If you are about to take on a new commercial or retail property from a management perspective, there are things to think about. There are things to think about and the property management handover is critical to gathering the right information. Every client and every property will have unique issues to prepare for and ask questions about. (NB – you can get plenty of property management tips in our Snapshot program right here – its free)
There is something to remember here about a property handover and why it is so important; you only have a short period to get the full information about the property and its performance over time. Questions must be asked of the previous property manager, owner, or tenants.
So here are my experiences and ideas relating to taking over a complex commercial or retail property. Preparation is the key to success in capturing all the recent and relevant property detail. You may be able to add to the list based on the location and the landlord:
Check out the physical aspects of the property – it always helps if you visit the property first before you do other things. The visual aspects of the property will help you significantly with investigations and questions.
Review the tenancy mix – in a property with several tenants, look at the types of businesses, location of each tenant, and the performance of the property for the tenants in situ. Some tenant types put pressures on the property such as security or staff issues.
Review all the leases relating to occupancy – the leases will have unique elements of occupancy to review. All leases should be read; extracts and critical dates should be taken from each lease where you can see important facts impacting occupancy.
Understand the vacancy factors – any vacancy now or in the future is an issue. Resolve vacancies through a tenant retention plan, a marketing plan, or a targeted leasing program. You can also move existing tenants around the property. Think outside the square when it comes to tenant movement and placement.
Look at maintenance and risk factors – any person owning a property assumes risk and must plan for the challenges of property ownership. The building, the improvements, the location, or the tenant mix, can create risk matters and pressures. See things for what they are and how they could challenge the investment performance.
Review income and expenditure results – there will be a pattern of income and expenditure to review and consider. The last few years will have value to you when assessing passing income and net income. The results of the last few years will help you set new budgets for the property given the existing tenants, leases, vacancies, and landlord targets.
Talk to the landlord about expectations and reporting – every landlord will have certain requirements of reporting and control. The property will have income and capital value targets over time. How can you report to that criteria for the current property owner? Have you got a software property management program that allows you to report conveniently about the asset and the current results of income, leasing, and tenant activity? The information that you gather from a property management handover will be captured into the software that you are using to manage the property.
So, there are many things on this list to investigate. One thing or one question will lead to many others. As you take on a new property to manage, be prepared for the information and the facts that come your way; take plenty of notes.
The services that you provide in commercial property management are quite special and should be costed accordingly. Care and consideration is required when you are considering establishing a new fee or quoting on a property management service. There are variables at play that could have an impact on your fees suitability and amount.
If you set the wrong fee in quoting on a property management service, you could position yourself for loss of income over time when compared to the time you are committing to the property and the client. Under resourcing is a big problem in our industry.
Don’t provide the client with a low fee quotation simply to win the new business opportunity as a property management appointment. Understand the property, the client, and the tenancy mix before you set and finalize the fees for service. Look at the ‘big picture’.
So what do you do here?
You should understand all of the property issues that may put pressure on your management services. Many an agent has lost a property management client and property appointment simply because the agent has been unable to control the property efficiently and improve performance over time; under quoting the fee will very likely create that issue.
So what do you need?
You need the right people and the right processes to manage a complex office or retail building today. Don’t underestimate the required skills of the process and the demands of the property. Match the people and the processes to the property.
Here is another error that is all too common. As a general rule, don’t set your fees based on a percentage of passing income. Whilst that may percentage approach be an industry standard in your location, it is only an indicator and should be compared to many other factors and choices. There are other things to look at and consider before you finalize your fee structure and client services.
Assess all the factors
Consider the following factors as you work through this process of property management assessment and opportunity:
Landlord requirements – some landlords are unique and special when it comes to property management requirements and services. The complexity of the property and the cash flow can very likely create pressures on reporting and financial controls. You could find yourself generating many variations of reporting to satisfy the challenges of the property and the clients requirements for information. Interview the client as the landlord before you quote on the final fees for service.
