In property management, the delicate balance of art and science is never more evident than in the difficult task of increasing the value of those properties entrusted to you. Some of the art is instinct, some is born of experience. It is important to recognize when you need more information to enable you to make an intelligent, informed decision. The science of property management is mastered through experience, professional education, training, and membership in organizations designed to assist you.
A number of techniques can be applied to most situations in an effort to increase property value. Some of these strategies are obvious; others may not be quite so apparent. Two of the approaches you might take are: develop greater financial performance and make better management decisions.
It is obvious that financial performance is achieved by creating greater income and growth of capital and prudently minimizing expenditures. Income is increased through a combination of the following:
- Leasing vacant space
- Retaining tenants
- Identifying alternate uses for space
- Implementing accurate cost recovery
Leasing Vacant Space
The easiest statements for an owner or asset manager to make to a leasing agent, facility manager, or property manager are, “Lease more space!” or, “Put this space on the market and lease it out!” Unless a rental market has collapsed, you can always find a price low enough that someone will lease the space from you. Though an owner may not appreciate charging such a low price, it is the owner who must provide you with the necessary tools to lease the space. Leasing is seldom possible without the availability of owner resources. You will need a reasonable level of tenant improvement monies and a building that is attractive, both inside and outside, and within the scope of the intended purpose of the property. The building staff must be responsive, courteous, and fair in the delivery of services. Most prospective tenants require curb appeal and a functional space.
Market conditions may also make leasing nearly impossible. Local recessions or depressions can limit a tenant’s ability to lease space at any price, much less at a rate suitable to the property owner. Conditions of this type make any paying tenancy desirable and create a fierce competition, which leads to falling rental rates. The only way these conditions can be overcome is if the owner delivers a better product and more service. An owner’s ability to maintain control of his or her property may be severely tested during such periods of the business cycle. Therefore, your decision-making, analytic, and strategic skills are most valuable in times of crisis.
Retaining Tenants
Retaining tenants, especially at an increased rental rate, requires as much skill as it took to initially attract them to your property. The tenant knows you better than when the initial lease was negotiated. The quality of your building systems and the responsiveness of your janitorial services are now known. The process of building a good reputation for your property involves several activities. These include, among others:
- Providing adequate services
- Fulfilling a tenant’s desire for comfort and convenience
- Fostering a spirit of fair dealing
- Properly using the tenant as a referral source
- Using diplomacy when dealing with tenants
Identifying Alternate Uses for Space
All of the analytical skill and intuition that you have developed during many years of business experience will be called upon to help you identify creative uses for building space. Discovering alternative uses may come as the result of casual conversation, directed analysis, a formal highest-and-best-use-analysis, or some other method. There is no fixed formula for making such observations and conclusions. Your education, experience, and professional network are the best resources for discovering such hidden values.
Implementing Accurate Cost Recovery
As markets become tighter, companies find themselves playing the real estate market or acting as entrepreneurial consultants—positions they never intended to hold and do not enjoy. Companies that occupy the space they own tend to invest more heavily in the building, and often less carefully in personnel. They waste far too many staff hours getting approvals, discussing layouts, arguing the merits of various options, and conducting inefficient meetings with too many participants.
Personnel costs are by far the most expensive aspect of running almost any business. The cost of labor-intensive delays is well known to most independent consultants, brokers, realtors, and service companies in real property industries. Large companies with in-house staffs tend to ignore salary and related costs associated with real property management, and at the same time pick at material costs. The standard response to such problems is to institute a chargeback system — an in-house rent collection system. This is supposed to make space users more accountable for the cost of their space however, the success of chargeback systems has been predicated on markets, sales, and departmental budgets, all of which lured tenants into the habit of asking for more than they need.
Facility and property managers are presented with several of the following challenges in these circumstances. They must:
- Convince their clients not to skip steps and approvals needed to get the space they want
- Keep time sheets and track and budget the hours they spend producing a project, including meetings, reviews, and approvals
- Formalize agreements with their clients, not only for the cost of physical improvements and rent, but also for the cost of rendering service, just as any consulting firm does
- Incorporate and actively track budgetary limits in their space and building standards, placing financial limits on such items as furniture costs, finish costs per square foot, overtime utility charges, and services that would be provided at a fee by any outside commercial service
In other words, facility and property managers who have operated as in-house groups for years must learn how to run their operations as commercial business and emulate standard commercial practices. Such practices have all developed in the commercial markets for good reasons — mostly to ensure profitable operations and survival of business.
