Any shopping centre today can be a challenging asset from a performance perspective. There are many challenges to track, balance, and manage. The skills of the property manager and or leasing manager applied to the task will be critical to asset performance.
Fees for services
It should also be said that the fees to manage any retail property are also usually higher than the fees charged within industrial or office property management. The skills of the people deployed on the property will reflect on the asset outcomes, so you must employ the right people for the task.
Good quality people with the retail experience will cost more from a salary perspective. The property outgoings should (subject to local retail leasing laws and regulations) be structured through the leases for management fees and staff salary recovery.
Taking on a new property?
If you are taking on the management of a shopping centre from a previous owner or previous property manager, there are many things to look at immediately and specifically. Getting things under control quickly should be a priority with a retail asset. You can use a checklist for that process. Here are 4 specific ideas to help you get started:
- Arrears – Let’s start at the money or rental end of property performance. Understand where the rental arrears are and why they are happening. Separate strategies will be required to get those things controlled.
- Vacancies – What and where are the vacancies now in the property and how are they impacting customer and tenant outcomes? Look at filling the vacancies quickly even if you must do short term rentals at lower base rents.
- Tenants and tenant mix – Assess the tenants in the property for current issues and volatility. A weak tenant mix will drag down property performance. Talk to the tenants and ask about customer sales and customer requirements. It is very likely that the tenants will know what is needed in a retail property to resolve shop placement and mix problems.
- Income and expenditure – Review the cash flow results for the property over the last 12 months. You will see the timing factors from high cost issues such as rates and taxes, as well as capital expense items. Then look at current rental levels, vacancy factors, and upcoming rent reviews. From these things you can create a budget for the property. The object here is for you to comprehensively control the money coming into the property and flowing out to the various stakeholders. You can then shape the financial factors of the property in a controlled way into the future.
These 4 factors will lead to greater property understanding and control. When you can see what is happening in the retail property or shopping center, you have something that you can base your future strategies around.
You can get more tips about Shopping Center Management and Leasing in our eCourse right here.
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.
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.
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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