This month, I am going to talk about making the most of your commercial real estate Investments.
Commercial property ownership comes with a number of challenges that require a solid foundation of management basics. Once you know the basic best practices, commercial investments can be a very lucrative and rewarding investment and income strategy. The three basic foundational principles listed next are the things that every professional commercial property manager prioritizes in order to maximize return on investment.
- Maintenance is a Priority for Commercial Property Management
A poorly maintained commercial building will almost always turn off a potential tenant. A building’s appearance is an extension of their business, and as such, a prospective tenant will scrutinize the building thoroughly. A building that is falling apart or appears to have extensive levels of deferred maintenance can cause a lot of harm to your building’s potential, and the prospective tenant’s business potential as well. Additionally, businesses and companies want a space their employees will enjoy working in and a building that they can be proud of. Maintaining and taking good care of your property is one of the best things you can do to succeed in commercial property ownership and management.
I recommend checking for needed repairs on a monthly basis. This includes areas of your building’s exterior, including roofing, paint, glass, parking areas, landscaping and signage. Remember that curb appeal is just as important, if not more so, on a commercial building than a residential building. It’s important to catch maintenance items early so that you can integrate the needed repairs into the overall management plan of the building. It’s usually cheaper and easier to catch a needed repair early, rather than wait until it is a major problem. On the inside, it’s important to be on the lookout for problems with flooring, furnishings, fixtures, walls and, of course, plumbing. Keep in mind, the inside can speak volumes about the exterior of your building, i.e. stains on the ceiling, moisture on the window sills, etc.
The truth is, the better your building is, the better your tenants will be, and therefore you can command a higher lease rate.
- Know Your Leases Well
Commercial leases, when compared to residential leases, can be very complex and have many variances from unit to unit, depending on the tenant. The best property management companies know how to read, understand and explain leases with great proficiency. If you do not fully understand the lease your attorney has written, you can open yourself up to liabilities.
With multiple tenants and lease agreements, each lease will vary. In order to know what to expect with each client, you need to ensure you understand what each part of the lease means. It’s also important to take the time to create strong and secure leases with your tenants at the beginning of any commercial lease relationship. Laws are changing constantly, and it’s very important that your leases are fully vetted by an attorney on a yearly basis.
Before you have your tenants sign anything, make sure you look into all of the different options available to you under the law in your area. This is the time to look at your lease terms and make sure you are utilizing the correct lease type (NNN, MG, G etc.).
- Create an Asset Management Plan
My final foundation for successful commercial property management is to make sure you have a solid plan in place for the long-term success of your investment.
You need to know exactly what your plan is, what you want to get out of the property and how you’re going to get there. Having a solid strategy helps you create a roadmap of what actions to take that will influence every decision you make regarding the building. For example, how long do you intend to hold the building – five years, 10 years, or 20? Based on the amount of time you plan to hold a property, you can figure out what your strategy is for achieving optimal value from the asset. Will it be through cash flow over time or will it be through a sale?
By knowing these things in advance, you’ll have a much better chance of succeeding with commercial property investment.
These three foundational principles in commercial property management are key to investments success. You’re missing out on a lot of potential if you do not pay attention to them. QCBN
By Cooper Anderson, QCBN
Cooper Anderson at Bloom Tree Realty is a realtor, commercial property manager and leasing specialist in the Quad Cities area.