10 Ways of Optimizing Rental Returns and Recovery in Commercial Property Management and Leasing

office cubicles
Vacant office space requires real strategy

In commercial real estate brokerage there are many things you can do to help landlord clients with income and rental growth.  The principles and ideas behind income performance in any commercial or retail property investments are one or more of the following:

  • Stabilize rental cash flow
  • Improve rents over time
  • Improve property value
  • Lower the risk factors
  • Optimise the tenant mix
  • Address the impacts of any vacancy

When a commercial real estate agent understands how to do all of those things comprehensively, they can really provide some valuable services to the clients that they act for in their property market.

The processes are very specific; real knowledge is required when it comes to property improvement and optimisation; the income recovery process is part of that.

Let’s say you are looking at a property for a client for the first time.  Here are some ideas and bigger income matters to look into as part of assessing a commercial property investment and its performance:

  1. Market rental – Understand the levels of market rent for the property type and the location. Compare those figures to your client’s property.  Have due regard for property improvements and age.
  2. Rental income recovery – If you look at a group of tenants in a property, you can see many different rental recoveries. Make sure that all rental recovery methods are up to date particularly with rent reviews, options, and percentage or base rents.
  3. Incentives – If incentives have been given to a tenant for any particular reason, check out that process. Are the incentives accurate and up to date?  When do the incentives stop?
  4. Arrears minimization – In larger properties today there will be arrears issues to handle. Work closely with tenants to ensure that rents and arrears do not get out of balance or become too large.
  5. Licences for special areas – Some tenants can be given the use and or access to special areas outside of their demised premises but in the same building. The other areas will still attract a rent; the risk of that extra space(s) use will also require management under a lease or licence document.  The most common licences today in commercial investment properties will usually be that for storage, car parking, antennas, or cabling.  All of those things should be documented in a licence for which a reasonable rent is charged.
  6. Electricity recoveries – If the tenant is supplied with electricity from the building grid then the landlord will have a recovery process underway. Look for the recovery methods and understand how they occur.
  7. Cleaning and common area recoveries – If the tenant is using common areas or is having their premises cleaned as part of occupation then the recoveries will be relevant; they should also be accurate so check out the numbers and processes that apply.
  8. Signage rents – A tenant related sign should incur rent.  Signage rent is a valuable third income stream in a commercial property.
  9. Car parking – Tenants should pay for car parking and that rental should be aligned to the location and property type. If the building and car parking is in the center of the city, then a premium for onsite parking should apply.
  10. Outgoings recoveries – Depending on the rental type, outgoings will be a part of tenant charges and recoveries. Compare the outgoings recoveries by location and property type so you know that the averages apply.  A building with high outgoings will be harder to lease or retain tenants.

So there are many things to check out as part of assessing property investment performance and income optimization.  Are you ready to ask the right questions?

Commercial Real Estate Training Podcast 185

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Tips and ideas for commercial real estate agents

 

In this property market there are many things to consider.  In this podcast I have covered 3 issues that are so common across many brokerages.  Here they are:

  • How to structure a commercial real estate property management budget in a large building
  • How to remove negativity from the sales team
  • What you should look for when it comes to results and team performance this year

We are 7 months into the calendar year.  Now is the time to get things really moving so the end of the year finishes with good results.  It doesn’t matter if you work in property sales, leasing or property management, now is a good time to consider and plan important actions that will create results over the next 6 months.  This training audio will help:

Leverage Factors in Commercial Real Estate Brokerage

hi rise office building.
Look for leverage in every property listed

 

As an agent or a broker in commercial real estate today, the current events in the market will be sources of substantial leverage and opportunity when it comes to a future sale or a lease situation.  You can also find plenty of property management opportunities within a sales or leasing transaction.

The message here is quite clear for the astute agent or broker.  Look for the opportunities within the market based on industry trends and business churn.

The property market moves in cycles and in the case of commercial property it is the local business or economic cycle that impacts the decisions of property investors, business owners, and tenants.  What you can do here is built leverage and action from certain activities in your market.  Here are some ideas to help:

