Everyone’s pressured by the economy, but current conditions place third-party leasing and property management pros in a unique position. With the continued deterioration of the commercial real estate market, third-party leasing and management companies face greater challenges in their day-to-day responsibilities and must learn to delicately balance a high-wire act by managing the needs of property owners, tenants and vendors, which requires creativity, sensitivity, passion, determination and long hours. Additionally, working with lenders on foreclosed assets has generated the greatest growth in new business and demands an understanding of how to make assets perform.
During this challenging period, property owners want to stabilize rental streams and minimize the bombardment of requests for rent reductions, retain tenants and cut overall costs without jeopardizing performance. Tenants are seeking rent reductions and lower operation-expense charges and requesting to downsize. The property vendors – landscapers, cleaning services and others – are just trying to hang on to their business.
The situation is likely to get worse before it gets better. Over the next few years, the foreclosure scenario will be on the rise due to the high volume of commercial property loans originated in 2005 to 2007 that carry risky terms. We are likely to see a significant increase in defaults in 2009 and 2010 due to lack of credit, falling property values and reduced cash flow.
So, what are a few things leasing and property management firms should be doing now to help mitigate these challenges facing commercial properties.
• Provide excellent services to the tenants and do everything feasible to keep tenants in the asset. You may not be able to fix the tenant’s financial situation, but you may be able to renegotiate leases even if on a short-term; help with marketing; improve communications; and help identify problems early for property owners. Listen to tenants. Make sure you understand the tenant’s circumstances and ensure tenants do not leave the asset, especially because of something you can control or because of poor management.
• If tenants ask for reduced rents, make sure you have a thorough understanding of their financial condition. Provide as much information to the property owner as possible – business plan, sales, financials, credit analysis, market data and other pertinent information that will allow the manager and the owner to make a good decision about the tenant’s future.
• Communicate with the lender and assist the property owner with financial analysis so that both the lender and the property owner completely understand the business plan for the asset.
• Re-examine all service agreements and associated costs. Ensure that you are getting reductions in your expenses across the board. Review property taxes immediately. With the decline in property values, a reduction in property taxes could have a significant impact for both the property owner and the tenants.
Property managers and leasing agents will need to work harder to meet the needs of the tenants and property owners. Some of the challenges facing the asset may be out of their control, but every aspect of the leasing and management will demand the greatest amount of attention and performance.
Charles Swain of Colliers Spectrum Cauble