When The Use Of Commercial Property Is Changed

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 An outdated multi-story warehouse could be converted to a modern office building or revamped into a prosperous shopping center. Likewise, a building that appears efficient could have outdated features which (when converted) would make it far more attractive and cost-efficient.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.

If you’ve started a new business and you’re considering leasing an office or retail space, a good way to begin your search is to find a leasing agent who is an established commercial real estate agent in your geographical area. An experienced leasing agent will know how deals are done in your community and in the case of a lease transaction, know how landlords work with agents and brokers. Experienced commercial agents will have the financial stability to allow them to put your best interests first. In most rental situations a commercial leasing agent gets paid when the transaction is completed and commissions are typically calculated based on the dollar per square foot multiplied by the times of the term of the lease. A financially stable leasing agent will be less tempted to rush negotiations or settle for a more expensive result when patience might produce something better for your specific needs. Finding a commercial real estate leasing agent isn’t much different than finding any other type of professional such as a lawyer, financial planner, mortgage broker, etc. A good dose of common sense; inquiring around within your network of personal and professional associates; and a moderate amount of research should help you achieve your goal. Here are a few questions to ask other professionals before narrowing your choices down to the final two: What is the commercial agent’s reputation like? What is his / her experience, honesty, availability, follow-through? A person who recommends a commercial agent to you should have the answers. If not, ask your mortgage lender (they are working with commercial real estate agents all the time). What are the commercial agent’s weak points? In every working relationship there has to be some differences that will occur. Find out what they are and if you think they are things you can work with. For instance, is the person always late? This may not be a problem if you tend to run late yourself, however it’s best to know upfront. What are the commercial agent’s strong points? You will want to find a commercial agent who can deliver your specific needs and requirements. For example, if you’re seeking a space for a dance studio you’ll need to find an agent who can think out-of-the-box and adapt space in a creative way to meet your highly special needs. Would they use the same commercial agent again? This question appears somewhat obvious but is useful because you’ll get a specific response that perhaps might not have been otherwise forthcoming. For example, you may hear a response that starts with “well, yes, because what I really liked was…” and the rest of the sentence often recalls a professional skill, such as attention to detail, that may be important and revealing to you. Once you’re down to two or three top prospects, you’re ready for the interview phase. Armed with the knowledge you now have about the commercial agent you’ll want to get information from the commercial agent as well. Here are two important questions you’ll want to ask them: What is the commercial agent’s experience with your needs? Hopefully you already knew that the agent was familiar with specific business needs like yours. But if you’re not sure – it’s important that the agent verbalizes their experience to you. Ask for references from other business like yours, that he / she conducted business with previously. What is the size of the real estate office? If you’re a small business owner with modest space needs, it’s possible to get lost in the shuffle with a larger firm that primarily deals with big tenants who need 10,000-square-feet and up. However, larger firms often have teams with agents on different levels who are willing to deal with smaller spaces and satisfy your needs too. Overall, office size is not important. It’s the quality of service you will receive that is. Finally, if you’re satisfied that the experience, level of skill, professional and personal style of a commercial real estate agent will suit your specific needs then it’s time to sign a contract. Signing a contract will protect you from the common misunderstandings that arise in every working relationship that is based on a handshake and further solidifies the relationship and trust between yourself and your agent. It will assure that the lease space you find is the lease space that your company needs.

