The repositioning pitch is everywhere in San Diego right now — older flex and R&D product near the defense and AI-robotics cluster looks like an obvious play. Upgrade the space, catch the tenant wave, collect the rent premium. Sometimes that's exactly right. Sometimes the building was never going to get there economically, and the enthusiasm is doing more work than the underwriting. All you need to do is look at all the life science repositions of the 2020-2022 vintage. Many are vacant and are now competing against purpose built projects with specs aligning to tenant requirements.
The difference comes down to running the numbers in the right order, not just running them.
Power capacity is usually the real gate, not the interesting renovation items. A lot of flex and R&D buildings built in the 1990s and early 2000s simply weren't designed for the electrical load this tenant profile needs — compute-heavy AI workloads, lab equipment, advanced manufacturing. Before spending a dollar on finishes, the question is whether the building's electrical service can be upgraded to the load these tenants require, and what that actually costs.
This is also where the timeline risk hides. A utility service upgrade isn't a construction-schedule item — it's a request into a utility's own queue, and lead times of twelve to eighteen months or more aren't unusual right now given how many buildings are trying to do the same upgrade at once. Second to the utility is the supply chain backlog. Can you actually get your hands on electrical infrastructure? That timeline has to get priced into the decision, not treated as a rounding error.
Beyond power, the real gating items are usually security infrastructure — badge access, camera systems, sometimes SCIF-adjacent build-out for defense-adjacent tenants — and physical plant items that are expensive or impossible to change: floor loading capacity, ceiling heights, column spacing for lab or manufacturing layouts. A building that's short on power but has good bones is a repositioning candidate. A building that's short on floor loading or has a column grid that doesn't work for the target use often isn't, no matter how much capital gets thrown at it.
The honest accounting has three parts: the capex itself, the downtime during construction, and the TI allowance a well-capitalized tenant is going to expect on top of the base building work. Against that: the rent premium repositioned space commands, and — often underweighted — the reduction in how long the space sits empty being marketed to a deep, credible tenant pool instead of an uncertain one.
Where this goes wrong most often isn't bad math. It's sequencing — spending on finishes and marketing before confirming the power question actually pencils, then discovering the gating item late and expensive.
This is the read we walk owners through before recommending reposition, sell, or hold as-is — because the pitch and the underwriting don't always agree, and it's a lot cheaper to find that out before the capital's committed.
— Sach
