How much to invest in the repositioning of an office asset is a perennial question facing real estate owners and investors. It is especially critical in a market characterized by moderate demand. Too much investment will require increasing rents, which could make the building too expensive for a large segment of the market. Yet too little investment could result in a building with features and finishes that fail to make it a contender. How does an owner strike the right balance? First Potomac Realty Trust tells its story about one such project.
First Potomac’s office building at 10320 Little Patuxent Parkway, now known as TenThreeTwenty, is poised to be at the center of a renaissance now underway in Columbia, Md. The Mall in Columbia, owned by General Growth Properties, is wrapping up a major (40,000-square-foot) expansion and redevelopment project in April 2014 that will transform it into an open-air lifestyle center and streetscape with two rows of restaurants and retail space. TenThreeTwenty is directly adjacent to the mall.
In addition to making extensive interior renovations, First Potomac updated TenThreeTwenty’s exterior and parking structure with new paint and added a glass vestibule and canopy to the building’s main entrance.
The Redevelopment Process
First Potomac Realty Trust purchased the 12-story,137,677-square-foot building — then known in the commercial real estate market as the Merrill Lynch Building — in February 2011 for approximately $11 million. It was 70 percent leased to more than 25 tenants.
The building had been constructed in 1982 and the First Potomac team, under the leadership of CEO Douglas Donatelli, knew it was in need of renovations to make it appeal to today’s Class A users. Representatives from First Potomac’s various service departments, including construction, leasing, property management, engineering and operations worked together to identify a redevelopment plan that would update the facade and common areas in order to retain existing tenants and attract new ones.
“We were focused on making improvements to add value to the existing investment and provide a modern, energy-efficient office building for existing and prospective tenants,” stated Matt Wilson, vice president of the Maryland region for First Potomac Realty Trust. “It was one of our top priorities for the building.”
Top: before photo, bottom: after photo. First Potomac’s renovation expanded and redesigned the original first-floor lobby as a two-story glass atrium with an open staircase, porcelain flooring and state-of-the-art LED lighting, giving it a clean, modern feel.
First Potomac began with a $1 million mechanical upgrade to the building’s central utility plant, which included upgrades to the heating and air conditioning systems, chillers and cooling towers. Next, the owner invested roughly $200,000 to upgrade the building’s safety systems, including its fire alarms, and $500,000 to upgrade elevator shafts and cars. The development team also completed $700,000 worth of structural improvements to the parking garage, which was suffering from broken concrete and cracks on each parking level.
The building’s original hallways and common areas were dark and confusing to navigate. So First Potomac completely redesigned the central floor plan for the first and second floors, making it more accessible to tenants and visitors. The new floor plan is more circular and allows for much better circulation in and around the first floor.
The lobby was expanded and redesigned as a two-story glass atrium. New tile floors and a two-story glass window line give the lobby a clean, modern feel. While the initial lobby renovation plans were somewhat simpler in scope, as the renovation got underway it became apparent to the First Potomac team that they should expand the scope of the lobby renovation. Doing so created a short delay and additional expense, but the team recognized that it was the right thing to do.
“This used to be one of the worst lobbies in Maryland,” said Wilson. “Our new two-story lobby is something we are extremely proud of. There are entrances on both the first and second levels, connected by a large staircase. When you combine the new aesthetics of the lobby with the new floor plan, it makes for an incredibly attractive space.”
Other improvements to the building’s common areas included an upgraded conference center (for tenant use only) and an enhanced first-floor deli. To address the structure’s dark hallways and outdated restrooms, each floor’s common areas were renovated. New lighting, doors and flooring were installed throughout, creating a more welcoming atmosphere.
Top: before photo, bottom: after photo. New wood paneling and stainless steel accents brighten up the main lobby elevators.
To complete the modernization, the building exterior also was upgraded. The entire building and parking structure were significantly brightened with new paint. A glass vestibule and canopy were added to the main entrance, along with metallic trim features at the entrances to the building and to the garage.
“We had to redesign some fundamental parts of the building,” said Wilson. “We made the entrance and parking deck more accessible, but we also made the complex more pedestrian friendly, mirroring the walkability of the new downtown Columbia.” First Potomac installed a new staircase that leads from the main entrance of the building to the mall access road, which has improved access to the adjacent mall.
“The Mall in Columbia and the popular Lake Kittamaqundi waterfront are just steps away,” said Wilson. “We knew we had to take advantage of the redevelopment happening there by making it more accessible for our tenants. When you provide easy access to retail space for office tenants, you can really turn a good building into a great building.”
First Potomac now plans to make customized upgrades to individual tenant spaces. TenThreeTwenty was approximately 80 percent occupied during the interior and exterior renovations. Several tenants were ready to find a new location before First Potomac started the ambitious renovation project. Now that the upgrades have been made, TenThreeTwenty has retained most of its tenants, with a modest increase in rents.
One reason First Potomac has been able to keep rents relatively stable for its tenants is the savings it has reaped from energy efficiency upgrades. Utility costs have fallen by approximately 20 percent. Rents in the building now range from $25 to $26 per square foot.
A Timely Relaunch
At the same time that First Potomac decided to modernize TenThreeTwenty, Howard County officials were breathing new life into the city of Columbia, Md. The revitalization of downtown Columbia began in 2005, with discussion of creating a new 30-year master plan. After many town hall meetings, open public forums and discussions, the Howard County Council unanimously approved the downtown Columbia revitalization plan in February 2010. The 30-year master plan will bring as many as 5,500 new homes, 4.3 million square feet of office space and 1.25 million square feet of retail space, hotels and cultural development to the downtown area. Overall, the master plan will create as many as 13 million square feet of retail, commercial, residential and hotel space.
The renovation of TenThreeTwenty coincides with revitalization of downtown Columbia. “This was one of the older buildings in the area, in need of repairs and upgrades,” said Wilson. “Howard County was pleased to see First Potomac take the initiative to make these improvements. They really appreciate it when businesses have pride in ownership.”
Columbia has more commercial space planned for the surrounding area on the other side of TenThreeTwenty, opposite the mall. Eventually, a bridge will be installed over the highway to allow access to those spaces from the mall.
“There is no question our work is paying off,” said Wilson. “In addition to tenant retention, we have noticed an uptick in traffic in and around TenThreeTwenty.”