In commercial property management it is easy to fall into the same basic management model with all of your properties and clients. That can be the wrong thing to do, given that most properties have differences and challenges that all need to be adjusted to.
To get a reasonable management fee and keep the client and the property in your brokerage portfolio for a long period of time, it is necessary to produce a high quality service. Set new standards for your brokerage; get known as the ‘brokerage of choice’ when it comes to managing difficult and diverse properties.
Remember these facts:
- Most clients don’t do a very good job themselves in property management, so they need help. They have not got the systems and support tools that most other quality brokerages have.
- Many other property managers are a bit ordinary when it comes to skills and commitment to the task. You can usually do a better job.
- Every negotiated sale or lease is an opportunity for a property management proposal.
To attract new clients and better properties to manage here are some ideas to help you set new standards:
- Understand the client before you do anything else. They don’t just want the property managed; they want it formulated to a plan or a strategy that matches their intentions of holding the property.
- Check out the tenant mix and the leases so you can relate to the strengths and weaknesses in each. The weaknesses will need resolve or removal. Given that some leases can go for some time if not years, you will need a tenant retention plan to help you decide what tenants are going and what are staying.
- Understand the critical dates in the property with all of the leases. Act early on the dates so you are not creating a weakness in the property or income base.
- Vacancies and arrears can be challenging issues. Both require strong and sensible management or resolve. It pays in many cases initially not to remove a tenant because of arrears. Usually the arrears can be managed through hence avoiding a vacancy and loss of rent.
- Understand the income profiles and factors for the property. Match the expenditure trends to the cash flow and the requirements of the landlord. It is not so much that the bills need to be paid on time; but rather that the expenditure needs to be planned.
A good property management system will be supported by a checklist and forward planning model. Every client is different so take the time to understand the client before you do anything else. Help them with their property needs.
In commercial real estate today many agents will say that the property market has changed, and indeed it has. The fact of the matter is that it is always changing and we as agents must live with that change. If we want to earn good commissions and find more listings, we have to use that property market change change and do something productive with it.
In any working year and selling season you will find common fluctuations in all of the following:
- Lack of tenants to fill the existing vacancies
- Slow deals and decisions when it comes to property sales or leases
- Lack of buyers coming to you from the marketing efforts and advertising
- No developments coming up to put more space into the market
- High vacancy factors in existing properties
- Low grade stock and nothing of quality available to rent or buy
- Too many properties on the market in either sales or leasing
The real issue here is that these things happen all the time. If any of these things are frustrating you now in your commercial real estate agency, then have a good look at your prospecting efforts and just how many people you talk to every day. It is quite likely that you have a poor or non-existent prospecting model.
Most agents that struggle with the changes in the property market are those that do not have a solid database of qualified prospects and contacts. Those agents live from day to day on the results that they get from ever new listing and the advertising that follows. They lack new people and established contacts to talk to. They generally have not created the pipeline of contact that is so important in our industry.
It is a fact that the cycle of property activity in commercial real estate is quite long. It can be months if not years for some of our prospects to take action or deal with a property matter. Your success in the industry will be strengthened by the number of people that you know and the frequency of direct contact that you make with them.
When you look at a list like that mentioned above, you can turn every market ‘negative’ into a ‘positive’. For example:
- You can specialize in finding tenants when they are few and not overly active.
- You can improve your negotiation and marketing skills to put urgency into the average property transaction.
- You can get to know lots of local business owners and property investors so you have people to talk to when a quality listing comes onto the market.
- You can become a specialist in selling or leasing a good property ‘off market’ when other agents are struggling with the traditional way of finding buyers and tenants.
You can turn every negative market situation into a positive one if you work at it as a specialized commercial real estate agent.
The management of a commercial property can be a complex issue. There are things to consider and plan for. The management process simply doesn’t just involve the collection of rent. There are many other things to do. A skillful property manager has to be chosen for the property type based on experience.
The larger the property, the more demanding it can be when it comes to property activities and management structures. The larger properties have complex lease structures, tenancy mix strategies, property business plans, and lease strategies.
Here are some things to merge into your property management processes whilst helping your clients to move ahead with overall investment performance.
- Most clients will be focused on the rental as the foundational issue for property benchmarking. The rental will be in the form of gross income and the net income. From the gross income there will be deductions for property running costs and expenditure. The expenditure needs to be well managed so that the net income is equal to or better than the other properties of the same type in the same area.
- The type of property will dictate the levels of enquiry and benchmarks of market rental. Review the local property market regularly to understand that your property is similar to others when it comes to market rental.
