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.
When it comes to commercial or retail property management today, the income for the property should be optimised given the particular property, the landlord, the property market, and the financiers. In saying that, income in a commercial property is a number of things, all of which require careful strategy and planning.
Here is a list to help you understand some of that income:
- Rent paid by the tenants in the property and under the terms of the lease. That rent will be for occupied premises or ‘demised premises’ as outlined in a lease document.
- Outgoings recovery from the tenants under the leases and given the types of rent paid in the property (gross or net).
- Extra rental for special factors such as car parking, antennas on the roof, storage areas, signage, or licenced areas external to the lease.
- Net income will be impacted by the expenditure in the property. For this reason the income management plan of a property actually involves a close look at the property expenditure.
- Some of the outgoings in a property will be recoverable from the tenants. That will usually be for consumable services such as cleaning, electricity, water, or gas. The process of recovery really depends on the property and how services are established for the tenants to use and access. Importantly you should look for the recoverable consumables in the income stream and understand what they are for. The lease for the tenant will usually give details of that recovery.
- Arrears in a property will be reflected on the monthly tenant rent invoices. Check out the rent invoices for any outstanding items. If arrears exist, find out what they are for and how they occurred. Some tenants conveniently ignore unusual charges in their rent statement. After a few months it is really hard to know what the original charge was for.
- Rent reviews are a factor that improves rent charges for the landlord (in most cases). Every lease is different and on that basis should be checked for upcoming rent reviews. Understand how those rent reviews are to be implemented and when that is to occur. Time may be of the essence for that event to occur.
- Remittance of money to the landlord is part of income management. Each month or even twice monthly, the landlord should receive money from the rental payments in the property and with the tenant mix. The balance of funds become challenging when the vacancy factors in the property start to rise.
You can add to this list based on the landlord and the property. As real estate agents, our job is to optimise the income given the prevailing factors of the property and the market.
In commercial real estate today, there are some significant opportunities for lease renegotiation. Some tenants would seize the opportunity for a rental reduction or lease adjustment in exchange for some benefits back to the landlord. This then says that you can through this process stabilise the tenancy mix, and rebalance the property for the longer lease term.
When the business community is under some pressure in regards to trade or occupancy, the lowering of the rental over the short term is a satisfactory exchange for other lease terms and conditions that will have benefit for the landlord. The pressures on tenants and businesses today will not remain so forever. A lower rental for 12 months can give you tenant stability through difficult times, whilst preparing the property for greater capital gain or future sale. This is what lease strategy is all about and these are the ideas that we can give our clients to help them with tenant and lease optimisation.
Lease renegotiation opportunities are normally structured into a tenant retention plan. That tenant retention plan would identify the tenants that are critical to the future of the property, and then seek to retain these tenants for the long term. Things should be done to assist them to remain in occupancy conveniently and economically. The landlord therefore benefits by tenant and rental stability. There is however the need to achieve a tradeoff and benefit for the landlord if you are to give the tenant a benefit today.
Here are some ideas that can apply to the landlord benefit process. This is assuming that you achieve or provide an adjusted lower rental for the tenants in occupancy.
- Get the tenant to exercise their option in the property early. By exercising the option, the landlord knows that the tenant will remain in occupancy for the longer term. That is the base benefit.
- You can adjust the terms of the existing lease so that the prevailing make good conditions are more beneficial to the landlord at the end of the lease term. You can obligate the tenant to undertake further renovation works if they choose to leave the premises at the end of lease. This then prepares the premises for alternative occupancy with a new tenant, at a lower cost to the landlord.
- Any lower rental today, can prepare the tenant for a higher rental at some stage in the future. This assumes that the business can be seen to be successful in coming years and months. The lower rental today provides the tenant with breathing space for generating income and repositioning their business. Over time they can likely achieve a better ability to pay the rent.
- Any longer lease term provided to the tenant today should include a renovation requirement. They can be obligated to renovate the premises in a particular way at a certain time. Normally leased premises require renovation every five years. That renovation can include painting, carpeting, and cosmetic upgrades. A suitable agreement can be struck with the tenant and appropriately documented as part of an agreement for a lower rental today.
It is in property markets like this where we can be assisting the landlords to reposition their property and stabilize the tenancy mix. That is the high value of experience and knowledge in commercial and retail real estate that we can apply to help our clients at this time.
In commercial real estate, it is frequently necessary to create and submit proposals for the sale and lease of properties. Every property owner or potential client will have special needs and conditions to feed into the proposal structure. That being said, the proposal to sell or lease a commercial property should be quite specific and not generic.