We all know the 2004 hurricane season resulted in an unprecedented four hurricanes striking the State of Florida, and then again in 2005, another year of huge losses. Many of Florida’s prominent commercial insurance underwriters have completely pulled out of the Florida market and many who continue to write now exclude the State of Florida. We have seen enormous premium increases in recent policies, which for most commercial tenants equate to a higher pass through or higher shortfalls at year end when common area maintenance (known as CAM) / insurance and real estate taxes are reconciled. Insurance is used to manage risks to an investment and create a financial cushion against losses caused by foreseeable or unforeseeable events. Further, adequate insurance is necessary for owners to acquire financing for their investment properties. The kinds of insurance typically fall into two general categories. Property-loss insurance protects against losses from the destruction of the property or damages to the property and protects the owner against loss of rent due to property damage. Liability loss protects against claims for any damage or injury caused to another person or the person’s property. This minimizes the financial effect of liability for personal injuries that happen on the property, for instance, if someone falls in the lobby or in the parking lot areas, commonly known as a ‘slip and fall’ incident. The goal for purchasing insurance is that the owners not lose money, so coverage may be higher than the loan. Most owners typically insure for the ‘replacement’ cost of the asset. Some owners will assume more risk than others. It is important that this is determined at the time the insurance is purchased, as it is too late after an insurance event actually occurs. With the ever increasing premium rates we are now seeing, some owners are choosing to ‘self insure’ against loss and obtain only liability insurance. This is only possible on a property that is owned free and clear, as federal lending regulations require the borrowers to maintain sufficient property and liability loss insurance. Extended coverage endorsements provide additional protection against damage from windstorm, hail, explosions, riots, civil disturbances, smoke and are typically added to the main fire policy, which is generally considered the principal risk in real estate. Fire insurance policies can also include different kinds of property or extended coverages, for example vandalism and malicious mischief, building and contents coverage, specific hazards coverage, etc. Owners also need to determine whether local conditions and the needs of the property call for insurance against floods, glass breakage and replacement, or boiler and machinery malfunctions. The typical general liability insurance policy offers one or more coverages for bodily injury, property damage liability, or medical payment insurance. A comprehensive general liability policy provides for the broadest protection. The owner is covered against all risks except any specifically excluded in the policy provisions. Other additional coverages for liability could include Owners/Landlords/Tenants liability, wherein the policy would cover liability arising from maintenance, ownership or use of the premises, and would extend to activities off the premises involved in the running of the business; Medical payments insurance provides for reimbursing members of the public injured on the premises, regardless of liability, for medical expenses; contractual liability allows a party to assume liability contractually, for example, a tenant may agree contractually to take on the landlord’s liability under certain conditions. Insurance is an absolutely unavoidable cost for the owners and the tenants who pay for this proportionate share of coverage through their CAM. We can only hope that we have a less eventful hurricane season in Florida and that next year we can find more competitive rates and more companies once again entering the market.

Commercial investment properties require a premium insurance policy to cover all types of risks from vandalism to fires to hurricane storm damage. This extremely important cost to the property is recorded as an operating expense and is entered into the property management’s monthly statement to the owner. Very often, an institutional owner will cover all of their properties under a blanket policy and a property manager can have a difficult time determining the individual cost of coverage of a specific property for the purpose of the operating statement. This is the point when it’s prudent that the property manager be knowledgeable and begins his/her inquiry by asking the following question, what risks exist? First, it’s important to determine who the insured is before any questions can be answered. Is the entity of ownership an individual? Are they a partnership, a real estate investment trust or corporation holding legal title? This information needs to clearly defined and set forth. In the case of a general partnership, each of the partners should be named as an insured. If the deed holder is a limited partnership, be sure the general partners are listed individually as the names of the insured in the policy. If the ownership is in the form of a corporation, include the exact name of the corporation shown on the deed of record. While co-ops and condominiums generally fall into one of the ownership entities aforementioned, be sure that the board of directors (and/or board of managers) charged with the responsibilities for management of common areas are protected and named additionally as insured persons in the insurance policies. Whenever the responsibilities of management are transferred to someone other than the property’s ownership, there is a potential liability to the individual, partnership or corporation that accepts that responsibility. Those parties should be named as individuals in the insurance policy and this can usually be accomplished at no additional premium to ownership. Many policies have a statement in them that reads “anyone acting in the capacity of rental agent or manager”. However, even if such a statement