Buying with the Eye

Our painter prepping a building we purchase

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I met with our accountant recently to review the tax returns associated with our properties.  One of the questions that came up was why we immediately paint most buildings we’ve purchased.  It’s been a reoccurring theme and one I was excited to discuss.

Curb Appeal

“People buy with the eye,” my investing partner likes to say.

Painting the buildings is as simple as curb appeal.  We want the properties to look good.  I’m surprised that we can buy these properties looking as bad as they have, especially when the seller wants to get top dollar.  However, that's where we can add some immediate value.

There are enough HGTV shows preaching curb appeal that you’d think everyone has heard the topic.  It’s obvious they haven’t.  The buildings aren’t painted and the lots aren’t striped.  Weeds are in curb lines and in the cracks of the parking lot.  Trash has accumulated in corners and near dumpsters.  The building systems might be in fine shape, but the rest of it looks tired and worn.

We love buying buildings in these conditions, but it’s terrible for the tenants in place.

I know landlords who’ve said, “The tenant isn’t complaining” and they’ll worry about it only when it’s vacant.   Or, if it’s an NNN lease, they’ll say it’s the tenant’s responsibility to maintain the property and they don’t want to force the issue. 

I’ve heard other landlords talk negatively about the concept of “pride of ownership” as if it’s a bad thing.  They espouse the idea that you shouldn’t be overly attached to your property.  While I agree with the concept of “love the numbers, not the property,” I have a hard time letting a property look rough.

Maybe it’s my property management background or maybe it’s my experience working for a mall developer, but when you own retail properties, you better care how your properties look at all times.  I think this goes for office buildings and multi-family projects as well.

Your property is the first impression customers get when visiting your tenant.

You want your tenants to look sharp and perform great, why shouldn’t they expect the same of your property?

We painted a single-tenant building for a retailer at the mid-term of their lease.   We also gave a new coat of paint to the pylon sign.  It wasn’t required in the lease and the tenant wasn’t complaining about it.  Why did we do it?  Because it was the right thing to do.  The building was looking tired.  We called the retailer and told him what we were going to do.  “What’s this going to cost me?” he asked.  “Nothing,” we said.  “You’ve been a great tenant and we want to take care of the building and help your business.  We want you to stay with us a long time.”  You could have heard a pin drop on the other line.

What happened after we painted that building?  His manager called me excited about how sharp the property looked.  She also reported that customers felt a new sense of excitement about the business. 

Every year we make sure to re-stripe our parking lots.  We also paint parking stops and no parking lanes.  It doesn’t cost much, but that yellow and red paint really “pops.”  Curb appeal matters and your tenants notice it.  So, do their customers.

Someone will complain that spending money when we don’t have to hurts our return (in those non-NNN leases).  If you’re looking only at today’s dollars, you’re thinking wrong.  Look long-term.

There are too many landlords pulling every dime out of their buildings so they can have their cash flow and eat it, too. 

When the property starts to look tired, customers notice.  When customers notice, tenants feel it in their bottom line.  When tenants feel it, they leave.  When tenants leave, you’re going to have vacancy costs, turn-over costs, tenant improvement costs, and leasing commissions.  Why wouldn’t you save the time and cost of reacting to problems by preventing them?

Painting and parking lot striping is only one element.  Update your landscaping occasionally.  Replace faded awnings.   Make sure parking lot and building lighting works at night.  That’s right, curb appeal is important at night as well.  You don’t want your property to look uninviting and scary.

Those are just a few things to keep an eye on.  If you keep on top of these items, the actual cost to maintain them is reasonable.  It’s when they are ignored that these issues become a problem.

The final product.  What a tremendous difference.

Our accountant shook his head as I signed the partnership tax returns.  “I can’t believe how well these properties do each year.  You guys just don’t lose tenants and the buildings aren’t getting beat up.”

Before someone argues that we’re under market on our rents to stay full, we’re not.  All our rents escalate annually and we contact the tenants early for renewal, sometimes as early as 180 days.  What we do differently is pay attention to the physical appearance of the property. 

If you aren’t a good steward to your property, your property won’t be a good steward to you.

What are your thoughts on curb appeal?  I'd love to hear from you.