The Era of the Property Manager:
Strategies for Creating Asset Value in a Down Economy
6 Strategies for Creating Asset Value
When the going gets tough, a savvy property manager is your best defense against sinking property values.
As we slip closer and closer toward a global recession, commercial real estate, like many other industries, is headed for very challenging times. For the past several years, cap rate compression has driven property values. Owners and investors held properties for very short periods, sold quickly at lower cap rates and earned substantial profits. During these short hold periods, asset managers were often challenged to cut expenses to the bone in order to drive the value of the property as high as possible. Oftentimes this meant deferring capital expenses and preventive maintenance, and reducing management fees and operating expenses.
Collect accounts receivables. Meet monthly with your accountant to review accounts receivables. Be proactive. Don't allow a tenant to get more than one month behind on rent. Enforce late fees and penalties to drive on-time payments. Staying on top of accounts receivables will avoid collection problems further down the line.
Look for signs of tenant decline. The earlier you can identify a potential problem, the faster you can correct the problem and preserve your revenue. An increase in the number of empty offices or cubicles, empty parking spaces, unreturned phone calls, shorter hours, bounced checks and chronic late rent payments are signs that a tenant may be in trouble.
Help tenants be successful. One creative way to accomplish this is to facilitate tenants working together—match up tenants who are interested in purchasing certain products and services with other tenants who offer these products or services. Happy, prosperous tenants in your buildings protect your rent revenue.
Confirm that the rent roll is correct. Check and confirm the rent roll monthly and ensure information has been entered correctly into the system. Mistakes can be costly!
Charge for extra services. Be sure you are charging tenants appropriately for overtime HVAC and other extra services. Don't just assign an arbitrary charge; determine what it actually costs to provide that service and charge accordingly. It all adds up!
Collect security deposits. Check and confirm every month that the security deposit ledger is correct. It should match the balance sheet and settlement sheet when the building is sold.
Calculate operating expense pass-throughs. Check the methodology for determining pass-through expenses and be sure you are charging correctly. Recalculate throughout the year as necessary to adjust for changes in operating expenses.
Practice good cash management. Deposit cash in good, safe investment vehicles. Pay expenses when due (not early) so you can earn more interest on the money.
Lease up vacancies. Use aggressive leasing strategies when space is empty. Make sure buildings show beautifully at all times; schedule broker open houses; offer broker incentives, such as vacationsand car leases; offer free rent periods and other incentives to prospective tenants. Be creative! Better yet, keep the space occupied by providing excellent service.
2. Decrease Expenses
Review and analyze utility bills monthly. One property manager shared the story of a tenant with a data center that had been under-billed for four years due to improper sub-meter wiring. The amount totaled more than $1 million!
Benchmark. Use BOMA International's Experience Exchange Report (EER)® (available at the BOMA Store at www.boma.org) to benchmark your operating expenses against other properties in your area. Use EPA ENERGY STAR® Portfolio Manager (www.energystar.gov) to track improvements in energy efficiency. Reducing energy costs increases asset value and increases tenant satisfaction.
Optimize your building automation/energy management system. Adjust system start and stop times for weekends and holidays and to take advantage of moderate outdoor temperatures. Use load profile graphs (utilities will provide data) to detect unusual usage spikes. Even small adjustments can save thousands of dollars over time.
Purchase power intelligently. If your properties are located in a deregulated market, consider hiring a consultant to advise you on power purchasing decisions. One property manager receives an annual payment of $300,000 from the local utility by agreeing to allow the utility company to take his building off the power grid for up to ten times during the year. The building was taken off the grid only once for a couple of hours last summer (and not at all this year), and the building's generator was able to provide power during this time. That's a huge windfall!
Turn off the lights. Don't count on your cleaning crew to automatically turn off the lights. Ask them, train them and check to be sure your instructions are being followed. Better yet, install occupancy sensors in offices, bathrooms and common areas, and motion sensors in parking garages. Most spaces are over-lit. Perform lighting retrofits utilizing new technology.
Turn off fans and motors. Fans and motors that run all day can be turned off for periods of time, saving lots of money. For example, fans in parking garages can be turned off at night when the garages are empty.
Silence the night. Turn off copiers and other office equipment at night to save energy and money. Conduct night tours at least quarterly to identify equipment that's left running in your buildings and tenant suites. You'll be surprised what is still running after hours!