is printed in the policy – it’s wise to have an endorsement specifically naming the responsible party. For example, it’s smart to include the line, “The ABC Company, managing agent, is hereby named an additional insured party.” The most obvious risk is the potential loss from fire or injury to persons on their property. However, there may be other risks which need to be covered by insurance. There is no substitute for making a thorough physical inspection of the property. In any high rise building the property manager should begin with an inspection of the roof and interior of the building. Usually there are at least two stairwells from the top to the lower levels. Walk down the building using alternate stairwells, thus he or she can inspect each public corridor. Upon reaching the ground level, they will check the lobby, shops if any, all public areas and all entrances and exists to the structure. While this walk-through inspection should not be treated lightly, a more complete and in-depth survey should be made of all mechanical equipment. Every property manager should know the working parts of a building. Why such an intense type of physical inspection, you may ask. The property manager is looking for any potential hazard or risks that would subject the property management firm or the property owners to a liability suit. The property manager will also inspect equipment which would be extremely expensive to replace or repair such as elevators, central air-conditioning equipment or security alarm and surveillance equipment to name only a few. The same thoroughness should be exerted in inspecting a mid-rise, an office building, a shopping center or any commercial structure. A building with a single or multi-level garage should also be carefully inspected. Curbing, aprons, over-changing shrubbery, pot holes and sunken areas are examples of risks that may exist in parking lots, particularly in shopping centers. This type of survey or inspection is of little value unless risks and potential equipment malfunctions are listed and corrections made where possible. As a result, savings will generally accrue through lower insurance rates.

We all know the 2004 hurricane season resulted in an unprecedented four hurricanes striking the State of Florida, and then again in 2005, another year of huge losses. Many of Florida’s prominent commercial insurance underwriters have completely pulled out of the Florida market and many who continue to write now exclude the State of Florida. We have seen enormous premium increases in recent policies, which for most commercial tenants equate to a higher pass through or higher shortfalls at year end when common area maintenance (known as CAM) / insurance and real estate taxes are reconciled. Insurance is used to manage risks to an investment and create a financial cushion against losses caused by foreseeable or unforeseeable events. Further, adequate insurance is necessary for owners to acquire financing for their investment properties. The kinds of insurance typically fall into two general categories. Property-loss insurance protects against losses from the destruction of the property or damages to the property and protects the owner against loss of rent due to property damage. Liability loss protects against claims for any damage or injury caused to another person or the person’s property. This minimizes the financial effect of liability for personal injuries that happen on the property, for instance, if someone falls in the lobby or in the parking lot areas, commonly known as a ‘slip and fall’ incident. The goal for purchasing insurance is that the owners not lose money, so coverage may be higher than the loan. Most owners typically insure for the ‘replacement’ cost of the asset. Some owners will assume more risk than others. It is important that this is determined at the time the insurance is purchased, as it is too late after an insurance event actually occurs. With the ever increasing premium rates we are now seeing, some owners are choosing to ‘self insure’ against loss and obtain only liability insurance. This is only possible on a property that is owned free and clear, as federal lending regulations require the borrowers to maintain sufficient property and liability loss insurance. Extended coverage endorsements provide additional protection against damage from windstorm, hail, explosions, riots, civil disturbances, smoke and are typically added to the main fire policy, which is generally considered the principal risk in real estate. Fire insurance policies can also include different kinds of property or extended coverages, for example vandalism and malicious mischief, building and contents coverage, specific hazards coverage, etc. Owners also need to determine whether local conditions and the needs of the property call for insurance against floods, glass breakage and replacement, or boiler and machinery malfunctions. The typical general liability insurance policy offers one or more coverages for bodily injury, property damage liability, or medical payment insurance. A comprehensive general liability policy provides for the broadest protection. The owner is covered against all risks except any specifically excluded in the policy provisions. Other additional coverages for liability could include Owners/Landlords/Tenants liability, wherein the policy would cover liability arising from maintenance, ownership or use of the premises, and would extend to activities off the premises involved in the running of the business; Medical payments insurance provides for reimbursing members of the public injured on the premises, regardless of liability, for medical expenses; contractual liability allows a party to assume liability contractually, for example, a tenant may agree contractually to take on the landlord’s liability under certain conditions. Insurance is an absolutely unavoidable cost for the owners and the tenants who pay for this proportionate share of coverage through their CAM. We can only hope that we have a less eventful hurricane season in Florida and that next year we can find more competitive rates and more companies once again entering the market.

