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For many absentee property owners, the benefit of retaining professional Property Management is abundantly clear, yet many local property owners fail to realize the real cost savings of professional management. Many believe Property Management is a vehicle to reduce operational costs and assist in timely rent collection, but this barely scratches the surface of the benefit of a competent Property Management team. In fact, the whole dynamic of Property Management has changed drastically over the years as property owners struggled to weather economic losses, retain their asset’s occupancies and enhance overall value. The best Property Management teams today have restructured to reflect this changing standard—superseding outdated models and becoming fully-aligned partners who think and act like owners. Utilizing collaborative brokerage relationships, Property Management teams remain completely in tune with ownership’s goals, risk-tolerance level, investment timeline, exit strategy, and specific performance margins. Our firm believes in this new philosophy so much that we successfully completed an acquisition of one of the area’s most prominent established Property Management operations in May of this year—resulting in a fully-integrated commercial real estate platform armed with significant enhanced capabilities. Quarterback Approach: By utilizing Property Management as a strategic differentiator through collaboration amongst owners, managers, leasing agents, tenants, and third-party vendors, the result is an innovative operational approach which delivers a more stable rent roll and profitable operating statement. The right tenants are key to this approach and add significant value through long-term lease structures, high-credit regional / national brand backing, and their ability to act as a traffic generators. Skilled Property Management teams employ aggressive campaigns to fill vacancies before expiration to reduce turnover, tactical methods for lease renewals, and in-depth screening and vetting for top quality tenants—ensuring tenant mixes remain accretive to the overall goal of enhancing investment value. Repairs and Improvements: When tenants do relocate, the majority of newly-vacated spaces require some degree of tenant improvement. The ability to minimize down time between tenants is vital to ownership’s occupancy goals. Through commercial relationships, expertise in managing contracted improvements, and volume discounts from contractors, professional Property Management teams put the best team on the field to prevent owners from costly delays. Moreover, leading-edge preventative maintenance approaches keep major repairs in check and implement plans for value-added capital improvements including energy efficiency and “green” solutions. Execution at precisely the right time operationally, ensures investment properties remain highly competitive in the market. Expertise: While most owner-operators are adept at dealing with most day to day landlord-tenant issues, there is far-reaching benefit to an intermediary or liaison to provide a degree of separation between landlord and tenant. Property Management teams are this liaison. At its very basic level, this intermediary saves ownership valuable time, yet, the potential cost savings is significant. Knowing and ensuring compliance with current landlord/tenant legislation from evictions, to tenant privacy laws, and expertise in legal proceedings is an invaluable asset to any investment portfolio. Owners who believe property management is a commodity service which “anyone” can do are likely unnecessarily saddled with underperforming assets. In this competitive environment, maintaining tactical excellence is the only path to superior operational performance. Property Management must be recognized and utilized as a strategic differentiator for ownership to realize growing profitability and consistently improving operational statements.

