In commercial real estate today, the property management process is quite complex. The larger the property and the tenancy mix, the greater the number of issues that need to be reviewed and controlled. This then says that you need excellent systems and qualified people to provide specialized property management services.
There are significant differences between managing Office Property, Retail Property, and Industrial Property. They all have factors of special consideration when it comes to property occupancy, operations and function. Yes, they all have tenants and those tenants need to be managed, and the function of the property is different.
Here are some tips to help you manage those investments today.
The property manager should be comfortable with property type. There is no point in putting a manager on to a property if they really do not understand the way in which it works and the complexity of the property performance. Choose the manager with care and precision. Monitor their skills and services provided to the landlord. Know that the manager is servicing the tenants comprehensively to remove any threats of income or tenancy disruption.
The income for the property is of primary concern. The income needs to be protected and that will generally be through enforcing established lease documentation. Those leases need to be understood and correctly policed. The critical dates from each lease should be merged into a diary alert system. Pay particular attention to rent reviews, options, lease renewals, lease expiries, and renovation requirements. The obligations of the tenant to the landlord need to be applied.
The income for a property will be a number of things. In basic terms it will be the rental, but there will be other things to look at including the recovery of outgoings costs from the tenants. Understand how the outgoings recovery provisions apply when it comes to each lease and tenant occupancy. Enforce the recovery requirements when it comes to all outgoings. Over the years I have seen many property managers make mistakes when it comes to outgoings recovery, and that will in turn impact the cash flow for the landlord.
The expenditure for the property should be managed to a budget. Throughout the financial year, there will be costs to the property; some are controlled and others are uncontrolled. The budget needs to remove the uncertainty from what could otherwise be a volatile cash flow. The property manager should be looking forward in cash flow capability to produce a budget that removes uncertainty for the landlord.
The maintenance of the property will be ongoing and driven from property usage and occupancy. The older the property, the more challenging and expensive the maintenance programs can be. The maintenance program will feed into the property budget from an expenditure perspective. Talk to the contractor’s in the property today to identify factors of maintenance and break down that can be predictable. There will also be capital expenditure items that will need to be identified and handled separately from a taxation perspective.
On a final note, care should be taken to preserve the relationships with existing tenants within the property. This will allow you to establish a tenant retention plan, and stabilize the income stream. Split your tenants into groups of desirable and undesirable occupants. Over time you can replace the weaker tenants with better quality tenants. That is why you have a tenant retention plan.
So these are some of the main strategies to managing commercial and retail property today. You can add to this list based on your location and property type. You will find that it is very helpful to have a checklist when it comes to property handover, and property management systems.