Retrofits Enhance Property Value and Attract New Tenants, Experts Say

For Bravo! Paulista, retrofitting increased its value by 54.6%

Melissa Spinelli, Office Manager at Binswanger

By: SiiLA News

11/25/2024

Lease negotiations are influenced by various factors, with property quality being the most critical. Recently, in the Faria Lima area, Plaza Iguatemi reached a rental value of R$ 400/m², largely due to its prime location and property standards.

Updates and retrofits can transform underperforming or abandoned buildings, significantly improving their appeal. The Centenário building, commonly known as "Centenarinho," exemplifies this shift. Once a Class C property, it is now a Class A asset, housing WeWork under an 18-year (216-month) lease.

Similarly, in the Jardins area near Avenida Paulista, the Jorge Salomão building underwent a retrofit in 2020, upgrading from Class C to Class A. By 2023, it achieved full occupancy by SulAmérica, following the company’s acquisition by Rede D’Or.

Melissa Spinelli, office manager at Binswanger, highlights the variability in outcomes depending on a property’s existing structure.

"Typically, conventional slabs have an advantage over retrofitted ones. This is because retrofitting older structures can result in limitations, such as lower ceiling heights, reduced efficiency, or inadequate circulation—issues that modern developments are designed to overcome. However, everything depends on the project and especially the quality of the existing structure," explains Spinelli.

Success Case

Spinelli identifies Bravo! Paulista as a prime example. Retrofitted in 2022, it transitioned from Class C to Class B, achieving a current market value of R$ 90.4/m² and a vacancy rate of just 6%.

"An excellent example is Bravo! Paulista, located at Al. Santos, 1,800, where rental values jumped from R$ 55.00 to R$ 130.00 per m²," she explains.

Owned by the Rio Bravo fund (RCRB11), Bravo! Paulista was acquired in February 2020 for R$ 67 million. Anita Scal, managing partner at Rio Bravo Investimentos, recalls that the property was entirely vacant at the time, with the fund aiming to unlock its potential.

"The fund recognized the property's prime location in one of the country’s most established areas, adjacent to Parque Trianon, with access to both Al. Santos and Av. Paulista. This region historically had lower vacancy rates compared to other major areas," Scal explains.

The latest valuation in November 2023 showed a 54.6% increase in value, reaching R$ 97.6 million. The retrofit not only boosted value and tenant demand but also secured the sale of the 10th floor to Etoile Negócios Imobiliários S/A for R$ 9 million—the same company responsible for the retrofit.

Negotiations

The Binswanger business manager explains that upgrades help strengthen the broker's case during new lease or sale negotiations, attracting tenants with more demanding profiles.

Operational cost reduction, extended building lifespan, improved workplace environments, sustainability certifications, image enhancement, and branding are some of the key factors used as arguments.

"The impact of a retrofit on property negotiations can be highly positive, both in increasing sale or rental values and in attracting tenants with more discerning profiles. It can serve as a strong argument in negotiations, leading to faster and more advantageous deals for all parties," says Spinelli.

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