The property manager is concerned on a daily basis with a multitude of management details such as rental rates, merchandising space, negotiating leases, adequate insurance coverage and competition from similar buildings. However, ultimately he or she must be concerned with the understanding they have with their property owners. The management agreement is a written understanding between the property owner and the property management company (referred to as the agent). The agreement details the duties, responsibilities, rights and obligations of each party throughout the existence of the agency relationship. Managers’ and owners’ obligations are often complex. The written contract spelling out the understanding of the parties avoids any misunderstandings as to rights, obligations and duties. The management agreement or contract is only put into written form after the property manager and the client have met and reviewed in detail their requirements. If the property is operated by a department of the ownership a formal contract, in the agency sense, may not be necessary. However, there must be the same sort of recitation of rights, duties, obligations and responsibilities as between the management entity and ownership entity. Terms of the Property Management Contract. The term of the agreement between the property manager and property owner will vary depending upon many factors. Some of them are: 1) The size of the project and the scope of the property management work; 2) The extent of problems. The property manager must have an agreement with the owner that allows sufficient time to solve the existing problems and be adequately compensated for his services; 3) The owner’s objectives. In many cases there will be considerable work to be done in order to transfer ownership at a fair price to the owner. If one of the owner’s objectives is to sell the property, then the property manager must insure that the management agreement allows sufficient time to accomplish this goal. Under these circumstances the contract would probably have a cancellation agreement in the event the property is sold. A primary consideration in determining the term length of the agreement should be the amount of time needed by the property manager to accomplish any agreed-upon goals. The property management company should be provided a fair profit for services rendered during the term of the contract. Bearing this in mind, management contracts are written for varying terms, depending upon specific situations. An initial term normally might be one or two years, with possible negotiated cancellation conditions. Any extensions should probably be on an automatic annual renewal basis unless one of the parties desires to make a change in the terms and conditions. Contracts which are not backed up by the good faith and cooperation of both parties are often difficult to live with. For this reason there often is a base period established in which to accomplish certain goals (as outlined above) and then a reversion to a month-to-month agreement. In some cases, the property manager may prefer to be released from the contract if he or she has difficulty working with the owner. In the final analysis, the intent of both parties is the most important factor in any contract. The parties to the agreement. The owner should be named in the agreement and the agreement should be signed by the owner or his/her authorized agent. It’s a good policy to determine how legal title to the property is held and thus be sure that the contracting parties have the right to contract. The contract: • Must be dated and include a commencement date as well as a specific termination date or provision for termination. • Should provide a description of the property. • Should provide a clause pertaining to the execution of leases and other documents by the property manager. If the property manager is to execute leases on behalf of the owner, the maximum length of term of those leases, as well as other terms if appropriate, must be stated. • Must address repairs. The agreement should specify the amount the property manager may spend for any repair without the consent of the owner. • Should state who will pay for advertising and/or promotional efforts. • Should state the responsibility for procuring and payment of proper insurance to cover the property. If this becomes the owner’s responsibility, it should be clearly stated in the management agreement. • Should have a bank account clause. There should be no commingling of funds between the property manager’s business and that of the owner. • Should be a cancellation or Termination Clause. This is a clause which clearly states under what conditions cancellation of the management agreement can be made. The last clause of the contract is a clause which states employees on the property are employees of the owner and not of the property manager. While the employees are normally under the direct control and supervision of the property manager, they are paid out of the owner’s funds by the manager. Worker’s compensation, insurance, social security, etc. are payable whether the employees are those of the property owner or the management firm. A Supreme Court decision stated that only from the standpoint of the Wages & Hour Laws are employees under certain conditions to be considered as those of the manager; regardless of contractual provisions, they are the employees of the property owner. In some cases on-site employees may be employees of the manager. If so, the agreement should so state and should include any pertinent recitations relative to compensation.