My property management team and I analyze the current condition of each property we manage on a monthly basis. The first task is to make a detailed physical inspection of each property to determine what condition the property is in. Each type of property is intended for a particular purpose. Each property is marketed for a particular type of use, i.e. office building, retail center, industrial complex and so forth. The top two reasons we make each inspection is 1) to provide us and the owner with an inventory of marketable spaces and 2) to determine the physical condition, both interior and exterior, noting problems and listing solutions. For example, a roof that is in a state of disrepair can leak, causing interior ceiling damage. The solution would be to repair or patch the existing roof or in some cases replace the roof altogether. A detailed property inspection must be thorough. These are the five areas of inspection a competent property manager can be expected to follow: 1) The property manager will start by inspecting the exterior construction and condition of the building. This includes not only maintenance problems, but also aesthetic problems presented by the exterior surfaces and façade. For example, the landscaping may be serviceable but the general appearance of the building may require cosmetic improvements. 2) Common areas are important. This includes outside common areas such as parking areas, walkways, landscaping as well as interior common areas such as lobbies, stairways, elevators, etc. The appearance of these areas is one main criteria of desirability for tenants, especially in Class A buildings or larger neighborhood shopping centers. 3) Ancillary areas such as spaces used for storage, garage, shop, or other building functions should be examined not only for maintenance problems but also to determine how well the space fulfills its designed use. 4) For all mechanical systems and equipment ask if the equipment is in proper operating condition. Does this equipment fulfill the needs of the property? What is required to place the equipment in proper operating condition? Question whether any of the systems, although operative, should be modernized, replaced or added to in order to properly operate. A property may have an adequate ventilation system however the best use of the property may require a radical expansion of the present air conditioning system. Mechanical equipment should be reviewed for its rated capacity as measured against the requirements of the property, its rated life, its efficiency of operation and the ease of maintenance. 5) The physical layout and finish of the rental space is significant. Do the floor plans conform to market requirements? A proper layout may have improper lighting or inconvenient electrical outlets. What areas of the property could produce income but are not presently doing so? The causes of physical problems that are uncovered during our inspection come from three sources: deferred maintenance, functional obsolescence and economic obsolescence. Maintenance can be deferred on some items to save money if no further damage will result. For example, a wall in a public area needs painting. As a manager you may decide to postpone the painting until a later date and perhaps have all the interior painting done at one time. We call this deferred maintenance. However, in contrast, a leaky roof may lead to expensive, physical damage to inventory, walls and ceilings and therefore, needs to be attended to immediately. It would be irresponsible to place it in the deferred category. Items which may not be worn out but may be rendered obsolete by current construction standards and consequently by market demand are categorized as functional obsolescence. Functional obsolescence often can be corrected with maintenance upgrades and physical changes to space. For example, a large retail space such as an unoccupied supermarket in a tired, poorly located strip center can be transformed into smaller, user-friendly office and retail spaces of 2,500-square-feet or less with some modernization and new space design. An office building may survive with functionally obsolete features, but such features will continue to limit its ability to thrive. Economic obsolescence is defined as obsolescence which is external to the property. In other words, changes in the environment outside of the building or complex that make a property (that was active several years ago) obsolete in today’s real estate marketplace. For example, an office building which had been very desirable for several years may diminish in economic desirability due to changes in street direction which has undesirable effects on access. Unlike functional obsolescence, economic obsolescence may be harder to correct but a good property management team can find solutions and overcome all types of problems a challenging commercial property may provide.