- The expenditure for the property should be managed to a business plan. Every expenditure structure should be split into the categories that apply to each property. That will include municipal rates and taxes, insurances, fire and safety, security, energy, and repairs and maintenance. As you split the expenditure, you can see where the averages are appropriate for the property type. If that is not the case, then changes need to be made.
- The tenancy mix and the lease structure will be quite important when it comes to the overall cash flow. A tenancy mix should be supported by a good standard lease document that covers the requirements of the landlord and the property as an investment. The landlord should consult with their attorney or solicitor to create a lease that is suitable for the long term cash flow that they require. A good property manager will understand lease terms and conditions and just how to administer them.
- The tenancy mix and the vacancy profile for the asset will need to be carefully tracked. The vacancy profile should be reduced whilst the tenancy mix should encourage ongoing tenant success. This then suggests that a lease negotiation is not a separate and individual thing. A good lease is created to integrate into the surrounding tenants and the property tenancy mix overall.
- The maintenance for the property will be ongoing and should be manage to the expenditure budget. Keep in close contact with the contractors for the building so that you can understand where the major items of expenditure can have an impact on property cash flow. Preparation is the key to success when it comes to expenditure and maintenance. Large costs should be managed to a time where the property can afford the expenses.
So these are some of the big things that will have an impact on your property management structure and service. Take these things and refine your services to help every client improve property performance.
When a commercial property manager takes on a new lease and property to manage, I usually tell them to spend a good deal of time reading the leases before they form an opinion about the property and the tenant mix.
The fact of the matter is that any and all leases in the one property will be different from each other. Critical dates, definitions, and terms and conditions will all have an impact on the way things are done. If there is to be a lease default by the tenant, the first place to go for information is the lease.
Here are some of the main factors to look for when it comes to handling a dispute and default with a tenant.
- The definition of lease default will be in the lease and it will go on to say exactly when and how you (as the landlord’s property manager) can take action to remedy the breach or default.
- As to when you can take action will be important, as it will have bearing on legal relationships between the parties.
- Look out for the relative legislation or laws that can also impact the lease, the tenant, or the landlord. Sometimes laws will interact with the lease documentation and the default event.
- Who can take action and how will vary depending on the lease. Read it to know what can occur.
- Time for the default notices to be served will be set out in the lease clauses. There may also be factors of ‘time is of the essence’ when it comes to notices between the parties. When in doubt get a good solicitor to advise you based on the existing lease between the parties.
- In most cases the tenant should be given a reasonable chance to remedy the breach. Legal precedents may have an impact on what time frame is acceptable for the remedy to occur.
So all of these are very good reasons to read the lease comprehensively when you first take on a new commercial property or property management client.
When something goes wrong in a property, the first place to go is the lease. Read what it has to say; invariably the answer needed will likely be in the lease.
You can get more tips for commercial real estate managers and agents in our Newsletter right here.
Lease administration forms part of the leasing and management services offered to Property Management clients in commercial real estate today. It is a specialised service and has major impact on the property under management.
The real estate agency staff involved in the management and leasing of a commercial or retail property, really do need to know what they are doing when it comes to lease administration. When done well the process will help the landlord client achieve income and tenant benchmarks in the property that would otherwise fall short of expectations.
Why do things in investment properties need to be ‘administered’? The answer is quite simple; the market is constantly changing and expectations of the tenant mix, income, and local area will change. Top agents work ahead of the changes and they know what is going on in all comparable properties.
Here are some factors that you can merge into your lease administration system for your clients.
- Review all leases as a priority. In this way you will know what is coming up with each tenant and occupancy. When you are managing and leasing larger properties, the task is complex. For this reason, any lease review should involve a ‘synopsis’ process where key issues from the document are extracted and noted in an appropriate document and diary system. In this way you can be prepared for the major events well before they happen.
- Check out the rent reviews coming up for each tenant. The market rent reviews will be the hardest to predict and negotiate. Any market rent reviews should be flagged for early attention. You will need some good comparable market rental evidence from the local area and this takes time to locate.
- Options for lease renewal can be a good and a bad thing, depending on the property, the tenant, and the landlord. Leases should have an early window of time where any option that exists can be negotiated and finalised. In high quality shopping centres, the process of giving an option for a further lease term is not desirable; it places far too many limitations on the tenant mix and how the client landlord can work their shop ‘clusters’. As a general rule, any top quality property should not give ‘options’ as a standard offering in any lease negotiation.
- All leases will have factors that need action at some time during the year or the lease term. Typically those things are insurance certificates of currency, rent reviews, options, renovation dates, and make good provisions. Get to know your leases so the critical dates area correctly actioned well in advance.
Attention to detail in lease administration is really important. This means that all actions and correspondence should be correctly recorded and implemented. All of this action should be supported by a good property management and leasing fee.