Can you imagine how much money you would accrue if you were given a dollar for every time you’ve been interrupted at work? Interruptions have become a pandemic not only in our everyday lives as we scurry from place to place trying to get it all in, but also in our lives as property managers and in the workplace. In recent research results it was noted that property managers spend up to 4.5 hours per week ‘being interrupted’. After each interruption, it takes up to 5 minutes to return to productive time, and coupled with dealing with email, tack on another 8.8 hours per week. Of course, most of these interruptions to property management are due to continually processing and receiving requests for maintenance issues from tenants; owner inquiries; information received from clients; and inquiring brokers and tenants. What’s the answer to effectively dealing with and overcoming interruptions? More property management companies are investing in high-tech computer email technologies so commercial tenants can submit everyday requests and urgent messages to their property managers as quickly as possible. It is an amenity that clients increasingly insist upon. Using technology, property management firms differentiate themselves in their markets – it requires a commitment and taking on additional risk. However, many management companies are experiencing how investing in technology is paying off. Spending less money on technology is short-sighted: owners will ultimately find that they will lose market share or worse yet, have the need to rush and catch up with the market leaders – to maintain occupancy. Ideally property management firms and building owners must talk about becoming business partners and establishing mutually beneficial, long-term relationships. However, property management companies that are separate entities and that service a variety of clients and building types must determine how much technology to invest in? They are often unaware of any tangible benefits from such an investment. Currently 60 to 70 percent of property management clients today are utilizing such technology and prefer making requests (via email) as opposed to placing a request by voice. The computer technology creates internal efficiencies in managing client’s needs and can increase billable tenant requests. It also puts the problem in written form eliminating the confusion a voice message can convey. The need for professional property managers with sophisticated management skills and extensive technical training increases more each day, especially with the growth the Lee and Collier County markets have been experiencing over the past several years. We all swear by ‘gadgets’…cell phones, emails, faxes, PDA, Blackberry’s — it seems like everyday there is some new ‘gadget’ being exposed to the marketplace. Software solutions have also entered the world of property management in an attempt to reduce time lost to interruptions. Custom solutions can be costly, and off-the-shelf document management applications can be time consuming to administer. Many of the document management solutions available today provide some helpful functionality, however, property managers who only provide access to documents fall short of providing answers. When clients don’t have the access to seek the answer and obtain specific data, they will in turn interrupt the property manager for that information. Recently, a new breed of software tool has been developed that combines the cost effective advantage of off-the-shelf document-management with much of the functionality of custom solutions. They use a ‘data dashboard’ to pinpoint the information by providing answers directly to the people who need them. These new tools reduce the number of interruptions and allow property managers to stay focused, work more productively and reclaim previously lost time. Most of the information requested for any property manager falls within one of several categories, i.e. documents, dates, dollars, space, contacts, vendors, etc. By providing clients with the means to answer their own questions, property managers will reduce the number of requests they get from clients and decrease the amount of time it takes them to respond to the requests. This type of software application brings tenant/lease abstracts, building information, tenant information, occupancy costs, vendors, all together in one easy to use platform. Ultimately, this helps property managers gain a competitive advantage to win and efficiently maintain more business while providing a higher level of customer service.

A commercial property is first part of a neighborhood like South Fort Myers; then part of a county like Lee County; and still part of a country like the USA – in other words – its value is tied directly to its surroundings. Only with a thorough knowledge of the entire surroundings can a property manager design a management plan and marketing strategy; establish competitive rent levels; and forecast future cash flows. Variables such as employment, population and income are excellent indicators of economic activity and affect the supply and demand of rental property in an area. The property manager whose opinions are backed by analyses of these variables can judge the highest, best and most productive use for the property over its economic life. There is a common opinion that in real estate there is no national market, rather the market is a mix of smaller local markets – each different from the next. Since this is basically true, property managers must scrutinize each property in relation to local economics. However, transitions in the national economy are felt on local real estate market levels and ultimately affect individual investment decisions. For example, changeable interest rates affect all levels of the economy – the federal posture on interest rates and lenders’ attitudes have an impact on regional as well as local markets. Federal tax laws also dictate some investment decisions. Not all national trends in the economy filter down to all local markets. In nationwide recessions, real estate practitioners in some regions actually fared very well, escaping any serious economic setbacks – while those in other areas were not so lucky. Southwest Florida has been resilient to serious recessions, although we are certainly experiencing a correction in market values now. What does this mean to the property management firm? It means that only a solid knowledge of national economic trends will give the firm’s property managers a complete understanding of their local markets. Federal policies directly affect local market conditions – whether through spending cuts, tax relief or interest ceilings – and the impact of national economic policies has grown. A regional analysis yields an understanding of the economic activity within an area and (to some extent) the effects of supply and demand on a property. Factors that influence the analysis are population, employment and income. Social and legal characteristics are considered too. Information can be gathered from private agencies; government agencies (like the Bureau of Census) which reports population data by census tract. The neighborhood analysis serves as a guide for determining a real estate investment’s potential and helps isolate alternatives for achieving that goal. The regional analysis should take careful note of purchasing power which is influenced by area income levels. Income is the total amount available to the consumer; purchasing power is income less taxes and living expenses or the amount available for nonessential goods, services or savings. Purchasing power has the most direct effect on property value. Other factors that are analyzed would be: • employment trends • the region’s financial stability • transportation and public improvement • recreational and cultural facilities • educational facilities • legal and governmental characteristics Finally, the general real estate supply and demand conditions within a region warrant the property management firm’s attention. The property manager should be able to project the number and volume of real estate transactions; average prices; interest rates and rental rates; and attempt to forecast trends. He/she should examine current supply; volume of construction and the distribution among property types; rent levels and ranges; and vacancy rates by location. A tight market with few vacancies as we have seen in our local market will lead the manager to different conclusions than a region with high vacancy rates. The manager also should investigate construction prospects. A cutback could be the consequence of rising costs such as impact fees, fill costs, insurance, etc. or it could be caused by a sharp decline in demand. The need for analysis should be clear. Because real estate has a fixed location, the characteristics of the location become attributes of the property. To a large extent, the value of a property depends on the features that surround it and the forces that affect it, i.e. value is a function of location.