Generic proposals are no more than an advertising document. They rarely win the business. Clients and property owners today require proposals that are quite specific to the trends of the current market and the needs of the particular property. Your competitors will be on the mark to attract the business, so your proposal must be very good in all respects.
Top commercial agents prepare proposals that are unique and special when it comes to resolving the particular property challenge of the client. Here are some tips to help the process.
- At the front of every proposal document, there should be an executive summary that clearly brings all the critical elements together in one short page of dot points. Simplicity is the key to converting any proposal to a successful transaction or listing appointment.
- In most cases, a proposal to sell or lease a commercial or retail property should be relatively short and specific. Bulky documents are to be discouraged. In the case of ordinary properties, most proposals will only need to be about 15 to 20 pages in length. That being said, it is interesting to note that many agents will create bulky documents of double that size simply to talk about generic property trends and their relevance as a local agent. The key to winning any proposal is to be specific in what you say and give solutions based with clear recommendations. At every opportunity, talk about the property and the solutions that are available.
- The proposal should specifically talk to the local property market today and the trends that are clear and apparent. Tell the client how those trends will have impact on the property marketing process and negotiation. This will have significant benefit at a later time when any potential prospect has been identified and commences negotiation on the property.
- In every proposal document, it is wise to clearly restate the client’s requirements of sale or lease so that any misunderstandings are removed from the presentation or pitch. This then aligns the agent to the intentions of the client and the requirements of the property. Clarity is important.
- The target market for the property should be defined and quantified. That target market will be the focus of the marketing campaign to be described in the document. The particular target market should be summarised in both the levels of current enquiry and types of enquiry. The particular property will have property improvements that may suit the marketing campaign and the target market. Those improvements should be featured as part of the marketing campaign.
- The marketing campaign that is documented in the proposal should have two or three alternatives and budgets. That will allow the client to formulate a decision based on expenditure and the recommendations of the agent. Invariably when the client has a choice regards marketing costs, they will usually choose the middle ground in each case.
- Every proposal to sell or lease a commercial or retail property should have a fee base that is competitive but not discounted. When it comes to selling or leasing commercial property, fees should be one of the last considerations when it comes to choice of agency. An experienced and qualified agent will add far more value to the sale or lease process than any discount that is offered as part of the proposal or sales pitch process. Top agents sell their skills and relevance as specialists to solve the concerns of the client. When this is done well, the requirements for any discount are well forgotten by the client.
- In some respects, and with certain large or special properties, it will be necessary to clearly define the experience of selected staff in the marketing of the property. This becomes quite important when you consider marketing larger and complex investment properties. Top agents have more experience and will usually feed that experience into every proposal document.
- As part of every proposal, it is wise to give the client some graphical display relating to the time line of sale or lease. There are many stages to move through before the property will achieve a successful outcome. Many clients do not understand those stages and the importance of them. When undertaken correctly, this graph or graphical display can show the client the clear relevance of your people and your agency in solving of the property pain.
So these are some of the main items that can apply in the creation of a proposal to sell or lease a commercial or retail property. You can add to these items based on locational factors and particular important issues attributable to the property.
When it comes to managing a commercial or retail property, the landlords that you work with will have specific needs and requirements for the monthly report. In the monthly report certain things will need to be monitored and tracked to ensure that errors and omissions do not ‘slip through the cracks’.
Many a property manager has suffered the consequences of overlooking critical dates and critical issues in a particular property that they manage. For this very reason, the end of month report can be a very efficient way of monitoring current and future activity within the particular property.
Gone are the days of simply giving the client a financial report at month end with little commentary as part of the property management process.
Landlords expect property managers to provide a comprehensive and detailed property management process. It is not simply a matter of collecting the rent and chasing arrears. There are many more things to do when it comes to commercial and retail property performance.
Here are some tips and ideas that can be incorporated into your monthly report as it applies to your property management clients and landlords.
- The property income is always of concern to the landlord given that they need to match the income to their financial obligations and investment targets. The income should therefore be tracked on a daily basis to ensure that lease arrears are identified as soon as they occur. Some tenants will frequently stretch the required lease payments and make a late payment. The reality of the situation is that any late rental payment is in fact a default under the terms of the lease. The property manager needs to see this late payment of rental as soon as it occurs, and take the necessary action in accordance with the instructions that the landlord provides. As part of the monthly report, give the landlord a summary of income paid, income charged, and defaulting tenants. Always seek instructions from the landlord regards these defaulting tenants and the required processes of income recovery. A defaulting tenant can sometimes be converted back to ‘lease compliance’.
