One way to improve an underperforming property is through “repositioning”. Rather than accepting low occupancy, declining income, or an outdated use, the property owner can renovate, remodel, or redirect its use in order to capture the attention of a new demographic. 

A repositioned property may attract a stronger tenant base, support higher rental rates, improve cash flow, and increase the overall value of the asset. It may also become more attractive to lenders if refinancing or additional funding is needed to complete improvements or stabilize the property.

What Does It Mean to Reposition a Property?

Repositioning a property means making strategic changes to improve how the property performs in the market. This can include physical improvements, such as renovations, repairs, updated amenities, or changes to the layout. It can also include operational or marketing changes, such as targeting a different tenant base, changing the property’s use, adjusting rents, or improving management practices.

Why Investors Reposition Properties

Investors typically reposition a property when they believe the asset has more potential than its current performance suggests. The goal is usually to increase occupancy, improve rental income, reduce operating issues, and strengthen the property’s long-term value. When done correctly, repositioning can turn a distressed or overlooked property into a stronger income-producing asset.

However, repositioning requires capital, planning, and a realistic understanding of the market. Before moving forward, investors should carefully evaluate whether the expected increase in income and property value will justify the cost of the improvements.

How to Decide When to Reposition a Property 

Repositioning can have a positive impact on a problem property, but it is not the solution in every situation. Before committing capital to renovations, operational changes, or a new leasing strategy, investors should take a close look at the property itself, the surrounding market, and the potential return on the improvements.

The following five factors can help property owners determine whether repositioning is a practical path forward.

1. Location: This can be the most important factor to consider, as it is the one that cannot be changed. If the property is in a marginal location, no amount of repositioning is likely to increase its growth or occupancy.
2. Analysis: An in-depth and thorough analysis of the property is key. Determine the condition of the property; decide whether it will need infrastructure upgrades and if its amenities will meet the demands of the targeted users. It can be helpful to compare your property to its competitors in order to assess where improvements are needed. Look at both costs and benefits in order to make market-driven decisions.
3. Number and Size of Units: Consider the current size and number of units on the property. Then find out what the market demand is in your area. If units are too big or too small for the targeted users, then that will lead to lower occupancy levels. Weigh the costs of resizing units against the profits to be gained by meeting the needs of more users and achieving a higher occupancy rate.
4. Inspections: Two types of inspections are necessary to assist the property owner with the analysis of the property. First, a physical inspection should be completed to evaluate the condition of the buildings, systems, and common areas, identify necessary improvements, and estimate the costs associated with those improvements. Once this inspection is completed, a leasing specialist should be consulted to inspect the property from a marketing and leasing standpoint. The results of this second inspection will determine any improvements that are needed to increase the potential occupancy of the property.
5. Market Survey: This can be performed with the help of a commercial real estate professional or leasing broker experienced in leasing this type of property in order to establish the time it will take to lease up the property and what occupancy rate can be maintained if the improvements are made. This needs to be specific for your property and local real estate market. It can also be used to show a lender if loans for development are needed.

When considering potentially repositioning a property, the building owner should carefully evaluate their existing management team to determine if they have the necessary resources, skills, and experience to achieve a successful repositioning project. If not, then a team of professionals should be assembled to provide more expertise and assistance.

Strategies for Repositioning a Property

There are several ways investors can reposition an existing property, depending on the condition of the real estate asset, the needs of the market, and the goals of the owner. Common strategies include:

• Renovating or upgrading the property: Improve the physical condition of the property through repairs, modern finishes, updated common areas, better signage, improved landscaping, or upgraded building systems.
• Changing the target tenant or buyer: Reposition the property to appeal to a different demographic, business type, or income level if the current market segment is not producing strong occupancy or returns.
• Improving amenities: Add or update amenities that are important to the target users, such as parking, security, shared workspaces, outdoor areas, storage, fitness areas, or technology upgrades.
• Reconfiguring the layout: Adjust the size, number, or layout of units or spaces to better match current market demand. This may include dividing larger spaces, combining smaller units, or converting underused areas into more functional space.
• Changing the property’s use: In some cases, a property may perform better if it is converted to a different use, such as turning an outdated office building into multifamily housing, retail space, or mixed-use development, depending on zoning and market demand.
• Improving operations and management: Strengthen the property’s performance by addressing deferred maintenance, improving tenant communication, adjusting lease terms, reducing expenses, or bringing in a more experienced management team.
• Refreshing the marketing and leasing strategy: Update the property’s branding, listing materials, pricing, broker relationships, and leasing approach to better reach the right tenants or buyers.

The right repositioning strategy will depend on the property’s location, condition, and market demand. Before making improvements, investors should evaluate whether the expected increase in occupancy, rents, and property value will justify the cost of the repositioning plan.

Need financing to Reposition Your Colorado Property?

Repositioning often requires capital before the property’s performance has improved, which can make traditional financing more difficult to secure. Private hard money lenders may be able to provide more flexible financing for borrowers who need to renovate, stabilize, or improve an underperforming commercial property. 

Montegra works with borrowers who are looking for practical financing solutions for Colorado commercial real estate projects, including properties with repositioning potential. If you are considering improvements to increase occupancy, improve cash flow, or strengthen the long-term value of your Colorado property, contact Montegra to discuss your financing options.