The real estate industry is
expecting an onslaught of
troubled properties over the
next several years. As a result,
property managers and leasing
agents will be required to
manage as well as market and
lease these properties with the
goal of increasing their income
and enhancing their values.
To do this, they will have to address
time and rate problems—issues just
about every troubled property experiences. The time problem suggests
the property has taken longer to lease
than projected. The rate problem
suggests the achieved rental rates are
below the projected rates.
Consequently, the property’s income is less than projected, concessions must be offered and a high
vacancy exists. This often results in
lowering standards to qualify tenants
and reducing maintenance standards.
This in turn tarnishes a building’s reputation and often causes owners to go
through frequent changes of management companies and leasing agents.
The property typically has a serious
cash flow problem at this point.
To mitigate any long-term damage
stemming from time and rate problems, real estate managers must identify, understand and address these
problems’ causes as quickly as possible to reposition an underperforming
property.
A CLOSER LOOK
A property’s time and rate problems
may be caused by a number of fac-
tors, including: 1) a poor market,
meaning an excess of space on the
market, and/or a weak or recession-
ary economy; 2) a property is over-
priced because the owner perceives it
to be more valuable than the market
perceives; 3) management problems,
whereby residents or commercial
tenants may not be treated well, or
an excess of deferred maintenance
exists because the property has been
neglected; or, 4) poor leasing because
of inaccurate target marketing.
Solving these problems requires
analysis similar to the analysis need-
ed to develop a management plan for
a property. In particular, a property
manager must evaluate the property’s
operations, marketing and leasing ef-
forts, and target market.
commercial tenant retention program;
and reviewing the property’s budget
from a zero base budget analysis.
A closer look at the marketing and
leasing plan and its execution should
reveal whether the right marketing
and leasing team is in place. If the team
appears burnt out on the property or
is not executing strategic marketing
and leasing tactics, perhaps hiring a
new group would be valuable.
Reconsidering a property’s potential target market involves analyzing
the property’s neighborhood, trade
area or micro-market to determine
whether the building should continue
to be marketed to the same prospects
or targeted to different prospects.
For instance, perhaps the demographic and psychographics of the
area have changed since the building
was developed and the marketing and
leasing plan was established. The resident profile might have shifted from
families to empty nesters and single
people or the reverse. Residents’ income levels could have changed.
Maybe the area is more or less desirable than a few years ago. New buildings might have made older buildings
obsolete.
The property manager must also
conduct a market survey to determine how the property compares to
the competition and its position in
the market. The survey will provide
the market information needed to
recommend the range of rental rates
the property should be able to achieve.
Each space or unit is priced based on
its location, size, features and other
attributes. If it is determined the
property should be targeted to a different market or use, a second market
survey should be conducted for the
alternative market or use.