Besides being familiar with the commercial real estate market in general, a commercial real estate advisor is responsible for knowledge of specific property and safety issues. These issues are critical to the seller/lessor, the buyer/lessee and to the commercial real estate advisor (as the intermediary). The advisor must be aware of the fire and security arrangements for each property. Does the retail facility have a silent alarm? What type of security personnel are employed there? What kind of sprinkler system is installed? Do previous safety or security problems exist? In addition to these common safety issues, also consider these four important concerns: 1) underground storage tanks; 2) the presence of asbestos insulation or fireproofing; 3) electrical transformers containing polychlorinated biphenyls (PCBs); 4) soil and groundwater contamination. Each state has individual legislation regarding regulations of underground tanks and federal law plays a small part in the regulations too. Underground storage tanks present a potential liability for both buyer and seller. The owner of the property will know if there is or has been a tank on the property and it is the duty of the commercial real estate advisor to discover this fact and disclose it to the buyer/lessee. Many building owners over the last two decades, concerned about liability for asbestos-related claims have considered removing all asbestos materials in a building. However, the difficulty in removing asbestos can create even greater risk and liability. Asbestos has been highly regulated over the years. In 1973, regulations were passed banning the use of spray-applied asbestos materials (as building insulation or fireproofing) with the exception of use for equipment and machinery. Buildings that were built before this ban have a potential problem. The EPA’s (Environmental Protection Agency) regulations on asbestos apply to owners and operators of asbestos emission sources. This includes building owners. The face liability from a disclosure standpoint is in selling the property and from a safety standpoint with regards to employees; tenant and maintenance workers. Polychlorinated Biphenyls, commonly known as PCBs, are present in electrical equipment, including capacitors and transformers. Many retail buildings have transformers located in basement or sidewalk vaults or on rooftops. Institutional light fixtures may also contain PCBs. In 1979, the EPA placed restrictions on the use of equipment containing PCBs. Responsibility for compliance with these rules lies with both the owner and the operator of the equipment. The owner of the property on which the equipment is located also can be held responsible. This is significant because transformers owned by an electric utility are often located in or adjacent to the building they serve. Therefore a building owner who merely uses utility-owned transformers or owns property on which they are located may be held liable for any personal injury or property damage resulting from the PCB. There are clear guidelines for the management of soil and groundwater contamination. It is important to keep in mind that hazardous waste is not limited to heavy industrial sites only. Mixed-use facilities; light industrial; warehouse and distribution centers; even parking lots can be areas that have hazardous waste problems. Under existing regulations a landowner may be liable for “unauthorized disposals” of hazardous waste on their property. This includes any discharge; dumping; pouring or spilling; emitting or leaking of any type of waste. The EPA has the authority to order a clean up. A property owner may be responsible for cleanup costs regardless of whether he/she owned the property at the time of the release; knew about the contamination or negligently caused the contamination. Both the seller and buyer may be subject to a cleanup order if the property is contaminated, regardless of who was directly responsible for the contamination. The commercial advisor must remember that potential liabilities may be addressed in the sale or lease contract. However, it’s extremely important to have thoroughly investigated and disclosed the environmental history, condition and use of the property prior to completion of the transaction. Liability for cleanup can be both expensive and retroactive and because of these facts – buyers, sellers, landlords and tenants need to know if there is contamination and to what extent. Without such an assessment, sellers risk liability for any wastes generated by future owners and tenants. Buyers may be responsible for a seller’s or tenant’s contaminations and tenants may be liable for an owner’s or prior tenant’s contamination. Your commercial advisor will take the following steps to protect everyone: 1) He/she will thoroughly investigate the property, its history and current use. 2) Document and disclose everything. 3) Use a restrictive covenant if necessary. A restrictive covenant restrains land uses that may cause harm, such as drilling, excavating and/or building. 4) Determine financial responsibility within the sales agreement (put it in writing). The commercial advisor may allocate costs associated with contamination known at the time of sale, costs associated with contamination existing at the time of sale (but not discovered until later), costs associated with contamination caused by the buyer or successors and costs associated with contamination of uncertain origin. This will not limit the parties’ obligation to the government or third parties. However it will help them understand their obligation to each other. Everyone involved in a commercial transaction relies on the commercial advisor’s ability to structure a transaction that is mutually beneficial to everyone. A good commercial real estate advisor will fulfill this function by having up-to-date knowledge regarding safety and environmental concerns then communicating that information to all parties concerned.

