The Golden Rules in Managing Commercial Property

Managing commercial property with multiple tenants can be very demanding. Ultimately it is the skills of the property manager in controlling their day and the property that is critical to success.

The landlord of a property needs stability of rent, tenant mix, and outgoings. That is why a good and experienced property manager is required to keep things on track. Any property manager will not do when it comes to commercial or retail property; inexperience in that regard can impact the property performance very quickly.

Here are some of the golden rules of property management in commercial and retail premises:

  • Lease occupancy should be monitored. A good lease document is the key here. Generic leases are a waste of time as they do not fully cover most of the unique property issues that can come from a special property. Landlords are better protected in a solicitor prepared lease.
  • Terms of tenancy usage should always be watched so the tenant does not step outside the terms of the lease. When the tenant bends the rules or does something wrong it pays to handle it quickly and always using the terms of the lease as a backstop.
  • Payment of rental should be in accordance with the lease documentation at all times. When late payment occurs then steps are taken quickly to serve the appropriate notices and demands under the lease. Collection of arrears is always important. Left unchecked it is very easy for arrears to get well out of control. Time is critical when it comes to arrears follow-up. When in doubt always look at the lease first to see what responses are required when rent default occurs.
  • Control of building maintenance is both a budgetary issue and also a safety issue. When maintenance threatens the safety of the tenants or members of the public, it has to be responded to immediately. Liability and negligence claims are most common in property management.
  • Payment of accounts should be undertaken in accordance with the approved accounts in the property budget. It is wise to get the landlord to approve a budget prior to the beginning of each financial year. In that way the property expenses can be planned.
  • Budget performance has to be monitored so the expenditure does not get beyond control and outside of industry averages. Any property with high outgoings will be hard to lease.
  • Landlord reporting and communication is a key to property management success. Regular accurate reports are essential to keep the building momentum pointing in the right direction. When the landlord gets the right reports they can give accurate decisions.

The list can go on and the details are always broad and complex. A landlord should choose their property manager based on skills and experience. Low management fees or leasing fees are the wrong reasons to be changing property manager. Experience is the key every time. A good property manager will offset their fee cost many times over through appropriate building strategies in leasing and maintenance, good financial controls and reports, and excellent tenant relations.

Commercial Property Management Tips for Professional Property Agencies

When it comes to managing a commercial property today, controls and efficiencies will help you provide a professional service to your clients. Most particularly, all of your systems should be well documented and relevant to each property type.

This then suggests that particular checklists will apply to office property, retail property, and industrial property. The checklists will also be different when it comes to leasing verses property management.

Here are some tips to help you establish a solid control process as part of your agency property management services.

  1. Lease documentation should always be checked when it comes to taking over a new property management. In many cases you will find that some of the documentation is lacking in some respect or critical dates have not been actioned. If someone gives you a tenancy schedule as part of the property handover, make sure that the schedule is completely checked against existing lease documentation. You should also understand that lease documents are not the only documents relating to occupancy. You can and usually will find special documents relating to licensed occupancy, and that would normally include car parking, signage, storage, and a special use areas. These documents can be separate to the lease documentation.
  2. Check the arrears in the property as part of the handover process. Any existing arrears will need to be quantified for any action that may be required. Ask for copies of any documentation and letters that relate to the pursuit of arrears. If any special agreements have been entered into with existing arrears, you will need copy of the documentation.
  3. Get to know the tenants and the property as early as possible. When it comes to changing property managers, the tenants can be quite sensitive to new arrangements and new people. Introduce yourself personally to the tenants on a daily one of the property Handover.
  4. Understand what the landlord requires of reporting and approvals. Every landlord will be unique and different when it comes to the communication and reporting process. Some landlords will have special requirements of cash flow and the reports to substantiate the cash flow. In complex properties with multiple tenants, this can become quite a challenge. Make sure that your chosen property manager has the experience to satisfy the demands of the landlord.
  5. Talk to the maintenance people involved with the property as early as possible. They will tell you a lot about the property today and the potential maintenance failures in the future. This information will help you planned for cash flow and expenditure over the coming years. Ask the maintenance people about the specific factors of plant and equipment that are critical to the performance of the property. Any older plant and equipment should be closely monitored for potential failure.
  6. Outgoings management forms part of the property management control base. The outgoings for the property should be managed to the building budget and the requirements of each and every lease document. Many leases will have different factors of control and reporting when it comes to outgoings recovery. For this very reason, all lease documents should be carefully scrutinised as part of the property take up procedure.
  7. Property history will always be relevant. Get copies of previous reports, financial activity, and lease documentation where possible. This information will help you when it comes to establishing the status of the existing tenancy mix and how the property can move forward as an investment.
  8. Budgets for income and expenditure may be current or this year. Those budgets should be passed across to the new property owners and property managers. In this way you will know how the existing outgoings recoveries have been established and on what basis.
  9. Vacancy reports and strategies will vary throughout the year. Importantly any vacant areas are successfully marketed to reduce the vacancy downtime. Any pending and upcoming vacant tenancy should be aggressively marketed to find the necessary new tenants.
  10. Rent review profiles and option strategies will be reviewed as part of the lease documentation scrutiny. Look for all of the critical dates as they relate to the rent reviews and option timings. Critical dates should be entered into some form of diary system so you can activate the event early or on time.