Install window coverings. Mini blinds help keep heat out in the summer, and heat inside in the winter.
Save water. Analyze your water bill just as you do your electricity bill, and investigate unusual usage spikes and other irregularities. Consider installing dual flush toilet valves and waterless urinals to reduce water
Revise, re-negotiate service contracts. In many cases, you can adjust the scope of work without compromising service quality. For example, you can cut expenses by adjusting the frequency for window washing or for sweeping and mopping stairwells. Re-bid and/or re-negotiate service contracts to achieve savings. Take advantage of economies of scale—use the same vendor for multiple properties. Evaluate service levels to be sure you are getting all the services you are paying for. usage.
Review, revise maintenance schedules. Consider changing from a fixed preventive maintenance schedule to a predictive maintenance schedule. Whereas preventive maintenance relies upon a time-based schedule, predictive maintenance uses statistics, measurement and experience to determine the service interval for a particular piece of equipment. Solicit your engineers for suggestions for efficiency improvements, and reward them.
Reduce inventory and work smarter. Don't keep inventory on hand that you can get quickly from your vendor, but do keep adequate supplies of items you use frequently. Work smarter and more efficiently using mobile tool carts and work order software.
Recycle. Only 30 percent of everything that can be recycled actually gets recycled. That means you're paying to remove trash that can be recycled. Complete a waste audit. Train janitors and tenants. Ask your cleaning contractor to use refillable containers. Recycle fluorescent tubes as well as cardboard, glass and other recyclables. In addition to saving trash removal expenses, you'll be helping the environment. Recycle "e-waste" such as computer equipment. Imagine a tenant who replaces several computer stations with new equipment and places all the old equipment in the trash—this will be very expensive to remove and very bad for the environment!
Appeal real estate taxes. Taxes may be assessed on the value of your building one or two years ago, as assessment changes usually lag behind building value changes. Be sure you are paying tax on the value of your building today, which may be much less than the value of the property even a few years ago.
3. Manage Vacancies
Make ready for leasing. Tour frequently and look for problems. You need to visit vacant spaces and vacant buildings more frequently than occupied spaces because there's no one there alerting you to problems.
Don't suspend preventive maintenance. Continue performing maintenance on roofs, HVAC, elevators, security systems and life safety systems. These all need to be ready and operational for new tenants. Avoid costly repair and replacement expenses later on. Make sure the elevator phone works. Imagine someone stuck in an elevator in a vacant building without a working phone!
Revise and reset building systems. Reset temperature controls, but don't shut down completely. Winterize (the damage caused by burst pipes, for example, may be very costly to repair). Install water sensors and connect them to the alarm system. Shut off exterior outlets. Use lockout/tagout procedures for electricity and plumbing.
Maintain a secure and safe environment. Performfrequent drive-by inspections. Eliminate hiding places created by landscaping. Keep vacant buildings and spaces locked. Provide access control. Consider boarding up glass doors. Remove snow to keep pathways clear for the fire department or police; don't block fire hydrants. Post your contact information on the front door of the building.
Keep it clean. Make sure bathrooms are stocked and clean. Keep windows clean. Don't leave a waste container at a vacant building for the community to use. Remove old, worn carpet (no carpet shows better than bad carpet). Maintain pest control.
Keep it clean. Make sure bathrooms are stocked and clean. Keep windows clean. Don't leave a waste container at a vacant building for the community to use. Remove old, worn carpet (no carpet shows better than bad carpet). Maintain pest control. Know when negotiating a take back of space may be to your advantage. Work with retail or restaurant tenants that contribute to overall tenant satisfaction in your building.
4. Out-Manage Your Competition
Manage construction. Make sure the paperwork for permits, certificates of use and zoning doesn't fall through the cracks. If you're going to change office use to retail or education use, for example, you need zoning approval. Make sure the appropriate inspections are completed.
Maintain garage preventive maintenance. Pennies spent on garage preventive maintenance now can save hundreds of thousands in repair costs down the line. Example: in winter, cars bring salt from roads into the garage. If not properly sealed, the concrete will delaminate. Mistakes can be costly!
Follow proper procedures for elevator rescues. Building engineers should not perform elevator rescues. These should only be performed by the elevator contractor or the fire department. One property manager shared the story of a woman who fell to her death while the building engineer was trying to rescue her from a stalled elevator. That's not the way you want to get your company's or your building's name in the newspaper!