- The expenditure in a property will be both controlled and uncontrolled depending on the expenditure type. There are also some accounts that are ‘seasonal’ and quite large; for example they will usually be municipal rates and taxes, insurance, and energy costs. The property should always have sufficient funds to pay for these large and significant outgoings. For this very reason, a complex property with a lot of tenants will usually have an expenditure budget reflecting the timing of these outgoings activities and costs. The property manager should track the expenditure activity monthly to the budget, so that they know how much money they should hold back from the landlord as part of the end of month income remittance. It can be very embarrassing to all concerned when the property runs out of money at month end and the electricity supply is turned off to the building.
- The maintenance in a property will shift and change from time to time. Some maintenance in a property will be planned as part of the overall maintenance budget whilst others will occur as a result of unexpected breakdowns and repairs. The maintenance of the property should feature in the expenditure budget as part of the annual property business plan. At the end of each month the maintenance routines and the maintenance costs should be tracked against the existing and approved property budget.
- The tenancy mix and the existing leases within the property will have lease factors to be tracked. They will include rental changes, rent reviews, lease options, make-good requirements, insurance obligations, and renovation strategies. The list of possible actions and critical dates spinning out of the lease are quite large. When you take on a new property always review the leases comprehensively thereby defining any future critical dates that will require action and momentum at a particular time.
- The cash flow for the property will be optimized through a series of rent reviews, leasing strategies, new tenancy placements, and vacancy minimisation. The property manager should be managing these issues in a productive and comprehensive way. In doing this the property manager should be helping the landlord minimise cash flow disruption and instability.
- Lastly it should be said that the local market property conditions should be detailed in your monthly property management report. In this way the landlord can be completely appraised of the changes to the property market and the factors of supply and demand. When the landlord is briefed in this way, they understand the pressures of lease negotiation and tenancy placement. This knowledge will help when it comes to finding tenants and negotiating new leases.
This list is not finite; however it gives you a good idea of the complexity of the monthly property management report that can be created for your clients.
Take a proactive position when it comes to managing your particular property portfolio for your clients, and provide detailed comprehensive monthly reports. That will allow you to maintain and grow your property portfolio over time. It will also show your professionalism as an expert commercial or retail property manager.
When you manage a commercial or retail property, the budgetary process and assessment will be a frequent part of the property performance and monitoring system. An accurate property budget will help you with the overall property performance throughout the year. That being said, the budget that is created for a property needs to be completely accurate and relevant to the local property market.
Here are some tips that can be applied to the compilation of a budget in commercial or retail property management.
- Meet with the landlord of the property before you do anything else. Understand the intentions of the landlord that can have an impact on the property performance. It could be that the landlord intends to sell the property inside the next 12 months. That single factor will have major impact on the compilation of the property budget. Income and expenditure would be handled differently if the property is to be sold verses retained.
- It goes without saying that you should understand the existing tenancy mix and the intentions of the tenants within the property. Meeting with all tenants regularly will help you stay on top of these issues. If a lease is to expire or renew, the cash flow for the property income will need to show those changes.
- Most property budgets are initially prepared on a spreadsheet with due regard to the timing of changes in income and expenditure throughout the year. This then says that the spreadsheet will reflect the monthly changes of property income and property expenditure. You will need to understand the rental escalations, rent reviews, and options as they apply to each lease within the property.
- A good property budget will allow for vacancies to occur in keeping with the prevailing market conditions. Review the local property market to understand the supply and demand of future space in the particular property type. You will also need to set some expectations and assumptions as they apply to the local and regional economy. Part of that process will include an assessment of the local business demographics and expected changes within the community.
- In preparing for a property management budget, look at all the competing properties in the region or general location. Those properties are likely to place pressure on existing vacancies, and prevailing market rentals. An abundance of vacant space in the local area will directly flow through to a reduction in market rental overall, and potentially a similar case in your property.
- The financial history for the property should be gathered for the last two or three years. That history will allow you to understand rental changes, vacancy factors, and expenditure escalations. That information will help you greatly in creating a new property budget.
- A significant part of the expenditure in any commercial or retail property will include uncontrolled outgoings that have a significant impact on property costs. They will normally be in the categories of municipal rates, energy, and insurance. These three factors take up a large percentage of the building outgoings annually. Estimating the escalations in these categories can be difficult so you will firstly need to refer to the appropriate rating bodies, Energy Supply companies, or relevant insurers for an estimate of expenditure change.
- Talk to other property owners and property managers in the local area to compare property outgoings and expenditure costs. Given that the commercial and retail property market is so specialized, the sharing of this information is very common. Without this information it is very hard to compile the property budget.
A commercial or retail property budget is not a difficult thing to compile, however it does take time and a reasonable amount of preparation work. As mentioned earlier, always take notes regards your assumptions as they apply to the budget. During the year you can refer back to your notes when something seems to be out of balance with the property budget.
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