Security is an issue that has many different definitions. For occupants of multi-tenant commercial properties, it’s paramount that they be able to work with as much calm and quiet – free of the threat of outside interference – able to concentrate on the business at hand. Since 9-11, stories of violent incidents that occur without warning appear all too frequently in the newspaper headlines around the world. These are the kinds of incidents that elevate concerns for commercial tenants and owners. The laws of our country are increasingly interpreting security and the right to live and work in peace, as a basic human right. Our legal system is tending to hold that a tenant is entitled to expect that the management of the area in which he/she works must take “reasonable care” to protect them. A smart property management firm understands that in today’s world the superficial treatments that have defined security in the past, are not good enough now and a higher standard is expected. The property manager’s concern is to know what to do about his/her property’s particular security problems. The first step is to make security the top priority in managing the property. The basic approach to solving any security program’s shortcomings is to understand what the exact nature and degree of the problems are, before taking varying protective measures. The solution cannot be found until the problem has been determined. For example, before installing expensive surveillance cameras or securing guard dogs on the premise, know fully the current security situation as well as the viability of the proposed solution. In evaluating the situation the following questions must be answered: 1) What is the crime patterns? 2) What are the tenant profiles of the property? 3) What are the built-in limitations of both the complex and the tenants? 4) What potential resources are available to solve the problem? The property management firm must also be ready with information on types of crimes and the frequency with which they are occurring around a particular property. The police department is usually quite helpful in supplying this information. But in any case, the following information must be determined: 1) the date, time and place of crimes; 2) description of any crimes committed; 3) police action taken and follow-up procedures that were instituted; 4) the name, address, sex and age of the person making the complaint; 5) the name, address, sex and age of the suspect who might have committed the crime. There are basically four components to any security system: 1) hardware; 2) design; 3) manpower 4) management techniques. None of these four are standard. Each commercial building is unique. All four components must be considered when designing a security system for that particular structure. It must be noted that in any existing security system, the change in any one of the components will affect the other three. The first component, hardware presents options which range from the simple deadbolt lock to the elaborate and expensive closed-circuit television system. As an example, let’s look at a simple lock. A key in the door knob with no dead latch would cost approximately $40. per unit. It would take, using brute force, approximately 10 minutes to open it. Another example of a door latch is the key in the door with a cylinder latch. The cost of the cylinder latch is approximately $60. However, using brute force, it would take as long as 50 minutes to open. Again, the effectiveness is directly related to cost. The second component in solving security problems is design of the various parts of the property. Design is important, but sometimes it’s not possible to redesign a part of the property to provide for ideal security. Thus hardware and manpower may be a better substitute. The third component manpower is possibly the most important part of any security system. Tenant surveillance is highly dependent on the sense of responsibility that tenants assume for one another. An example of outside assistance in the area of manpower might be off duty police, K9 patrols or security officers. The advantages of this approach are that personnel would be responsible to management and the patrols would have a certain crime deterring effect. Whether this manpower is in the form of a “tenant watch” group or an outside security company, careful supervision must be provided. Last, the management techniques involved in the solution of security problems begins with seeking cooperation of a large majority of the tenants. If cooperation and understanding are not significantly present, no hardware, design or manpower will be successful. Whether tenants are organized or not they are often willing to help promote their own security. They must realize that they have the largest responsibility for their own protection.

