Office building owners finally see payoff from millions in upgrades

Between pickleball courts, expanded fitness centers, walking trails and a multitude of other fittings, building owners across central Indiana have poured tens of millions of dollars into attracting—and keeping—office tenants since the pandemic began nearly five years ago.

The investments made at office parks in the suburbs and downtown’s live-work neighborhoods and office towers have helped owners by attracting new interest in their properties, even as the market continues to stabilize. Experts say some improvements—particularly those leaning into increasing interest in wellness—help soften the blow for employees returning to their cubicles after growing acclimated to working from home.

While office amenities are nothing new, the newest wave of updates to the workplace environment has property owners focused on food and fitness, including outdoor recreation space.

“COVID changed tastes, not just in companies and how they view office space, but in people’s preferences and what they want from where they work,” said Andrew Urban, senior vice president of occupier services for the Indianapolis office of Toronto-based commercial brokerage Colliers International.

He said while the amenities themselves aren’t necessarily a driving force for most people making the move back—companies have become more stringent on mandating in-office days over the past year—the features are often presented, and accepted, as benefits of spending more days in the office, whether downtown or in the suburbs.

“In the days of old, having a dry cleaner in your building was really convenient because everyone wore suits and ties, but no one wears that anymore,” Urban said. “Today, there’s more relaxed environments and areas that feel more like living rooms” because office buildings are trying to appease workers.

Big spending

Several office parks across Indianapolis and the northern suburbs have undergone major overhauls in the past four years, with many more either underway or set to begin.

The investments are well into the tens of millions, but many property owners don’t disclose financial details of their improvements.

At Parkwood Crossing on East 96th Street, owner Rubenstein Partners has spent more than $36 million on improvements to the 1.2-million-square-foot office park since purchasing it in 2016. While many of those improvements have been to buildings themselves—heating and cooling systems, lobby spaces, restrooms and facades—a large chunk has gone toward improving the worker experience.

Major tenants include Katz Sapper & Miller LLP, Merrill Lynch Wealth Management, CBIZ Inc., Morgan Stanley Wealth Management, Liberty Mutual, Travelers Insurance and ONB Insurance.

Philadelphia-based Rubenstein and its co-investor at the time, Strategic Capital Partners, also spent $8 million to develop a 14,000-square-foot, two-story facility known as the Parkwood Amenity and Recreation Center. The building features water views, multiple dining options, a full-service fitness center, state-of-the-art meeting spaces and a tenant lounge with an indoor-outdoor fireplace and wraparound deck.

More recently, the company added Village Green, an outdoor space with a putting green, pickleball courts, shuffleboard, cornhole and billiards.

Now, Rubenstein plans to further expand campus offerings after recapitalizing its loan last month. Recapitalization is essentially a long-term refinancing that allows a property owner to retain control of the asset while bringing in more equity, either on its own or through a partnership.

With ownership of both Parkwood Crossing and Lakefront at Keystone, which comprises more than 870,000 square feet at East 96th Street and Keystone Avenue, Rubenstein is the single-largest owner of office-park space in central Indiana.

Brian Simel, vice president of asset management for Rubenstein, said the overhaul plan includes two green spaces for pickup athletic events, co-worker collaboration and relaxation. Certain portions of the campus also could be leased for bar and restaurant offerings catering to employees and the public.

(More expansive plans to overhaul the entire property into a mixed-use development through a partnership with the city of Carmel, announced in 2023, have been put on hold.)

“I think people have always wanted certain things out of their office experience, so what we’ve seen since COVID is certainly a more discriminating customer in terms of creating office amenities that are actually a magnet for people to bring them back to the office,” he said.

Seizing the opportunity

Simel said companies are looking for a way to win support from employees on a more rigid in-office schedule and are doing so by gauging their priorities for the amenities they’ll be able to access.

Rubenstein is “constantly talking with tenants and prospective new tenants about what things would really be impactful for them,” he said. “We want things that look nice, but more importantly, are getting used in a real part of tenants’ day-to-day.”

Simel pointed to Lakefront at Keystone as an example of how feedback has been incorporated into offerings for workers.

There, Rubenstein has invested several million dollars along the property’s lakefront, adding an outdoor entertainment space, an amenity barge, a kayak dock, a workout circuit, sports courts, and a green space and sitting area with games like giant Jenga, horseshoes and cornhole.

“A lot of our competitors right now are underwater and struggling to find the money or the willingness to invest the money to do some of the basic things, at the same time that we’re adding things like an island chipping green,” he said. “At the end of the day, tenants noticed and appreciate that, and it’s a big part of why we’ve been pretty successful on the leasing front, in spite of the environment.”

The Keystone at the Crossing office park was expected to be sold this week for an undisclosed price to a partnership between Los Angeles companies Interamar and Tryperion Holdings. The property was listed for sale earlier this year after encountering problems with its lender.

Joe Kessel, CEO of Interamar, told IBJ in an email response to questions that although the office park’s location is highly desirable, the property has seen little post-pandemic investment that focused on tenant needs.

“We are striving to create a differentiated office environment at every touchpoint, to position the campus favorably in the ongoing flight to quality office product,” he said. “That includes a first-class amenity package, fully renovated common spaces, hospitality-oriented services and proactive ownership.”

