Managing your commercial property is not as straightforward as it once was. In our ever-changing economy, there are so many factors in managing your building. It requires a significant amount of time and investment to stay abreast of the current trends, laws and market conditions. With our current economic conditions, it is even more critical that you have a strategic plan in place to minimize your exposure, utilizing some basic management principles.
Listed below are the key factors I believe to be the most important and effective tools in commercial property management and leasing. We will delve deeper into each of these in the coming months to get a better understanding of how each factor plays into an effective commercial management and leasing strategy to maximize your investment.
Critical to the success of the property is having a long-term business plan to match the needs of the owner. This business plan affects the tenant mix, lease negotiations and rental rates. Long-term occupancy of tenants can affect not only rental income but sales value. If an owner has a building with high turnover, the cumulative effect on long-term rental rates is pronounced.
The lease will be the most important document you will be creating. Understanding lease language and the type of lease that will most benefit your building is critical. Whether an NNN, MG or a G lease, having a lease that has been fully vetted by attorneys is one of the best investments a building owner can make. Leasing laws change almost every year, and relying on a lease that was written for you years ago by an attorney is extremely neglectful.
A very important component of the building is the tenant mix. An owner wants every business in the building to succeed; that success contributes to the overall well-being of the property and contributes to its long-term value. Tenant mix is a huge component of each business’s success, and as such, it is the owner’s duty to ensure each tenant fits into the overall makeup of the property.
Every building has risks. An owner needs to fully understand what risks he or she is willing to take. Some of the basic risks to commercial property will be:
Building age. It may be necessary to upgrade to current codes when new tenants lease a unit. If the building has significant age, this is not always something you can pass on to the tenant.
Deferred maintenance. Did the previous owners neglect critical maintenance issues? These can have significant impacts if you have a building that cannot justify an NNN lease.
Tenant turnover. Has the building been subject to high turnover rates? High turnover can create significant issues to suites as well as the overall building, thereby creating higher-than-normal maintenance issues.
Maintenance. CAM/NNN can be a significant drain on a building. It is important to remember, the CAM/NNN costs are not necessarily associated with the age of a building. Location, real estate tax rates, parking lots and landscaping are all contributing factors in the maintenance equation. CAM/NNN fees can be passed on to the tenant, but it does always make sense to do so. Understanding when CAM/NNN fees can be part of the lease is a critical factor in an owner’s business plan. QCBN
By Cooper Anderson
Cooper Anderson at Bloom Tree Realty is a realtor, commercial property manager and leasing specialist in the Quad Cities area.