The Owner’s Perspective: A Strategy for Profitable Transformation to Create Value (Part 2 of 4)
By Robert Kroon
(A Quick Recap: In our first post, we established the compelling case for retrofitting the Forrestal Building, positioning it as a prime opportunity for a private-sector owner.)
Investors must do a deep dive on all financial aspects of a retrofit.
For a building owner, a successful retrofit is measured by its Return on Investment (ROI). The vision for the Forrestal Building is not just about creating a beautiful space; it's about engineering a highly profitable, low-overhead asset. This means that every decision, from choosing a window to installing a sensor, must be justified by its financial impact.
The central goal of this strategy is to maximize Net Operating Income (NOI), which is simply (Revenue - Operating Expenses). A building's market value is fundamentally tied to its NOI. Our entire retrofit plan is designed to attack both sides of this equation simultaneously to deliver a powerful ROI.
Driving Up Revenue (A "Highly Profitable" Asset):
Commanding Higher Rents: By integrating premium features like a unique industrial chic design, advanced health-monitoring systems, and guaranteed uptime from a microgrid, the building can command higher rents per square foot than its competitors.
Maximizing Occupancy: The flexibility of an Agile Workplace design allows the owner to cater to a much broader market—from large corporations to small teams—minimizing costly vacancies and reducing downtime between leases.
Creating New, Non-Lease Revenue: Our plan builds in new profit centers, such as selling energy back to the utility via the microgrid or creating revenue-sharing agreements with on-site amenity operators.
Slashing Expenses (A "Low-Overhead" Asset):
Attacking Energy & Maintenance Costs: Energy is the single largest operating expense. By installing a high-performance building envelope, zoned heat pumps, and smart sensors, we systematically crush this cost. Furthermore, all-new systems eliminate the expense and risk of emergency repairs on failing 50-year-old equipment.
Optimizing Labor and Services: The integrated sensor network allows for data-driven cleaning and security schedules, eliminating the waste of servicing empty areas.
This strategy begins by leveraging the building's inherent strengths to immediately impact the balance sheet. With slab-to-slab ceiling heights easily exceeding 13 feet, we can completely avoid the cramped, 8-foot dropped ceilings that define traditional office space. By embracing an industrial chic design—exposing the full ceiling height and cleanly integrating modern systems—we create an environment that feels dramatically more open and less cramped. This premium aesthetic not only attracts high-value tenants but also reduces upfront capital costs on materials.
Engineering decisions designed to execute this financial strategy:
August Berres provides mobile space dividers for Agile Workplaces
1. Drive Revenue with True Flexibility (Agile Workplaces) An agile infrastructure allows you to sell space, not just lease it. By creating a modular interior, you can minimize downtime between leases and maximize revenue from every square foot by offering a diverse portfolio of space options.
2. Slash Costs with a Digital Power Infrastructure (Fault-Managed Power & PoE) A digital backbone of low-voltage power lowers upfront construction costs and drastically reduces ongoing energy bills from lighting. This infrastructure also serves as the plug-and-play platform for the building's nervous system: its sensor network.
3. Create a "Sentient" Building with an Integrated Sensor Network A dense network of occupancy, air quality, and light sensors provides a goldmine of data. This data allows the building's systems to automatically reduce energy use in empty areas, optimize cleaning schedules, and provide a healthier environment—a key factor for attracting and retaining premium, health-conscious tenants.
4. Fortify the Building Envelope Against Solar Gain By combining modern, high-performance windows with architectural external shades, we dramatically lower the building's cooling load. This allows for the installation of a smaller, less expensive HVAC system (a direct CapEx saving) and ensures lower utility bills for the life of the building (a direct OpEx saving).
5. Eradicate Energy Waste with High-Efficiency Climate Control With the building envelope fortified, we will replace the centralized energy hog of an HVAC system with modern, zoned heat pumps. This move delivers multiple financial benefits by providing hyper-efficient heating and cooling, granular control for billing, and a de-risked, fossil-fuel-free asset that appeals to top-tier corporate tenants.
6. Build a New Profit Center with a Resilient Energy Asset (Microgrid) During the initial planning, the potential income from selling grid services back to the local utility must be factored into the project's pro forma. The implementation of a microgrid with solar, wind, and battery storage delivers ultimate resilience during outages, drastic cost reduction through peak shaving, and new revenue through grid services.
By making these strategic engineering choices, we transform the Forrestal Building from a high-overhead liability into a high-performance, tech-forward asset. The result is a building that costs less to operate, attracts premium tenants, and is positioned for long-term growth in value.
In our next post, we’ll explore how this high-performance shell can be configured and furnished to maximize the productivity and well-being of the occupants—the key to tenant retention.