Over the last thirty years of my career as a director of property management I’ve seen a lot of well planned office, retail and even industrial spaces that have enhanced the success of that particular business. The vision and plan of the owner can make-or-break the everyday needs of the staff in their newly leased environment. Space planning usually occurs after an initial proposal has been accepted however sometimes it’s delayed until the major points of the deal have been agreed upon and your credit has been reviewed. The proposals are conditioned upon reaching a mutually satisfactory space plan and a review of the associated costs. Whether you need space planning services or not will depend on the size of your transaction and the need to customize the area to meet your requirements. If there is any interior construction the services of a qualified professional is not optional but essential. Building requires permits and permits require inspection. Permit inspections could uncover required code corrections. Using a qualified architect will alert you to potential problems before you sign a lease. In a tight market like we are in now, you don’t want any surprises when you are responsible for the construction improvements that are made. Avoid unhappy surprises and use a qualified space planner or architect when modifications are necessary. Retail tenants are usually expected to provide their own interior improvements. Therefore they must provide the landlord with designs for their approval. Industrial and warehouse tenants have less use for space planning, except when there is a large component of office space to be developed, such as in an R& D property (Research and development). A tenant requiring a substantial amount of office space (10,000 sq. ft. and up) is well advised to consider retaining his or her own architect. While some building owners retain their own architects as an accommodation to prospective tenants, there are several good reasons to hire your own architect. Due to the complex nature of today’s office environment (furniture and filing systems, computer equipment, printers, etc.) your architect will understand your needs. Additionally, when you narrow down your choices to the final two office selections your architect will be a good sounding board for work flow, efficiency and functionally. In a softer market you can successfully negotiate to have your architect’s fees paid as part of the tenant’s improvements because the building owners often have budgeted for architect design services, and are motivated to finalize a substantial lease for a signature tenant. When I’ve seen problems arise during a transaction that are centered around space planning issues is when the architect has not been currently working with “commercial property”. Where problems can arise is in the underestimation of costs of a commercial renovation; lack of knowledge about code issues and over designing the space. Commercial interior space planning is relatively easy to do provided the preliminary plans are done by a qualified commercial architect. Stick with a specialist and you’ll avoid many problems. Space planning is normally a two to three week process to create a preliminary plan and is usually done after the terms in your contract are agreed upon. First, a set of drawings have to be developed, reviewed and are suitable for obtaining initial estimates from the contractors. Depending upon the details of the project allow for about one to two weeks to complete the estimates. At the first meeting with the architect you will convey your wishes and your requirements. The architect develops the first draft, submits it to both you, the owner of the business and your landlord for comments and then makes the required revisions. The technical review of the building is an important step in the process. The first part of the review is done during the last tour of the final two or three qualified sites. At that time, you will need to review conditions in the building that affect the functional viability of the space (i.e. air conditioning, elevator size, etc.). A space planner or architect can complete the second and more thorough stage of the technical review. If you’re using an architect provided by the owner of the building, be sure to ask if there are any functional or code issues with the building that might increase costs. Some areas of concern include potential problems with interior construction; the presence of asbestos; compliance with the ADA (the Americans with Disabilities Act; the life safety systems; energy conservation compliances or any other issues critical to the quality of your tenancy. During the time the space planning is being performed you will be reviewing the legal aspects of the lease contract simultaneously. Working with a good space planner is as important as working with an experienced commercial real estate advisor, especially in our fast paced, hectic market. Planning is as smart a thing to do with office space as it is in life.