Property complexity – inspect the property completely and thoroughly. There may be issues in the property to control and manage over time. Look specifically into the issues relating to maintenance, rentals, vacancies, lease management, tenant volatility, and property performance. Every property will have certain strengths to work with, and weaknesses to work through and resolve. The weaknesses are the ones that will challenge your task and time management. The weaknesses will also threaten the cash flow and property occupancy over time. Create a business plan for the property to address the known and upcoming weaknesses.
Tenant mix – review the tenancy mix as you inspect the property. Understand the tenants that are trading well and those that are struggling. Identify the tenants that may be under some form of pressure and develop a base plan as to how you may manage that occupancy and improve the overall results. It is a good idea to incorporate a tenant retention plan into the property performance strategy.
Time based comparisons and assessments – when you first take on the property under management, it is likely to be a busy period of time for the first few months as you work through leases, tenants, and maintenance issues. The question to consider here will be how you can get the property under control effectively and efficiently. Some properties can take months to reshape and control. If you are about to commence management of that type and intensity, be very careful as to how you set your fees for service.
Income and expenditure review – the history of the property can tell you something about financial management and cash flow. Understand how the income has been changing over time and if there are any weaknesses in market rental currently. Rental and income weaknesses need to be identified and addressed quickly and efficiently. Comparisons to the prevailing market conditions will be required, and negotiations will need to be commenced as soon as possible. Seek your landlord instructions and comments as part of an income review and opportunity assessment. Know all the facts. Also review the expenditure within the property and the history of net income. Has the property being improving through good financial management or are their hurdles to address? Are there issues or weaknesses of current and future income, and will there be expenditure volatility to be dealt with?
So there are many things to look at when it comes to pricing your commercial property management services. Understand the client, the property, and the tenancy mix before you set the final fees and commence your professional services. Build your brokerage portfolio with care.
Every commercial property vacancy is an advantage to be seized. The landlord is likely to be moving through some challenges of rents, occupancy and tenant mix. You can do something to help, particularly if you know something about rents, lease enquiry, and tenant placement.
In this audio I talk about the things that you can do with property leasing. Be versatile with the services that you provide and look at the vacancies locally in your town or city for a business opportunity.
In undertaking a retail shopping center survey, the questions that you ask will impact the results that you seek. Always plan the process. Understand the retail property for what it is, where it is located, and what you are trying to achieve.
Understand the property, the location, the customers, and the tenants as part of designing and implementing a retail shopping survey. You will then have some meaningful retail information to work with. You will then have something to work with as you improve the property over time.
So let’s look at how you can set up the key factors of information in the retail survey. Here are some of the most important questions to explore as part of undertaking the survey:
Where are the people (shoppers) coming from? – You will need to know where the shoppers are based. Are they local people? Are they visitors to the property or the area? Are they workers in the location?
What stores do they like to visit? – Some stores will be more popular than others. Your key retailers will be valuable to the factors that you structure into your marketing campaign.
How often do they visit the property and why? – Understand how often people come back to the property to shop and seek out their goods and services.
What days of the week would they visit? – Some days of the week will be busier than others from a shopping perspective.
What are their favorite shops? – Certain retail shops will stand out as ‘draw cards’ for the overall tenant mix and property.
What type of customer are they? – Customers can be groups into segments such as ‘young families’, ‘empty nesters’, or ‘retired’. You will soon understand why people come back to your property and who they are.
Are Vacancies impacting shopper expectations? – Be very careful with a retail property that contains reasonable levels of vacancies. Those empty shops or vacancies will impact customer expectations and shopping patterns.
What age group are they in? – Age is very relevant in positioning a retail property and the marketing associated with it.
In commercial real estate leasing today, the first tenant that you find to fill a vacancy in a property may not be the best tenant for the investment over the long term.
Ultimately you need to consider first and foremost the future of the property, the improvements within the asset, and the investment targets of the client. You can then choose the best tenant by type and market the property accordingly.
The marketing strategy behind the leasing requirement will allow you to drill down into the factors of attraction that apply to the vacancy. You want to attract the best tenants for the location.