Communicating effectively with people affects every part of our daily lives – both professionally as well as personally. It’s not an intuitive skill. Like our language skills (writing and reading) it requires disciplined study too. It’s extremely important for the property manager, as agent between two parties, to recognize that in dealing with people – each one brings her/his own point of view to the conversation.

Once the owners and the property management company have agreed on principles, objectives and a management plan, it’s in the best interests of both parties to formalize their agreement. The property management company and owner must work out the structure of their relationship regarding fees, specific responsibilities and liabilities, the scope of the manager’s authority, and the duration of the management agreement. In addition, the owner must turn over management records and other pertinent property information to the management company to facilitate the operation of the property. A clear line of communication with the owner is critical throughout the management process. Three basic relationships can exist between a property management company and the individual or corporate owner of a building: some are employer-employee arrangements, some are principal-agent arrangements and a few are formal fiduciary relationships. The employer-employee relationship is most common with banks, universities, large corporate firms and other private institutions that typically require the services of an on-site manager for their properties. The employee-manager is directly responsible to the officers of the owner-employer corporation or institution, which may be the principal occupant of the property. Although no formalized contract is necessary in an employer-employee relationship, the issues set forth in a typical management contract between agent and principal must still be settled. The employee-manager’s working relationship with the owner must be structured along the same lines as that of the property manager who operates as an agent. The principal-agent relationship is created by a written contract signed by both parties, which empowers the property management director, as agent for the owner to act on behalf of the owner, or principal, in certain situations. Implicit in this relationship are certain legal and ethical considerations that the property manager must accord the owner. These considerations are based on the law of agency. An agent has certain duties that are imposed by agency law. This is because an agent has a fiduciary relationship with his or her principal. A fiduciary relationship is a confidential relationship that requires the highest degree of loyalty on the part of the agent. Implicit in this fiduciary relationship are other duties as well, including the duties of loyalty, care, obedience, accounting and disclosure. The duty of loyalty means that the property management company must always put the property owner’s interests first, above his or her own interests. The property management company must act without self-interest. The duty of care requires the property manager to exercise a reasonable degree of skill while managing the property. The duty of obedience means that the property manager must carry out, in good faith, the property owner’s instructions. However, if the property owner requires the property management team to do something that is illegal or unethical, the property management director should immediately terminate the relationship. The duty of accounting requires the management company to accurately report on the status of all funds received on behalf of or from the property owner (such funds are referred to as escrow funds). State real estate licensing laws typically include detailed accounting requirements that must be followed explicitly by the property management company in regard to escrow funds. These laws virtually always prohibit commingling by the property management firm, that is, combining escrow funds with the property management director’s business or personal funds. The duty of disclosure imposes on the property management company the duty to keep the owner fully informed of all material facts regarding the management of the property. While many rights and responsibilities of the agent and the property management company are imposed by agency law, all the property management company’s rights and responsibilities should be spelled out in detail in the property management agreement.

