Navigating the dynamic landscape of commercial real estate and property asset management to maximize value demands strategic foresight and a proactive approach. In 2024, property owners and operators will face challenges, as well as be able to capitalize on opportunities.
Looking back at the prior year, a notable amount of uncertainty and trepidation infiltrated the commercial real estate markets and other real estate sectors. However, there’s now a sense of optimism fueled by the recent Federal Reserve meeting (in which they again held rates steady), as well as an evolving economic outlook.
In the face of such changes, property asset management is vital, and property owners should remain steadfast in continuing to maximize the value of assets within their real estate portfolio.
The comprehensive property asset management checklist provided below emphasizes the key considerations that can effectively maximize the value of commercial properties.
Leasing Strategies
While filling vacant units boosts your property’s Net Operating Income (NOI) and cash flow, overcoming leasing challenges can require strategic measures:
- Choose the Right Broker: The right individual and company can make a significant difference. If your investment property has been on the market for an extended period, consider switching to a broker who provides the time and energy your property deserves.
- Determine Market Concessions: Leverage relationships to understand current real estate market concessions, such as Tenant Improvements (TI), free rent, and prevailing rental rates for competing properties.
- Tenant Retention/Renewals: Evaluate tenant satisfaction and implement strategies to enhance relationships, reducing vacancy rates and turnover costs. Prioritize timely lease renewals to avoid future vacancies at your commercial properties.
- Repairs & Improvements: Real estate asset management requires making any necessary repairs and minor improvements to present available spaces positively.
Capital Projects & Maintenance
To attract quality tenants and stay competitive, a key component of property asset management is to evaluate your investment property and address the following:
- Deferred Maintenance: Promptly attend to deferred maintenance issues at commercial properties to prevent further deterioration and maintain their appeal.
- Landscaping and Exterior Upkeep: Enhance curb appeal through crisp landscaping, fresh exterior paint, as well as well-maintained parking lots, lighting and signage.
- Signage: Upgrade (and maintain) monument signage at each investment property to increase visibility and attract new consumers.
- Mechanical Upgrades: Enhance mechanical systems such as HVAC for greater building efficiency and tenant satisfaction.
Financial Management
To protect your investment returns, it’s important to closely manage the financial aspects of your commercial real estate properties. Careful planning and oversight should be applied to
- Budgeting: Work with your property manager to develop a comprehensive annual budget with operating expenses, capital expenditures, and reserves.
- Financial Statements: Generate accurate and timely financial statements and regularly assess the property’s financial health.
- Reserve Fund Management: A vital aspect of property asset management is to always maintain a reserve fund for unexpected expenses, repairs, and capital improvements.
Operating Expense Management
Given the rise in operating expenses, cost management is crucial to attract tenants and support rent increases:
- Insurance: Bid out your insurance policy and consult with brokers to reduce or maintain annual premiums. Ensure your policy covers all agreed-upon terms in each tenant's lease.
- Property Taxes: Protest property taxes. Consider hiring a third-party professional to protest and appeal inevitable increases.
- Property Management: Collaborate with your property management company on annual budgeting to address potential inefficiencies and discuss upgrades and technological implementation for increased building efficiency.
Security of Commercial Properties
Security and safety are paramount for tenant satisfaction and investment returns, particularly in submarkets experiencing an uptick in crime and increasing populations of unhoused individuals. To address these challenges, consider the following measures:
- Security Patrol: Enhance commercial property security through regular nightly patrols.
- Physical Security: Strengthen on-site security through surveillance systems, interior and exterior access control, and other measures.
- Building Upgrades: To ensure the safety of both tenants and consumers, add or improve exterior and parking lot lighting. Implement secure monitoring systems to prevent theft and unauthorized access. You can also consult with experienced security professionals.
Community Engagement
As part of your property asset management due diligence, frequently connect with tenants and the community to gain insights into challenges impacting your property:
- Local Partnerships: Build positive relationships with local businesses, organizations, and government entities to contribute positively to the community and enhance an investment property’s overall reputation.
- Stay Informed: Be aware of any zoning changes, applications and permits, and pending development projects that may impact your community, the real estate market, and your commercial properties.
Stay Up to Date: Laws & Regulations, Market Trends
Legislative changes and real estate industry trends can impact an investment property. As such, your property asset management strategy should include looking into developments regarding:
- Energy Improvements: Stay compliant with energy requirements like LEED, indoor air quality (IAQ), and lighting standards for enhanced property efficiency.
- Mechanical System Upgrades: Be aware of the push to eliminate gas furnaces and explore alternatives and potential financial impacts on your investment returns.
- Market Trends: Stay informed on general market trends and macroeconomic factors that may impact your real estate portfolio.
- For Denver and Colorado owners in particular:
- Energize Denver: Stay informed about Colorado's new energy legislation affecting building performance standards. Consult with your property manager to assess potential impacts. Additional information can be found here.
- The City of Denver's website also provides Resources for Building Owners.
By diligently addressing the components outlined in this property asset management checklist to maximize value, owners can position their investments for success.
Proactive management strategies, coupled with an awareness of real estate market trends and tenant needs, will not only maximize property values but also contribute to sustained growth and increased net operating income. Staying ahead of the curve will be the key to long-term success in commercial real estate asset management.
As featured in Colorado Real Estate Journal.
Bryce McNeely
Associate, Investment Sales
Bryce@BlueWestCapital.com
720.738.0037
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