza now has its signature resort feel once again, with the renewed plazas offering executives a serene, tropical oasis in the midst of their workday. The on-site City Club executive dining facility and Oakbrook Shopping Mall next door are additional amenities.

As for overseeing this major revitalization, it reaffirms what NAI/Merin Hunter Codman already knew - always be prepared for surprises along the way of a revitalization and use those surprises to optimize the future of a property.

Neil E. Merin is chairman of NAI/Merin Hunter Codman, the largest commercial real estate brokerage firm in Palm Beach County.

For more information

NAI/Merin Hunter Codman
www.mhcreal.com