Commercial Real Estate Focuses On Flex Buildings



As commercial real estate projects sprout around the Rochester area, developers and builders offer mixed views of the future market for such properties.

Commercial projects account for about 30 percent of the $200 million in business that DGA Builders LLC does in New York State annually, said Kevin Nowack, DGA’s vice president.

“Anything that isn’t going to be occupied as a residence pretty much falls under our commercial umbrella,” he said. “We do a significant portion of that work in Monroe County.”

Back in 2015, the firm, which has offices in Pittsford and in Cranberry Township, Pennsylvania, began extensively renovating 140 Canal View Boulevard, Brighton, for UR Medicine.

“It was essentially taking what was there down to a shell, and then rebuilding it,” Nowack explained.

Completed in 2017, the 40,000-square-foot building is now home to UR Medicine Heart and Vascular’s Rochester Cardiopulmonary Group and its Cardiac Rehabilitation program.

DGA is involved in a lot of renovations or rehabilitations of this kind, according to Nowack.

“That’s one of the trends that’s out there,” he said. “If you have good bones to a building and the infrastructure’s in place, it certainly is a lot more cost-effective to repurpose a building than to build it from the ground up.”

Projects that take advantage of the assets in existing buildings are more common in Rochester than in its suburbs.

“In the city, there’s a lot of adaptive reuse,” said Kurt Sertl, Director of Leasing for the Gallina Development Corporation, which engages in commercial real estate development in Monroe and Ontario counties.

Adaptive reuse goes beyond renovation—once construction is completed, the structure involved is put at least in part to a different purpose than that for which it was originally built.

The Metropolitan, Gallina’s only adaptive reuse project in Rochester, is a good example of that process. Gallina gutted most of the old Chase Tower building on Rochester’s East Main Street, and is in the process of turning it into a mixed-use structure.

“We’re adapting that building to new uses—it’s not 26 floors of offices anymore,” Sertl said.

The finished project will encompass a total of 16 floors of office space, five floors of condos and five of apartments. Thirteen floors of the office space are already committed, two floors of apartments have been rented, and a restaurant has opened in the building.

Other types of Gallina projects have recently risen up out in the suburbs, where most of the firm’s portfolio—which totals 2.5 million square feet—is found.

Back in December, the firm cut the ribbon on Lehigh Crossing, a new 27,000-square-foot flex building that it erected and owns in Victor.

“Flex buildings are generally office, warehouse, manufacturing-type buildings, where you can give someone different size spaces,” Sertl explained.

The $3.5 million project was undertaken on spec; Gallina didn’t have on tap all the tenants needed to fully rent the place.

“We had one tenant on tow when we built the building, and then we leased the balance of the building to the one additional tenant,” Sertl said.

Lehigh Crossing isn’t the only commercial project that Gallina has done on spec. 957 Panorama Trail South, a 24,000-square-foot, $1.5 million building that the firm erected at the Panorama Landing office Park in Pittsford, is just a shell at this point.

“We’re awaiting the assigning of tenants so we can build it out,” Sertl said.

Spec projects do pose a bit of risk for a firm. What if the tenants don’t appear?

“You’re not able to find somebody when you’re in your construction process, and then the building sits there for a little while,” Sertl said.

At the same time, such projects reflect his firm’s view of the market for commercial buildings.

“We wouldn’t put up a spec building if we weren’t optimistic about the future, and thought it was in a good location and thought there was a market for it,” Sertl said

Gallina will also build to suit, erecting a brand-new structure that meets its future tenant’s needs, and renovate existing structures.

“We’re always renovating and re-leasing existing office and flex and warehouse space,” Sertl said.

Richard LeFrois, president of Russell P. LeFrois Builder, Inc., describes the current market for commercial real estate development as “stable.”

“It’s basically some new construction and some repurposing existing buildings,” he said.

Just last October, LeFrois broke ground in Henrietta on a new project for IDEX Health & Science, a segment of the IDEX Corp.

“We’re building a pretty exciting project for the city—for the whole area,” LeFrois said.

An IDEX press release refers to the new facility as its “Optics Center of Excellence.” Those working in the 100,000-square-foot, $14 million building, which is slated to be completed this July, will engage in the design and manufacture of high-performance lens assemblies, lasers and other high-tech optical components and devices. LeFrois will own the building and lease it to IDEX.

While the IDEX project seems to highlight another area where local development is expanding, LeFrois doesn’t speak of the future of local commercial real estate development in glowing terms.

“It’ll be stable, but I don’t see it growing much,” he said. “Since our population is basically stable or stagnant, it has reduced the need for new projects.”

Sertl said he is “cautiously optimistic” about the current market for commercial real estate properties. In the coming years, demand for some types of commercial buildings—like those that house medical offices or high-tech companies—could grow.

“There seems to be a lot of young, growing IT kind of tech companies in town that I think are going to be doing well and looking for office space in the future,” he said.

Source: https://rbj.net/2018/03/30/commercial-real-estate-focuses-on-flex-buildings/

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