  1. Inquiries – Any property inquiry coming in to your office from the marketing of listings will allow you to create a conversation, qualify the party, and potentially find out about their new property needs and changes.  Understand the motivation of the person making the inquiry, and the timing of their decisions.  It is likely that they will be talking to other agents locally, so be prepared for quoting other properties where appropriate that may suit their inquiry.
  2. Quality listings – When you focus on quality listings you will generally have many more direct inquiries coming in to you from each marketing process.  Understand what the factors of attraction are when it comes to tenants and buyers today.  Fully qualify the people that you talk to and then itemize or short list property requirements.  You will soon know how to package a listing and find the right properties for today’s market.
  3. Inspections – Every property inspection allows you to connect completely and thoroughly with a potential tenant or property buyer.  If the subject property inspected doesn’t suit the inquiring party, add some other property inspections to the list.  Most buyers and tenants will purchase or lease property from within the local area.  That is because they understand the location, the values, the rentals, and the opportunity.  Track your inspection activities within your database.  Keep in contact with inspecting parties for the long term.
  4. Methods of sale or lease – There are differences in the market when it comes to the successful methods of sale or the methods of lease.  Understand the factors that work in your local area with buyers or tenants as the case may be.  A timed method of sale such as an auction can put some urgency in the property decision process.  A quality listing taken to the market through the auction process will usually create a lot of interest.  From one auction marketing campaign you can create a substantial database of qualified buyers.
  5. Offers – An offer to purchase or lease may or may not be successful in today’s property market; a lot depends on the client you are working for and their impressions of the prevailing market conditions.  Understand the offer limitations and the negotiation objectives of the people that you are working with; negotiation skills will help you in this process.  You can quote other properties to those people that may have been unsuccessful in any property offer.
  6. Referrals – From any successful listing, be it in sales or leasing, you will find further new business in asking for a referral.  Be prepared to ask the right referral questions at the right time; understand that most business people and investment property owners have relationships with others that can lead to more opportunity.

So the message here is quite clear and most particularly that simple issues and events in commercial property today can give you some leverage and lead to other opportunities in new business over time.  Be prepared to work with the right people and see the opportunities.

Commercial Property Management Tips

There are many ways to manage a commercial property or retail shopping center today.  Here is a video with some items that can be a checklist for brokers on managing a property for a client today.

This is the first video in a commercial real estate training series covering the complex topic.

Commercial Property Leasing Agents – Landlord Report of Leasing Activity

people walking through a retail shopping centre
Provide a comprehensive leasing report to landlords about your leasing activity.

In a commercial property today a landlord has to be fully briefed on lease and tenancy matters if property performance is to be optimised.  The process of reporting to the landlord is a key part of the role of a commercial or retail property manager.  The reports should be comprehensive and provided monthly together with the financials for the asset.

The aim of the lease and tenant report process should be to optimise the tenant mix and control the rental cash flow.  The landlord for the property will have a plan and targets that impact rental, vacancies, tenant selection and refurbishments.  That is why each property should have a property business plan that is established for the plans of the landlord and then regularly updated.

At the start of any asset management service, the property manager should interview the landlord to understand the factors that are important to property function and income.  The reporting and control plan can then be established.

Here are some topics to incorporate into the landlord monthly report:

  1. The income for the property will be of key focus to the landlord.  The income will be impacted by the leases, and on that basis, the manager of the asset will need to understand each tenants lease comprehensively.  Care needs to be taken with critical dates and income rental charges.  In some cases you can find that the critical dates in the leases are based on dates where ‘time is of the essence’.   In that case action is required by the selected dates.
  2. Changes of rent charges will be relative to the lease and any agreements that the landlord and tenant have.  Everything of that nature must be in writing.  Good records will help you stay on top of rental changes and charges.
  3. Outgoings recovery will be based on the occupied areas for each tenant.  That recovery will have a relationship to the lease for each tenant.  Some leases have limitations on the outgoings that can be recovered so care should be exercised in checking that information for any reconciliation of rental and tenant payments of outgoings.
  4. Market rentals will change from time to time based on the area in which the property is located and the property type.  On that basis the monthly report to the property owner should have some update on market rental trends and changes that could impact any upcoming market rent assessment in the property.
  5. Lease expiries coming up should be tracked and recommendations be made early to the landlord so the vacancy downtime can be managed and minimised.  In such situations it pays to work 12 months in advance so that problems of vacancy can be solved early.

The report to the landlord of a managed property should be seen as a tool of control and record.  When it is done well it can help all parties involved with the property make the right decisions in a logical way.  Want more information?  Subscribe to our mailing list right here.

 

Commercial Property Management Handover Tips

woman wrestling with cables
Choose the right information in any commercial property management handover.

When you take over another commercial property from another property manager, or perhaps even a landlord, it is really important to ensure that you capture all of the right information that has an impact on the property today and into the future.

Any errors that are made in the property management handover process can impact the property significantly into the future, and make your job significantly harder as a property manager.  Unfortunately the previous records relating to the property may not be complete or accurate.  Your questioning process needs to identify this challenge and work through the issues that it provides.

So here are some tips that relate to the handover strategy and your systems.

