But it is not only abroad that retrofitting is applied. Significant transformations occur within the properties when they undergo this process. "The modernization of existing developments is a trend that is here to stay. Over time, new techniques emerge, and well-located assets undergo the process of renovation to compete with new developments being constructed," comments Giancarlo Nicastro, CEO of SiiLA Brasil, a multinational company that conducts research and analysis of the real estate market in Latin America.

To better understand what retrofitting is, our team spoke with Karen Moreira, Director of Engineering at Barzel Properties, who detailed the retrofitting process, discussed the selected developments for this process by the company, and presented four retrofitted projects carried out by the company.

Here is the interview:

1. What types of developments can undergo retrofitting?

Retrofitting is a highly efficient solution that is increasingly used in Europe and the United States and is gaining more ground in Brazil as a way to renovate and update buildings, especially corporate ones. Retrofitting is recommended mainly for old buildings that have lost attractiveness in the real estate market, particularly when located in established economic and financial centers where there is little land available for development, and if there is, the cost of both the land and construction is extremely high. In such cases, retrofitting helps to enhance the value of assets, making them more modern and efficient while revitalizing the area.

However, before starting the retrofitting process, a thorough evaluation of the property is necessary to identify its deficiencies and determine the updates that can be made to make the most of it and make it more attractive in the market. At Barzel, we have a specialized team of engineers and architects with this perspective.

A classic example of a building in a prime location that required modernization is Pinheiros Corporate. The building is in an excellent location in the Pinheiros neighborhood, near Rebouças, Paulista, and Faria Lima Avenues. In the surrounding area, there are few corporate buildings of a similar standard and available land with incorporable dimensions.

As the building was outdated in some aspects, we needed to modernize it to make it more functional and aligned with market demands. For example, the façade had infiltration points, and the building had two receptions, which made visitor flow confusing. After the retrofit, we installed a new high-performance glass curtain wall, giving the building a more modern overall appearance. Additionally, we created a new landscaping design with a communal area in front of the building next to a water mirror, contributing to the well-being of our clients. Internally, we improved the overall flows by unifying the reception area, repositioning turnstiles, modernizing the lobby and elevator hall, and making significant changes to the lighting concept. Since Pinheiros is a neighborhood well-served by bike lanes, and many of our tenants are concerned about mobility and well-being, we implemented the bike-friendly concept by creating a bike parking facility with changing rooms. In other words, we repositioned the building considering all aspects of functionality, aesthetics, urban mobility, and the well-being of those who visit the building occasionally or on a daily basis, as well as the residents of the general area.

2.What type of enterprise is Barzel looking for to carry out a retrofit?

In technical terms, we have defined specific criteria for acquiring old properties within our business strategy: the property must have a minimum of 7,000 square meters of leasable area, with a minimum floor size of 500 square meters, and it should have a central air conditioning system so that we can make improvements to the existing systems.

In general, we seek buildings that have potential for appreciation, are located in excellent locations, surrounded by good transportation and service infrastructure, and that, after our studies and analysis, show evidence that the retrofit will add value to the asset.

During these studies, we take into consideration both quantitative and qualitative aspects of the property. We analyze the flows and how they can be rethought to improve the day-to-day operations of the enterprise (entrances and exits, visitors, suppliers, and tenants, access security, garage entrances and exits). We examine in detail all the equipment such as air conditioning systems, generators, water supplies, lighting, etc., and explore the most current options in terms of efficiency, lower pollutant emissions, and reduced energy waste. Additionally, we consider aesthetic aspects such as landscaping, new finishes, lighting, always keeping in mind the well-being of both those who use the building and those who interact with it in the surrounding area and can benefit from these improvements. In the renovations we carried out with the other owners at Cond. São Luiz, we removed the walls around the building and made the famous Burle Marx gardens accessible to everyone.

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3.What is the biggest challenge in carrying out a retrofit?

The biggest challenge is making the necessary changes to modernize the property without neglecting the existing tenants. The renovations need to be done on the shortest possible timeline to minimize disruption, while the operational hours of the buildings are highly restricted, making the process very challenging.

Additionally, some properties may lack documentation (known as "builts") detailing the alterations that have been made over the years, which can lead to surprises during the construction phase, requiring the engineering team to make quick decisions to avoid work interruptions.

However, since we have a team with expertise in retrofitting, we already have a keen understanding of what needs to be done and have implemented a well-structured action plan with each stage of the retrofit. This greatly facilitates the process.

Each building has its own particularities, and each retrofit project presents some more specific challenges. Going back to what was mentioned earlier about considering the occupants of the building during the renovations, one of the biggest challenges was the retrofit of transforming a space originally designed as a theater with a stadium-style auditorium into a completely open plan area. After the theater went bankrupt, the space remained vacant for years until we acquired it and began construction, including demolition and structural reinforcement, in a fully occupied corporate building surrounded by predominantly residential neighbors. This meant that we could not cause disruptions or noise during the day or at night, including weekends. We brought in special equipment that could be used with the least possible noise level. After the renovation, this area was leased to a supermarket that serves both the building occupants and the local residents.

For tenants, what are the benefits of occupying a retrofitted property?

For occupants, the main benefit is undoubtedly being in a prime location and occupying a modern property with state-of-the-art infrastructure and technology, while enjoying significantly lower occupancy costs compared to new triple-A buildings.

In many of the buildings we retrofit, we create communal spaces and revitalize the external areas, always prioritizing the well-being of the tenants. We establish bicycle parking areas and changing rooms, considering mobility, and we replace and clean the entire air conditioning system, focusing on air quality. These features could be found by a tenant in a newer building, but at a higher price.

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5.And for property owners, what is the main benefit of investing in the modernization of a development?

For property owners, the main benefit is to keep their property attractive. Since the cost of a premium location is generally high, choosing to renovate and enhance the value of the asset becomes advantageous. Additionally, when vacancy rates in buildings are very high, the cost of acquiring properties for retrofitting is lower, and even with the necessary investments for modernizing the asset, the overall return remains appealing for the investor. Conversely, as vacancy decreases, rental prices and prices of ready-to-use properties start to rise, marking the beginning of an expansion period. This is part of the real estate market cycle.

Following this strategy, we acquired Berrini 500, São Luiz, CEA, and Pinheiros Corporate in 2017 during a market downturn, with the aim of repositioning them through retrofitting projects. Soon after the completion of the renovations, we saw positive occupancy results that demonstrated the success of the retrofit.

Karen Moreira is the Director of Engineering at Barzel Properties. She holds a degree in Architecture from Centro Universitário Belas Artes and an MBA from Fundação Getúlio Vargas. With over 10 years of experience in the Real Estate sector, focusing on logistics projects, land development, and acquisitions. Prior to joining Barzel, she worked as a senior architect at MVEP (Marcos Vieira Escritório de Projetos), where she was responsible for site implementation studies and land acquisition analysis. She also worked at Carbone Construtora as a senior manager overseeing approvals, project coordination, and construction management of industrial projects.