Professional commercial property management services are only achieved through systemised actions and well qualified people. Take the steps to establish your own systems as early as possible in the property management process. These items above can be modified and expanded based on the property type and the property location.

Tips for Securing Commercial Lawn Mowers for Commercial Landscaping Properties

A lawn care or landscaping company with the knowledge and experience needed to handle the care for large commercial properties needs the right tools at their disposal in order to handle these commercial landscaping properties. That means only the best commercial lawn mowers designed specifically for large-scale properties. You want your handiwork to speak for itself whenever you drive off from a freshly-manicured commercial property, so here’s how to not just secure new commercial property owners as clients but how to keep them by providing the best service you can.

Don’t Be Afraid to Scout While On the Job

The life of a professional landscaper entails a lot of driving from job to job, and this represents an excellent opportunity to scout out new possible properties to approach to see if their owners are looking for landscaping services. Commercial properties with large, neglected lots are always ripe for the plucking, especially as sometimes the companies that occupy properties, such as law offices and similar professional services, are responsible for their own landscaping and do not have a property management company to rely on. Once you’ve gotten a good list of what might very well end up being new clients, you’ll have to track down who it is you’ll have to talk to in particular about landscaping services. Whether it is a grounds manager or a business owner, you will need to do some Googling – or better yet just knock on doors and strike up conversations with receptionists or other staff at the front desk.

Be Yourself with Prospective New Clients

It’s important to be genuine when you’re looking to forge new connections with potential clients. Business owners are inclined to be friendly with a fellow business owner, especially when they present themselves honestly and professionally. Being open and honest can help show prospective clients that it will be easy to work with you, even if it just means that you’re proficient at making small talk. However, when it comes time to get down to brass tacks, you’ll need to be straightforward and simple about what you can provide to a company, what types of commercial lawn mowers and other equipment you use on a regular basis, and how much all of these services will cost.

Don’t Lose Hope

Finally, don’t get discouraged if you keep asking around and all you’re getting is rejection after rejection. Not every business out there cares or even thinks about the landscaping on their property. Moreover, those who do reject your offer will sometimes give you feedback as to why you were passed over, providing you an opportunity to hone your sales pitch and strengthen your positions for future endeavors.

Of course, it doesn’t matter how well you can smooth-talk a client unless you have the equipment to back it up in your trailer. Make sure to use only the most safe and efficient commercial mowers that can stand up to the strain of large, robust commercial.

Multi-Family and Commercial Property Buyers: What Is the Expected Useful Life of the Systems?

Buyers often ask the real estate building inspector: “How long will the roof, electrical system, plumbing, etc. last?” The answer to these questions is not just based on the inspector’s experience.

There are agreed upon life expectancy tables. After reviewing many of them, the one table that seems to be the most relevant for commercial properties is the Form 4327 Physical Needs Assessment. It can be found on the Fanny Mae web site. It covers many items such as roofing, heating and AC units, as well as mail boxes, signs, clothes dryers, etc. This is one key standard we use when assessing the condition of a commercial or multi-family property.

Where the tricky part comes in is determining how much longer a system will last. For the most part that has to do with how well the building and its systems have been maintained. For example, we recently inspected an apartment building that was 50 years old and if it continues to be maintained at the level it has been it will last at least another 50 years. We also inspected a building that was only 20 years old and in need of such extensive repairs and maintenance that it was questionable whether or not it should be torn down.

A good real estate inspection should go over the five basic systems and the site – namely the plumbing, electrical, heating and cooling, roofing and structure. Some inspectors will be able to give you an estimate of the remaining expected useful life left in each. This is partially done from experience and partially from the above mentioned table. The experience shows us what shape it is in now and how well it has been maintained as well as the original quality of the materials used and the quality of the installation. All are factors that you don’t get from a table.

An example of assessing primarily from experience was many years ago when the customer asked me how much longer the roof would last. I told him that if it had some repairs and maintenance done now it would last another 5-10 years before it needed replacement. He was greatly relieved. In this instance, I was assessing this primarily from my experience of nearly 40 years in the trades.

