Saturday, June 2, 2012

Top 7 Tips in Managing Commercial Property Today

The management of commercial property requires a systemised process to allow the correct controls to occur over the tenancy mix and the property itself.  Here are some tips from our Newsletter for Commercial Real Estate Agents.

Most particularly there are seven clear factors in the property to administer and manage in an ongoing way.  Depending on your location and property type, you can add to the list as appropriate.  

Here are the seven factors to monitor and administer:
  1. First and foremost you need to understand the leases within the property on a tenant by tenant basis.  This means reading the individual leases and extracting from them the critical dates and factors of tenant performance occurring during the occupancy term.  There may also be some factors relating to the landlord that require action with a particular tenant during the term of lease.  Go through all the leases taking notes as you go with regard to active and important issues such as rent reviews, options to renew, outgoings recovery, lease expiry, make good requirements, renovation and relocation requirements, refurbishment requirements, and insurance provisions.  This list is not finite, so look for other things that can be added to the list.
  2. The vacancy profile and vacancy potential of the property will be a continual threat to the landlords cash flow.  On this basis you should be looking at all leases and tenancy areas with a focus on the next two years.  Anything that can be a vacancy inside the next two years should be activated and worked on as early as possible.  There is nothing wrong with negotiating a new lease with a tenant 12 months early providing the landlord and the tenant are comfortable with the terms of negotiation.
  3. The income for the property needs to be optimised and that will come from your selection of rental at the start of any lease negotiation.  That is why each and every lease negotiation is so important.  The negotiation should occur after careful consultation with the landlord with due regard to the standard lease policies that can apply in the property with relevance to the landlords property lifecycle and holding requirements.  The landlord can make choices regards net or gross rental and the types of outgoings to be recovered from each tenant.  These choices can only be defined at the start of the lease, and on that basis should be carefully negotiated.  The start of lease also involves discussions regards rent reviews and options.  The rent reviews should be biased towards the interests of the landlord wherever possible.  Properties with good rent reviews tend to attract better buyer requirement at the time of sale.
  4. The expenditure of the property is continual outgoings threat for the landlord.  Some of the expenditure may be recovered from the tenants through the individual leases.  It is however the case that some expenditure will be a direct non recoverable cost to the landlord over the lease term.  These factors are normally minimised through careful lease negotiation however the costs should be identified and carefully managed so that the net income from the property is appropriately strengthen.
  5. The tenancy mix for the property is a fine balance between available space, tenant enquiry, and expiring lease terms.  Some tenants operate well in close proximity to other tenants.  The reverse situation also occurs and some conflict can arise with poorly selected tenants that do not complement each other.  Be careful when it comes to the placement of tenants in a commercial building where excessive clients or customer visitation is to occur.  Also be careful with those tenants that place a high demand or use on the building through wear and tear as well as staff usage.  A good case in point would be the placement of a call center within a commercial building.  The extended hours of the call center and the higher levels of staff usage may raise the costs of occupancy and building operation throughout electricity, building use, and toilet requisites.  These issues can be suitably contained in the lease document providing the factors are well understood at the time of lease negotiation.
  6. The maintenance of the property will have impact on all the stakeholders including the customers, the tenants, and the landlord.  They all have different positions when it comes to maintaining the property and on that basis the property manager needs to balance the approvals and authorities of the landlord against the demands of the property and the interests of the tenant.  Obviously the property manager cannot step outside the approvals process and authorities that they have been given by the landlord.  There is however a fine line to the walked when it comes to appraising the landlord of the critical issues of maintenance.  Maintenance should be occurring to allow the property to suitably serve the customers and the tenants.  Costs and budgets place some restriction on this requirement.
  7. When it comes to monitoring the property performance of any commercial building, the property manager should be tracking the arrears for each and every tenant on a daily basis, the maintenance of the property on a daily basis, the leases as required, and the interests of the landlord in all respects.  One way to tie those altogether is through a comprehensive documentation and reporting process.  You can categorize the activities within the property into a weekly report that can be consolidated into a final monthly report and provided to the landlord.  Issues and concerns of emergency nature should be communicated to the landlord immediately with due regard for tenant and customer safety.

Within each of these categories there are pressures and demands to be attended to.  It is easy to see why the commercial property manager is an experienced and knowledgeable person, who are over time will only strengthen their experience through professional services and quality performance.  In this way the landlord achieves optimal property outcomes and good tenant controls.

Quality commercial property management services cost money; there is no shortcut for landlords to take.  If they want the best people to manage, they need to pay for it.