So you will need some information to assess about the property, the client, and the local area. The depth and the strength of your research will help you match your services to the requirements of the client and the property
Before you lease the property and the vacancy understand the client first and foremost. The client as the landlord owning the property will have certain targets to recognize including the following:
How long do they wish to hold the asset?
What are the requirements of cash flow from the lease?
Are there other tenants within the property to support the rental return?
In any medium to large property, you will need to review the lease expiry dates, rental structures, and occupancy pressures before you lease any vacancy to a new tenant.
Are there factors of renovation that need to be incorporated into the tenant mix and the lease structure?
Are there factors of risk that need to be incorporated into the property performance plan and the overall leasing strategy?
Has the client diversified their property portfolio across a number of different locations? Diversity brings with it other strategic factors to consider.
In answering all of these questions, you will have a reasonable idea of the best tenant by type and by location. Understand how the tenant will fit into the tenancy mix to strengthen the overall property profile and income return.
Subject to all of the previous questions raised, you can drill down into the best types of tenants that suit the asset and the investment targets of the client. A good tenant for an investment property will usually bring the following factors to the asset:
Stability – Every tenant should be assessed for stability before you commit to lease negotiations. You will need to review their business history, other locations of occupancy, and talk to the key people.
Income – Look at the levels of rental that apply in the local area. Will you be leasing the property on a gross or a net rental basis? What are the market rentals that apply respectively? How can you improve the income over time through rent review structures and strategies? How long should the lease be? All of these questions will impact the income for the asset. Answer the questions before you negotiate with the tenant.
Profile – Some tenants will bring with them a business profile that is attractive to the property. A business brand or a business profile can bring a marketing advantage to the property. Some franchise brands also achieve the same enhancement.
Taking these three elements into account you can do something with your lease negotiation. You can give the landlord some solid reasons to negotiate effectively and directly with the chosen tenant. Most landlords will cooperate when it comes to attracting a new tenant in a stable and strong lease arrangement.
A retail property and particularly a shopping centre is a special asset in many different ways. It takes skill and knowledge to make something of property performance.
There are numerous things to put in the retail ‘balance’. Special strategies are required. Are you up to the retail challenge?
Understand the retail facts
So what are the variables that make this so challenging? Consider these for starters:
Tenants struggling to make sales – Some tenants will always struggle given that they may not be offering the right products or services. They may also be inexperienced in retail trade and sales. If you have a difficult tenant in a property it is perhaps better to move them on at the end of their lease (assuming that they can trade until the end of lease)
A tenant mix that just doesn’t work for one reason or another – A poor group of tenants with weaknesses will quickly slow customer interest and repeat visits. That weakness then leads to sales decline. You must quickly fix a retail shopping centre tenant mix if you have issues that are weaknesses and impacting property performance.
Vacancies currently in the property or those that can be expected – When you have empty shops to resolve, ensure that you are coming up with immediate strategies such as creating short term occupancy and placing marketing material in the empty space. Customers will see the vacancy so build some ‘vibrancy’ into the empty space.
Market rentals and strategies for the property – Understand what the rents are doing for the property type in your region. How does your property compare?
Outgoings recovery from the tenants – The lease documentation will be important when it comes to outgoings strategies and recoveries. The rent types used in the property will also have an impact.
Customers and their spending patterns – At different times of the year the sales results change for the retail sector. Watch the process and how it is impacting your tenant mix.
Lease documentation that is complex and critical to occupation – Understand all of the leases in the property. Some will be better than others.
Landlord net income requirements – The landlord will have expectations when it comes to the net income they achieve. The expenditure in the property will place pressures on cash flow. Understand how those things work in your retail property.
Retail sales patterns for the region – Always look at shopping and sales trends for the region. Understand if your property is being pressured by other properties locally. Understand why that is the case and try to fix the weakness.
The configuration and presentation of the property – It is a fact that any retail property will be higher in upkeep so costs and strategies will be required. The presentation and functionality of the property has to be at the standards expected by customers. In that way the customers can keep coming back to the shopping centre. A retail property will soon be in decline if maintenance and presentational factors and lacking.
Every one of these issues can demand specific focus and effort from you as the specialist broker to bring about a resolve for all concerned.