An Interview With: Ann Page
“Office condos”? That’s the niche Ann Page has created for herself at Randall Hagner’s commercial division, which has handled 40% of recent such sales in Northern Virginia, with Page one of its top agents marketing both conversions and new construction. She represents such clients as Toll Brothers in South Riding and Haymarket; Atlantic Realty in Ashburn, Annandale, and Reston; Kfoury in Herndon; and Broadstreet in Shawnee Business Park. Page grew up as an army brat in places like Japan and Germany, but kept coming back to Arlington, started in commercial real estate 20 years ago partly because she felt she could control her time better than in residential; and started at Hagner seven years ago when the firm bought NOVA Commercial Realty, of which she was part-owner.
Bisnow on Business: What’s an “office condo”?
Typically it might be 1000 to 5000 square feet, plus your share of hallways and bathrooms, owned or used by doctors or dentists or other small businesses. Some are designed to look like townhouses, such as South Tysons Office Park on Gallows Road, others are two story walk ups which used to be rented but now have elevators and are sold. The first ones around here started 15 years ago in Reston, when Atlantic Realty bought six buildings with eight units each. Trammel Crow marketed flex buildings with manufacturing offices in front and warehouses in back. Toll Brothers got into office condos after they built thousands of houses in South Riding, then shopping centers, and realized how people would love to have doctors and dentists and others in close-by buildings.
When did it become a phenomenon?
The craze really took off about 2003 when owners realized you could make more money subdividing units in office buildings and selling them individually. If you’re selling a 50,000 square foot office building in the suburbs, you might get $225 a foot, but if you divide it, you can sell individual units at $250 or $300. And from the point of view of the businesses, they often have enough expensive equipment set up that it makes sense for them to buy a permanent building and not have to move things around every five years.
Is any building a candidate for conversion?
Many buildings work well but many do not. When we search for buildings that we might be able to talk owners into selling or condo conversion buyers into buying, we are looking for buildings that are about half empty with several leases expiring soon. We also look for buildings that are divided or can easily be divided in ways that would be attractive for condo purchasers. We find that the sizes of individual units should be ideally 1,000 to 2,500 sq ft. We try to find buildings that will improve with new lobbies and hallways and updated lighting and bathrooms. We talk to individuals, not institutional owners who may not be able to divide their own buildings into condos to sell them. We suggest that they can get more money if someone can convert the building into condos, but the person who takes on the project must be knowledgeable and have the money and time to improve the building so the units will sell for higher prices. In other words, the seller has to leave a little money on the table for the buyer to spend money on conversion and still make a profit too.
How do you find the buildings to market?
Personal relationships. For example, I knew Will Soza, and he had sold his business and he and his partners wanted to sell a building in Annandale. I knew that it was the type of building that Atlantic Realty would like to convert to condos because it was in an area ripe for the small unit sales. Atlantic had the experience and knowledge of conversion. One way I suggested to Atlantic that they could get added value out of that particular building was to sell the covered parking spaces. Atlantic said that had not been done before, but I knew it had been done in residential condos so I did not see why we could not get about $10,000 per space. All the spaces sold to the buyers of the units. Annandale is a hot Korean market. In fact, one building that was originally sold for $9.9 million re-sold for $14.9 million after the buyer spent money on conversion. It’s ideal if you have long term tenants already. For example, in one building GSA had a lease and wanted to stay but they don’t buy buildings as a government agency, so we found an investor who bought up their remaining lease. Sometimes the seller might subsidize a lease to have a unit appeal to an investor.
What do developers need to know about condo conversation?
First of all, they need to understand how to design the spaces in the least expensive way to make them work as individual units. They need to know what to include in the base construction and what to make an option for the buyer. This can make the difference in profit of the project. They need to know how to minimize the core of the building because the owners have to pay their proportionate share of the core space such as bathrooms, hallways, and stairs. After all, the developer has to be paid for every foot of the building, not just the actual space that the buyers occupy. Another thing they need to understand is that they can waste a lot of time on the zoning process and the building process — but construction costs are growing every day, and time is of the essence. And developers have to understand the importance of the best uses for the spaces. For example, we’ve learned over time that medical space is best sold in shell condition because the build out is so specific and usually much more expensive than office space to design and build. Office space, unlike medical space, is best delivered as finished turn key space. Another example would be that in Ashburn, we were able to sell some of the units as retail and the others as office. The retail units were of greater value so we needed to maximize the number of retail units.
Are you just little guys handing this?
When I started out in the business the big guys were all helpful to me and gave me what they thought was the small business at the time. Now the office condo business has become big business. In the beginning I just sold small condo spaces individually and then I started developing that part of the market. I found that I could make more money selling a building that I knew could be divided into condos because I could always sell it twice by selling it again in small pieces. As you know, small pieces sell for more money per square foot than bigger pieces. It takes more time to work with more buyers and handle more contracts, but it all adds up to substantial business over time. Also, individual condo buyers require a bit more hand holding throughout the process. We help on their financing as well as demonstrating to them how they can benefit by ownership rather than renting. As the interest rates rise, it is harder to show it is cheaper to buy. Now, rather than just giving rent versus buy figures, we have to show buyers their after tax benefits and the benefits of appreciation to prove to them the returns are positive.
Pays to be creative.
It’s not just with individuals that you have to be innovative. For example, I sold Atlantic Realty about 15 acres of land. I thought they could turn the whole thing into a big office park, but we found out that there was a lot of rock in the soil that would be expensive to blast out. So instead of constructing new buildings on the property, we decided to work with the 10 older buildings that were already there. We changed our plan and focused on making them look like office complexes. We attached awnings and fixed them up, and we had ourselves a new product!
So you actually get into construction.
Oh, yes. Here’s another common issue: If you have a building that's 100 feet deep, then you're going to have a whole lot of space in the center with no windows, right? We don't want that, so we make sure to plan long hallways down the middle of the building. It is also important to have the smallest core-factor possible. By core-factor, I mean bathrooms, elevators; basically all the unsold space that doesn't make any money directly. And I work to visualize what can be done with the core factor to make an attractive office space: nice elevators and sexy lighting are important.