Tenant Improvement Fills the New Construction Hole
By DANIEL D. WILLIAMS
These days tenant improvement work is keeping builders busy.
Long a modest revenue source for builders, tenant improvement work has become a bigger share of construction revenue as the pace of new building staggers at a limp in Orange County.
As recently as two years ago tenants were outgrowing space. So they expanded existing space or moved to larger buildings.
Now, with a weak economy and post-Sept. 11 blues, they’re more likely to reconfigure existing space for better efficiency, or downsize altogether.
“Most work is taking place in existing buildings as tenants are looking to rework what they have,” said Carl Parslow, director of property services for Tustin-based builder DMK Inc. “They’re also remodeling.”
In the last year, DMK has added classrooms for Azusa Pacific University in the city of Orange and made cosmetic changes to banks for Farmer’s & Merchant’s and Countrywide. DMK also built two new buildings and a parking facility at a medical center in Orange.
Sometimes, law dictates the changes.
“We do everything including bringing old restrooms up to (Americans with Disabilities Act) compliance,” Parslow said.
One of the biggest challenges in doing improvement work is renovating without disrupting current tenants.
DMK encountered this challenge when it worked on Commerce Plaza, a 12-acre, 18-office building complex in Newport Beach.
DMK gave the buildings a new “skin,” covering the existing plywood exteriors with a more modern stucco covering. The improvements gave Commerce Plaza an up-to-date, monument-style signage and a new fa & #231;ade.
Renovation costs topped $2 million and construction took eight months.
More recently, DMK put in a bid to reconfigure space for Toronto-based Celestica Inc.’s OC offices in Foothill Ranch.
Parslow did not know if Celestica was downsizing.
“They want to adapt what they have,” he said.
Some companies focus on bigger projects.
An example is Orange-based builder Asher Industries Inc. and its contract with Advanced Medical Optics Inc. (see related story, page 1). The maker of contact lens care and eye surgical products spun off from Irvine-based parent Allergan Inc. and found new digs in Santa Ana’s PacifiCenter business park. It is subleasing space there from technology distributor Ingram Micro Inc. Advanced Medical will take 150,000 square feet at 1600 E. St. Andrew Place. Asher Industries will do about $8.5 million in upgrades, including building research labs.
The Advanced Medical project is typical of the tenant improvement work the company seeks.
“We’re doing expansions for Fortune 500 Companies,” said Harriet Whelpley, secretary treasurer of Asher.
Though budgets are low for many companies, there are big-budget projects out there.
“We’re not seeing the smaller stuff right now,” Whelpley said. “But we’re working with long-term capital improvements or repairs from flood, fire or structural damage.”
Tenant improvement work often comes out of larger projects or from repeat clients for the OC unit of St. Louis-based McCarthy Building Cos.
“We have a special projects group that handles tenant improvements,” said Jim Mynott, director of business development for McCarthy’s OC unit.
Recently, McCarthy completed tenant improvements in healthcare and education: McCarthy is managing upcoming Newport-Mesa Unified School District improvements and a parking and office structure for the University of California, Irvine.
“We take a selective approach to (tenant improvement) work,” Mynott said.