The problem with relying only on experience is the wide variation in experience from person to person. When I first wanted to know how long the systems typically last, I asked an HVAC (that’s heating, venting and air-conditioning) specialist how long a typical roof mounted unit lasts. He told me 20 years or so. When I asked another one he told me 12 – 15 years. When I asked another he told me 15 – 20 years but that what really was important was how well it was maintained. He had seen some over 30 years old and doing fine. At that point I realized I needed to get some industry recognized expected useful life tables and discovered the 4327 Physical Needs Assessment.

This question continues to require ongoing research every day. I keep asking professionals when I see them. New products come out all the time. Some of the new ones don’t last nearly as long as the older ones – like the wall gas heaters you see in apartments. The new ones last maybe 10 – 15 years if they are used often. The old ones lasted 20 – 30 years or more because they were made with thicker materials.

Nothing beats a good thorough general visual building inspection by a seasoned professional to get the basic understanding of what you have and how much longer it should last if properly maintained.

What Are Your Investment Objectives For Commercial Properties?

Investors often ask me to show them only the best commercial properties. This requirement is at least not clear or specific enough for this advisor. A best property for one investor may not be suitable for another investor. This is because each investor has different set of investment objectives. You should at least consider the following:

  1. Investment returns: when you deposit your money in CDs, you get 1.5% interest for 6- month CDs, so what kind of return, i.e. cap rate is acceptable to you when you invest in commercial real estate? The current cap rate in 2009 varies between 5% to 12% depending the property type, property condition, location, and various other factors. Properties in California tend to have lower cap than those outside of California due to higher demand.
  2. Appreciation: one of the benefits in real estate investments is its potential for appreciation. However, this potential also varies from one property to another. There are several factors that impact appreciation. Some you have little control, e.g. demand and supply. However, you know the demand is weak and supplies are abundant in declining rust-belt areas, e.g. Detroit. And thus the properties in these areas will not likely to appreciate. Some you have control, e.g. rents or net operating income of the property. So if appreciation is important to you, focus on properties with

    • Below market rents. When the leases expire, the rent will be adjusted to higher market rents. As a result, the value will likely go up. Sometimes a tenant may pay 10-25% below market rent because the landlord does not know how to get the highest rents for his property. It’s not easy to determine by yourself if the rent is below market so you may need a professional to help you
    • Annual rent bump located in stable or growing areas with high barriers for entry. When the rent increases, the operating income increases; and the property is likely to appreciate in value. You can review the rent roll to see if there are any rent increases. It’s very common that the rent goes up 2-3% annually on multi-tenant shopping centers.
  3. Investment risks: there are risks associated with almost any investments. For commercial properties, one may have higher risks than another. Walgreens should do well during the recession. In addition, it also has very strong A+ S&P rating and so it should be able and willing to pay the rent on time. On the other hand, single-tenant car dealers selling big-ticket items may not fare well during tough economic times and so your rent checks may not come. Of course, there are other properties in which risks are somewhere in between Walgreens and Car dealers, e.g. multi-tenant strip malls. Life also throws a curved ball at you as risks also vary from times to times. Properties occupied by banks, e.g. Wamu were once considered very safe investments a very few years ago until many banks closed down due to subprime problems.

Investment risks and returns tend to go in opposite directions. In general, the lower the risk the lower the returns but there are also moderately low-risk properties offering high returns. They are called good buys. You may need a professional to help identify these. So should you choose a bullet-proof safe investment over moderate risk properties? Imagine that you work for a company that does not give you a raise in 30 years. It however offers a lifetime employment and consistently pays you a modest salary each month. Will you be a happy employee? If your answer is yes because you don’t ever want to be unemployed in your life then you will consider investing in Walgreens or Autozone. Their rent is often flat for 15 to 30 years and the cap rate is modest–in the 6.5% to 7.5% and so the investment returns are low. On the other hand, you know money does not bring happiness but you need more money for shopping which is proven to make you happy. In that case you will need to endure a reasonable dose of risk. Sit-down restaurants in which business is moderated affected by the recession tend to offer higher returns–8% to 11% cap.

To minimize or reduce the risks of your investment, you should

  • Choose a property at a great irreplaceable location Tenants will come and go but location does not change. Want to know how important a great location is to a business? A lousy business will be successful at a great location while a good business will fail at a bad location. It’s that important! That’s why some restaurants are still crowded during the recessions. If your property is at a great location, you will likely receive your rent checks on time and regularly.
  • Invest in multi-tenant properties. When one tenant vacates your property you will only lose a portion of the total income.

As an investor you need to do soul searching and determine the amount of risks that you feel comfortable with. On top of that, you also have different expectation regarding investment returns and appreciation. All these factors will determine what properties that you would consider. And now you know why there is no single best property for all investors.