In commercial real estate property management, procrastination can be a big issue or hurdle in getting the harder jobs done. Let’s face it, there are difficult things to do every day of the week in our industry. Have your people in the management team got the right knowledge, experience, and commitment?
Workload pressures in commercial property management are usually consistently high. Free time and spare time is a luxury if and when it occurs. Most days of the week are quite busy. Stress can also be a problem for some people.
What is the Focus?
The best commercial managers are the ones that get the work done first and foremost every day. They prioritize their time so that they are effective in the best possible ways. So what are the issues that put the pressure on? There are many pressures arising from separate categories such as:
So the best property managers know how to optimize their time and will usually do so efficiently and directly. Any inefficiencies in the job role will usually create problems with clients and property performance.
Any team leader in commercial property management should be careful to select the right people for the tasks and the portfolio under management. The team of people within the division should work to a system or plan to help them get the work done and to control the assets in the best possible way.
SOFTWARE: At the top of the list would have to be the selection and use of a specialized software program controlling property performance. There are many different programs available for the task, and some are better than others. Typically, a program will need to control rental monies in all categories, arrears management, tenant communication, lease administration, critical dates, and property maintenance. The best programs tend to be somewhat expensive, however they provide high levels of property control and reporting. If you are going to manage high quality assets for quality clients, then you will need such a program.
FILE ACCESS: Cloud based storage is always very useful. When the managers are out in the field meeting with tenants and landlords, cloud based storage can help when it comes to file access, reporting requirements, and all communications.
CLIENT ACCESS SERVICES: Develop a dedicated client portal for all client communications. All of the client reports can be stored online within a dedicated portal for VIP client access and communication.
TENANT COMMUNICATIONS: You can enhance tenant management through a special web site where any maintenance issues and communications are directed or first initiated. The website can retain all communications and redirect as required to the right people in a timely and efficient way. Like it or not, some of maintenance issues occur at the strangest of times, and you will need an effective communication process to handle those things.
MAINTENANCE PERSON: As the property management portfolio grows, there are benefits to be achieved by employing a specialist maintenance manager. The manager can oversee the day to day maintenance requirements and unexpected portfolio issues for all of the managers.
LEASE ADMINISTRATION: Appoint a year lease administration person to monitor the lease critical dates and upcoming lease changes and issues. The larger the portfolio, the more desirable, essential, and efficient you will find this position. A lease administrator will be a good addition to most property management portfolios.
TRUST ACCOUNTS AND FUNDS CONTROL: The handling of monies, rentals, arrears, and property performance will require an experienced accounting person understanding the issues of lease documentation, tenant management, and property law. There is high value here in choosing the right person for the role.
It is important that every commercial property has a lease strategy to support ongoing cash flow and reduce vacancies. These strategies should be integrated into the business plan for the property and for the landlord.
It is of note that a single lease for a new tenant should not be looked at in isolation. It should be looked at broadly with due regard for the surrounding tenancy mix, the income required for the property, and the impact that the long term occupancy may have from the initial term and into any option period agreed.
Here are some ideas to help you consider the leasing of a commercial property:
Assess the local area for competing properties. Some of those properties may be taking or attracting your tenants now. Look at those competing properties to see what is happening when it comes to vacancy profile, tenant mix, expansion and contraction, and the lease marketing strategies. Your property will need to be equal with, if not better than, those competing properties.
Assess the market rental through the local area so that you can create attractive lease packages for incoming tenants. When it comes to leasing, the start rent is not as important as the cash flow over the lease term. The starting rent should be regarded as something of attraction to create lease occupancy.
The rent review structure over the lease term will give strength to the cash flow for the landlord. The best way to assess ongoing cash flow is through the calculation of the lease and its net present value to the landlord for the duration of the lease. You are therefore assessing the income over time, not just focusing on the rent today.
Some landlords prefer not to give options for renewal. This is certainly the case when it comes to a quality or larger property where the landlord wants to retain flexibility in the tenancy mix. Many landlords of the larger shopping centers will avoid giving options to tenants for ongoing occupancy. The reason for doing this is that they like to move tenants in and around the property based on tenant mix and clustering. When they move the tenant, they can improve the overall cluster and general area including the other tenants. This will then have further benefits for the overall income return for the landlord.
When you negotiate the necessary rent reviews in a lease document or new occupancy, mix the rent reviews appropriately so that the landlord gets a sensible and realistic increase in net rent income. The rent review methods available will be variable such as market rent, fixed dollar increase, fixed percentage increase, or something that is indexed to the consumer price index. You can make the right choices based on the property type, the landlord, and the legislation or property laws that apply to lease occupancy with that tenant situation and property type.
If you manage or lease a property with a number of tenants in occupancy, look at the overall lease profile and expiry dates over the long term. Any lease that is to be expiring inside the next 18 months should be focused on now for lease renewal, lease expiry, tenancy change, expansion, or contraction. Start talking to your tenants early so that any appropriate changes to the occupancy can occur with measured and structured negotiations. Whilst the lease document may provide for certain other time frames on lease renegotiation, there is nothing to say that you cannot start this process early.
Keep in close contact with the current tenants in your property. They will have pressures of occupancy and on that basis it is better for you to work with those pressures than let the tenant move to another nearby competing property. Keep talking to your tenants on a monthly basis to understand exactly what they are thinking and doing as a business. Help them stay with the property for the long term if it suits the landlord’s situation.
The leasing of a commercial or retail property is relatively straightforward when you follow the rules. You can create a checklist with the above matters and other things relative to the property type. Control is everything when it comes to making a lease strategy and structure successful for the landlord.