Reposition Property for Highest and Best Use

Repositioning property can involve more than just physically changing the look of a building, although cosmetic improvements and upgrades can certainly be an integral component. Another important consideration is the submarket in which the property is located. If that has changed, whether demographically or economically, then repositioning may also necessitate creating and marketing a new use for the property.

Understand the Submarket and then Reposition Property

As an example, let’s take a look at the submarket of Richardson, Texas—specifically the area around Campbell Road and North Central Expressway. For many years, this submarket was filled with offices of physicians and medical practitioners affiliated with the nearby Methodist Hospital.
Now, however, that facility has become Methodist Campus for Continuing Care and the new Methodist Richardson Medical Center is located at the southeast corner of Renner Road and President George Bush Turnpike. In order to be closer to the new hospital, many doctors and practitioners have moved their offices further north, too.

Consequently, buildings along Campbell that previously housed doctors’ offices, clinics and out-patient services require repositioning in order to attract a larger pool of potential tenants.

Creating and Marketing a Repositioned Property

Determining the kinds of tenants that should be targeted is essential to the success of any repositioned property. Looking once again at buildings around Campbell and Central, many of these are now being marketed as second generation medical space, meaning they have some improvements—walls, doors, light fixtures and ceiling treatments—that subsequent tenants can use. The question is who might be a tenant?

Very often the right tenant is a business looking for a general or professional space that is economical. They do not necessarily need or want to be located where the market is hot and, therefore, more expensive. The asking rent rate per square foot in this part of Richardson is far less than that in the highly desirable area of upper northwest Plano or Frisco. So a young or small business such as a janitorial company, for instance, might be a potential tenant for a second generation medical space in Richardson that has been repositioned for general or professional office use.

Yes, the building had previously been for medical use. But now because of the dynamics of the submarket, a different marketing strategy was needed in order to attract a wider range of possible tenants for the building owner.

Also, repositioning may necessitate offering potential tenants the option to buy the property, purchase an individual condo within the building or lease space. In this way, an owner is able to cast an even wider net in an effort to reach the highest and best use for the property.

The information contained in this article is general in nature and should not be construed as financial, tax or legal advice.  As with any financial or legal matter, consult your tax advisor and legal counsel.