Kessel declined to share how much would be spent on improving amenities within the 1-million-square-foot park. But he said plans call for new indoor and outdoor tenant lounges, more conference and training rooms, mother’s rooms and wellness areas, and fitness facilities throughout the campus with a mix of workout spaces, steam rooms, saunas and pickleball courts.

The five-building property is also expected to see full renovations to its lobbies, restrooms and public areas. Currently, the office park has virtually no amenities of its own, instead tethering itself to The Fashion Mall at Keystone as a key feature. But Kessel said he’s confident that adding features to the park will bring people back to the office—and attract new companies.

“Companies are seeing higher productivity when their teams are working in-office [instead of] remotely, so there has been a growing need to provide incentives for voluntary return to office,” he said. “Those incentives are coming in the form of services, amenities and higher-quality physical improvements, both within tenant spaces and the buildings writ large.

“We are seeing that buildings with robust amenity packages attract more headquarters tenants and tenants looking to make greater commitments to their spaces, both in terms of term commitment and investment above their allotted tenant improvement allowances.”

Downtown movement

Office buildings and parks in Carmel and Fishers have also seen a boom in their respective workforces in recent years because of work done to enhance core neighborhoods.

And Indianapolis has seen significant investments downtown, including the now-$600-million Bottleworks District project in Mass Ave, which will complete its office-heavy second phase early next year, and The Stutz, which saw more than $100 million of investment to modernize the property at 10th Street and Capitol Avenue and bring in an array of new tenants.

And while some properties in the city’s central business district continue to struggle with delinquency and foreclosure—including Circle Tower and Regions Tower—work is underway to revitalize the downtown office environment.

Jon Owens, managing director and office broker for the Indianapolis office of Chicago-based Cushman & Wakefield, said current market vacancy is about 26% overall, but downtown is still struggling to recover from the pandemic.

“Some of my oldest clients that have been downtown their entire history are taking a hard look at moving,” he said. “So, the downtown building owners are really working hard to make sure that they have the amenities that they need to compete with the other buildings, or they get marked off the list pretty quick.”

He said downtown office building owners are focused on adding food service and coffee, fitness facilities, and more meeting and conferencing spaces for larger corporate gatherings. Without those, Owens said, “they won’t maximize their ability to entice tenants.”

Many office towers like Market Tower and Salesforce Tower have made sizable investments in their offerings for workers. And some companies near Monument Circle have been able to lean into the Spark on the Circle activation that offers seating, food options and games throughout the warmer months.

But Owens and others said the view of downtown as an amenity all its own has been slow to recover. That’s in part, they said, because of perceived safety concerns but also because of the hassle of downtown-specific challenges like paying for parking or dealing with heavy traffic.

“How does downtown differentiate itself again, when the suburbs can compete for the same sort of after-hours business?” said Urban, with Colliers.

He said the city is trying to tackle the problem with plans, for example, to attract a Major League Soccer team and build a stadium for it as well as the project to redevelop Circle Centre Mall.

“They’re trying to address those things because they know that those can be amenities that draw people in that go beyond the office building,” Urban said.

‘Not much we have to do’

Other big changes are underway downtown, as well, with some office buildings being fully or partially converted to uses like hotels or apartments. And even owners of buildings that have seen major refreshes in recent years are weighing their options.

In 2022, Chicago-based Zeller Realty Group completed an $18 million, multiyear overhaul of Capital Center downtown, including upgrades to conference space, a fully renovated lobby with an expanded bar and coffee area, a new outdoor patio and improvements to the complex’s fitness center.

While most of that was planned before the pandemic, the work was still influenced by the shift to work-from-home and a desire to bring people back to the office.

Capital Center Properties LLC, a partnership between Indianapolis-based firms KennMar LLC and The Ghoman Group, last month purchased the two-tower property for $35 million—just over half of the $63 million Zeller paid in 2018.

The firms plan to invest millions more in additional updates, including a conversion of the upper six to seven floors of the south tower into an upscale hotel.

“Zeller did a phenomenal job of stewarding that asset—honestly, they did all the right things,” said Brent Benge, CEO of KennMar. “They just got caught in the COVID wave with tenants vacating, and it just made operating at their cost basis a lot more difficult. There’s not much we have to do with a lot of the shared amenities, because they’ve already done that.”

Benge said in addition to the hotel—which should take a bite out of the building’s 40% vacancy rate—new ownership will focus on finishing upgrade work Zeller had started on common areas like corridors and restrooms, as well as adding a full-service restaurant to the ground floor and sprucing up the building’s central lounge with more food and beverage options.

The improvements, he said, will center on “giving people a reason to maybe stick around and congregate or meet a client or co-worker for dinner and a drink after work.”

Benge, whose firm also is wrapping up an overhaul of The Pyramids on the northwest side of Indianapolis, said he is bullish on downtown’s office environment—his company is moving its headquarters to Capital Center—and he’s confident others will come to see what he sees.

“One of the great things that downtown Indy has to offer is, it’s convenient for a lot of your employees, and it’s convenient for a lot of your customers, depending on [whom] you cater to. It’s that central location,” he said. “I also don’t think people truly have come back to appreciating [that] coming downtown has so much to offer. All of the restaurants, all of the entertainment options.

“Think of how great it is to leave your office on a Friday night and just walk over to an Indiana Pacers game or just walk over to the theater. We have so much to do. … I think deep down, that’s something everyone appreciates and welcomes, along with the fitness centers and the other amenities that have been talked about.”•