  1. Ask for complete and accurate financial records relating to the income and the expenditure activity in the property over the last 12 months.  You will need a detailed breakdown of the income and expenditure records for the financial year to date.  This will be essential when it comes to reconciling the property at the end of financial year.  The integrity and accuracy of those records should be questioned and checked.
  2. It is always desirable to get records of previous property reconciliations and budgets for the two or three years prior to your appointment.  This will help you in budget analysis and creation in the forthcoming financial period.  When you create a budget, keep detailed records of your assumptions and findings.  This is best done on a spreadsheet that is archived for future use in other financial years.  All of your assumptions will be critical to your budget tracking process throughout the year.  Simple things can be forgotten and complicate the overall property performance.
  3. Get copies of all lease documentation that apply to the current tenants and the tenancy mix.  Those documents should be checked against the current rental invoices as they apply to the property.  Copies of correspondence relating to previous rent reviews and options should be obtained.
  4. Look for situations of rental rebate, incentive, or discount.  Some of these things can exist for a number of years under an original lease agreement.  If that is the case, they will need to be merged into the new income budget for the property.
  5. Meet with the tenants as quickly as possible during the handover process.  The meeting is a personal process to be undertaken by the property manager, and will remove any uncertainty from the ongoing relationship with tenants.  They should understand who you are and how to contact you if any property matters occur from the date of handover.
  6. Every property is unique and special when it comes to maintenance matters.  It is wise to meet with the maintenance contractor’s for the property as soon as possible after the date of handover.  These contractors’ can tell you of the events to look for when it comes to property performance, repairs, and break down.  They will also give you a summation of expected future property performance within their specialty of plant and equipment.
  7. When taking on any new property, give special care and focus to the subject of essential services compliance to the current building codes.  Some properties will have issues of compliance that will need to be addressed.  Also look for any orders or notices relating to property occupancy or usage.  Failure to address any of these items can see the property lose its ability to function as a property investment.
  8. It should also be said that the terms and conditions of each particular lease should be checked to see if any matters of occupancy remaining outstanding or need to be policed.  Obligations can exist on either the tenant or the landlord in a variety of ways.

So these are some other main things to look at when it comes to a commercial or retail property management handover.  You can develop a checklist of the process which will keep you focused on task and allow you to maintain accuracy in any new property management portfolio.  Always keep notes of the handover process so that any misunderstandings or omissions can be proven at a later date.

If you want more free tips on commercial or retail property management you can get them in our newsletter or at our website http://www.commercial-realestate-training.com/

Specialised Commercial Property Management Services and Fee Strategies

reception area in commercial office building
Commercial Property Management is very specialised. You need top property managers and reasonable fees for service.

They say that commercial property management is a service part of the commercial real estate industry.  Certainly it is that however it is very specialised, and the knowledge required behind the job is extensive.  It requires top property managers that really know what they are doing on a daily basis.

When you take on a new client or a new property management it is tempting to give a base service fee that is set on the passing income.  Whilst the formula is useful, it pays to understand what the landlord owner of the property wants regards reporting and service in the management of the property.  If you adopt the base fee approach, you also have issues of the fee reducing when the property vacancy level rises.

Here are some ideas about working with new commercial property management clients and setting your fees:

  1. Whilst you may want to set a fee based on passing net income (or gross income if that is your priority), always set a base fee that will be a minimum fee if the vacancy level rises in the property.  The base fee will protect you when the vacancy level rises.
  2. Your ordinary management fee that you charge should cover the general activities that are required for financial and physical management on a daily or weekly basis.  It does not have to cover the extra activities that may be considered special in the property.  They can be for the unusual things such as leasing upcoming vacant space, market rent reviews, attendance at court, lease assignments, lease subletting, and annual budget or reporting activities that take a lot of time and effort, beyond what you consider the ordinary property management tasks.  You have a choice here so set the right fee for the work involved.  Understand exactly what the property will throw at the property manager.
  3. Ask questions of the client before the management agreement is signed just so you know exactly what they want regards reporting and control from the property manager.  Rarely will you find that two landlords are the same.  Consider the time involved in giving them the reports and the feedback that they require.
  4. Look at the complexity and the age of the property.  Older properties require extensive control and management.  The maintenance activities in the property may also be higher on a regular basis.
  5. The size of the tenant mix and the complexity of the lease documentation will place pressure on the property manager from a time and knowledge perspective.  More tenants in the property will lift the time requirement.
  6. Assess the vacancy factor for the property now and in the future.  Is the property manager required to market the vacancies and what fee will they get for that?

So there are some special considerations here that should be worked through.  When you carefully consider the property and the time involved you will soon see the property management fee that you charge in a different perspective.

If you need more tips for your commercial real estate career you can get them here http://www.commercial-realestate-training.com/