Maintain sprinkler system preventive maintenance. Pennies spent on sprinkler system preventive maintenance now can save hundreds of thousands in repair costs down the line. Draining the dry pipe system in a garage to remove condensation is a very simple procedure, yet is often ignored, leading to costly repairs after the water rusts through the pipe.
Make friends with OSHA. Know and enforce the OSHA compliance programs. Make sure all appropriate personnel are properly trained. www.osha.gov.
Follow window washing safety procedures. Be sure you and your contractors comply with the ANSI.IWCA I-14 window cleaning standard. Test all equipment before using. Order the standard from the BOMA Store at www.boma.org.
Maintain roof preventive maintenance. Schedule regular roof inspections and make repairs. Major repairs down the line can be very costly!
Manage mold. Try to keep it out in the first place, but manage it correctly—and quickly—if it becomes a problem. Don't try to correct the problem yourself; call in an expert.
5. Retain Tenants
Improve Tenant Service Levels:
- Walk around. Look for problems. Don't spend your entire day in your office.
- Answer your phone whenever possible instead of letting calls go to voice mail.Return calls promptly.
- Provide your mobile phone number and pager for emergencies.
- Call your own number and/or answering service after hours. What happens? Are you treated well? Can you get the help you need after hours?
- Track your work orders and look for recurring problems.
- Fix problems one time, so they do not recur.
- Make sure all your team members are friendly, service oriented and helpful to your tenants.
- Ensure that you and your company are "easy to do business with."
- Over-communicate and over-deliver.
- Do what you say you will do—when you say you will do it.
- Look for opportunities to turn service experiences into exceptional events.Recognize and reward team members who perform above and beyond the typical performance level.
- Use a combination of e-mail, personal visits, flyers and telephone calls to deliver information to your tenants.
- Work to reduce or eliminate janitorial and HVAC complaints—the two biggest areas of tenant complaints.
- Discontinue the annual tenant picnic. It's neither frequent nor meaningful, and the decision makers don't usually attend. Instead, take a different tenant to lunch every week or two.
- Never stop learning. Never stop teaching. Never stop improving.
Listen to your tenants. Find out what they really think about your company and the building's management. Don't assume tenants are happy because you don't hear from them.
Conduct annual surveys. "That which is not measured is not managed." Conduct annual tenant satisfaction surveys. Consider contracting with a professional survey group so you can benchmark your performance against other companies and track your performance improvements.
Connect with tenants regularly. According to Kingsley Associates, (www.kingsleyassociates.com.) an industry research firm that conducts tenant surveys, almost 20 percent of tenants never hear from their property managers during the year. Frequent, memorable connections between the property manager and the tenant yield significantly higher levels of tenant satisfaction, which yield higher tenant retention ratios.
Establish Tenant Councils. One effective method to initiate "frequent and memorable connections" is to establish a Tenant Council in each building you manage. The Tenant Council is a group comprised of the property management team, chief engineer, key vendors and each tenant, that meets regularly (typically monthly) to communicate, solve problems and make certain decisions regarding the management of the building. The frequency of service calls will drop and tenant satisfaction levels will increase dramatically.
6. Improve Your Company's Performance
Evaluate your team. Who are the superstars and who are not? If an employee doesn't add more value than he costs, give him an opportunity to improve. If he can't, then you need to make the tough decision. Terminate the non-performers.
Don't cut training. When budgets are tight, training is often one of the first expense lines to get cut. Big mistake! In a down economy, training is more important than ever. The market has changed and the complexities of our job have changed. If your goal is to do more with the same number of people, you have to invest in training to increase their skill set. The right investment in training can increase your company's performance and save you money!
Take care of your A-team. You know who they are and so does your competition! Make sure you keep your top performers engaged. Offer them training and development. Make sure there's a path for advancement. Give them space to do the job the way they think it should be done. Provide incentives and reward them with bonuses (less costly than replacing the employee).
Information in this document was compiled and edited by Patricia M. Areno, CAE, Senior Vice President, BOMA International, and taken from "New Strategies for Creating and Sustaining Asset Value," a 2008 BOMA International annual conference program presented by P. Marc Fischer, CPM®, RPA, CCIM. Fischer is senior vice president and director of management services with Transwestern, and a former president of BOMA/Baltimore. Fischer is the author of BOMA's Foundations of Real Estate Management® course and frequent lecturer on commercial real estate topics.