Magazine article Journal of Property Management

Double Trouble: Real Estate Managers Can Provide Potential Solutions for Key Issues at Troubled Properties

Magazine article Journal of Property Management

Double Trouble: Real Estate Managers Can Provide Potential Solutions for Key Issues at Troubled Properties

Article excerpt

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 factors, including: 1) a poor market, meaning an excess of space on the market, and/or a weak or recessionary economy; 2) a property is overpriced 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 needed to develop a management plan for a property. In particular, a property manager must evaluate the property's operations, marketing and leasing efforts, and target market.

Reviewing the property's operations entails evaluating whether the right management team is in place; assessing the property's policies and procedures and whether they are being followed; inspecting the property for deferred maintenance and needed capital improvements; determining whether the property has a resident or 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.

ADAPTATION

Analyzing the time and rate problems concludes with a comparison of alternative solutions, which include doing nothing; implementing a new management, marketing and leasing program; renovating the property; repositioning the property within the existing use; and an adaptive use. …

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