As Director of Property Management for my firm I always look at property, not only for what it is but also for what it could be. An outdated multi-story warehouse could be converted to a modern office building or revamped into a prosperous shopping center. Likewise, a building that appears efficient could have outdated features which (when converted) would make it far more attractive and cost-efficient. However, such transformations come only with effort: among other things, they require foresight; creativity; risk and financing. As an expert in real estate investment strategy, the property management firm looks for alternatives that offer the highest value and still safeguard the investment. The choice ultimately rests on the answer to the question – what is the property’s ideal function, its highest and best use? Highest and best use describes a superlative state for the property and not a comparative one (as in higher or better). The property management team tries to find the use for a property that meets the two explicit criteria, the use that is both the highest and the best. The two criteria go together, but to understand the whole concept, it helps to understand first how the two terms are different. Highest Use. The highest use is a term based on economic factors. It suggests that the success of an investment is purely in financial terms. Each investor has a different idea of what a property’s highest use should be – because each investor has a different expectation of the return from an investment. Best Use. The best use transcends dollar considerations. It refers to sociopolitical factors that make one use more appropriate than another. This consideration is also subjective. The highest use of a real estate property may not be its best use and the best use is not necessarily its highest. Imagine a large tract of beautiful wooded land divided by a babbling brook. The setting might seem best for scattered, prestigious, single-family homes. But a developer levels the trees, dams the brook, asphalts the property and fences it for a mobile home trailer park. The financial benefits from the trailer park would far exceed the one-time profits of scattered homes. The developer chose the highest use over the apparent best use. There are four alternative options to consider when deciding whether to change a commercial property: 1) status quo; 2) rehabilitation; 3) restoration 4) modernization. Status Quo. One way to achieve the highest and best use for the property is to maintain the status quo, keeping the property in its present condition, either developed or undeveloped. Not all properties need to be improved. A commercial property may be already functioning in its highest and best use. Land investments are a good example: some investors (notably corporations) choose to invest in vast parcels of unimproved real estate. Their decision does not necessarily reflect an objective highest and best use, but for each investor the concepts have different meanings. The owner could be holding the property for a number of reasons – taxes; appreciation; or to discourage competition. The property owner believes that the land is being used most appropriately. A charity or social organization might construct a meeting facility rather than a warehouse or shopping center on the site, which is a use other than the highest and best use. The nature and the origin of federally-subsidized housing dictate that it remain at the status quo, and that state does not necessarily reflect the highest or best use. Rehabilitation. Second, an existing building can be rehabilitated. Rehabilitation refers to restoring a building to its original condition without changing the physical appearance of the property or repairing part of the building whenever maintenance has been deferred. The goal is to return the property to a well-maintained condition. With cosmetic rehabilitation, attention is on form rather than substance, for example replacing a worn carpet or fixing cracked plaster. In these cases, the appearance of the building has changed slightly but not substantively. If the property suffers from substantial deferred maintenance, comprehensive rehabilitation might be in order. Adding amenities, such as a security system, might be included in comprehensive rehabilitation. In the process of major rehabilitation features can be added that will help to achieve optimum rents. Making these types of changes will bring the property back to excellent condition without changing its use. Restoration. Restoration should be differentiated from rehabilitation. Restoration is the process of returning the building to its original condition. Modernization. The purpose of modernization is to replace out-of-date items with modern, cost-efficient materials, or items that increase operating efficiency. Modernization reduces the loss in value due to changing styles or functions, which is called functional obsolescence. Basically, modernization changes the product – the property – to meet the demands of the market. In modernization program, thermal-pane glass might be substituted for regular glass; fluorescent or quartz lighting for incandescent; recessed fluorescent fixtures for acoustical ceilings; automatic elevators for manual ones. These are changes that either help the building function more efficiently or give it a more contemporary look. The ultimate goal of modernization is to extend the property’s economic life.