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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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