In a society that is increasingly litigious, owners must always be on the lookout for potential liability hazards that may exist on their properties. If someone slips and falls at either an office or retail center, the owner may be sued. Courts will often hold a center responsible for a slip-and-fall accident, reasoning that the center knew or should have known about the hazard. This is where property management becomes an invaluable service to the owner. If the hazard was difficult to see, the owner may reason that the center couldn’t be expected to know about it and therefore take steps to prevent it, but in the eyes of the court, this is not true. Another common potential hazard is curb stops in parking lots. If someone slips or stumbles over a curb stop, and the owner can prove that the car stop was 1) not defective, 2) placed according to a properly approved parking plan, and 3) required to meet current building code requirements, then it is reasonable to assume that the owner would not be held liable for such an occurrence – someone was simply not paying attention to where he or she was going. If, on the other hand, a pothole or sinkhole occurred on the property, which was not properly repaired and someone fell into it, it may very well present a potential liability situation. During the physical inspections of each owner’s property, a good property management company makes special notes and identifies potential hazards that could raise questionable liability issues for our owners. They will replace broken and damaged car stops, have potholes and sinkholes filled and repaired immediately, remove visible debris such as broken glass or nails, secure stepping stones, repair broken and damaged curbing – measures which further protect each owner from a patron who may be looking for an opportunity to file a lawsuit against a property owner. A good property management team becomes the eyes and ears for potential problems facing property owners, and a hands-on management style helps protect owners from these legal pitfalls.

To be a successful and effective property management company, communication with both the owner and tenant is critical. Property managers need to establish an open, professional business relationship to help ensure the retention of tenants at a commercial property. It is their job to enforce all lease terms; building rules and regulations; and situations where a tenant stops paying their rent on time. If the property manager is ineffective in these areas, the owner’s property experiences a decline in its NOI (net operating income). It’s inherent that the property manager maintains communication and mutual understanding between the tenant and the landlord. A critical area of ‘communication’ usually evolves around maintenance issues. Maintenance is an ongoing process of balancing costs and services. The tenants are looking for resolutions to maintenance problems in a timely manner. It’s the responsibility of the property manager to determine what is needed to preserve the physical condition of the property by inspecting and determining the most cost effective manner to solve the problem. The property manager must be efficient in the four primary areas of maintenance – 1) preventative maintenance; 2) corrective maintenance; 3) routine maintenance; and 4) new construction maintenance. When a maintenance problem is reported, the property manager should be certain that each tenant understands the correct procedure for making service requests and what services can reasonably be expected. Often times (and especially so) in our active market, it is difficult to get vendors to respond immediately. This is particularly evident during our “rainy” seasons, when many roofs are pushed to their limits in handling water runoff. By building long term relationships with service vendors, and by maintaining an excellent reputation as a management company, you certainly improve the level of response time and urgency given by your service vendors. When requests are made or reported, the tenant should be told immediately – either when the job will be scheduled or why it cannot be completed. If it cannot be completed, it’s usually due to either vendor delays or due to a clause in their lease that may make it a ‘tenant’ responsibility versus landlord responsibility to maintain or repair. If it is determined to be the tenant’s responsibility, a good property manager will recommend a vendor the tenant may then contact on their own. In addition to providing prompt, professional and efficient service that will establish a good tenant-manager relationship, the manager must also protect the owner’s interests by implementing an effective system for the collection of rents and other income, and the ability to deal with delinquencies and collections. When a tenant fails to pay rental charges as outlined in their lease agreement or is not in compliance with other terms in their lease, the owner has a right to bring a court suit for eviction and a judgment for damages against a delinquent or disruptive tenant. The proper legal notice and time to remedy must be carefully followed in the State of Florida, and an attorney representing the owner’s interest is the best course of action, if it reaches this point. When a tenant has executed their lease and moved into their space, the property manager’s skill in human relations will help retain that tenant long term for the property owner. Tenants are more likely to renew their leases if they feel they’re receiving the attention they deserve and in most leases pay for through CAM (common area maintenance) charges. By helping to retain tenants the owner is saving re-improvement dollars; continuing to benefit from market rents; and is improving the bottom line of their property. The foundation for sound tenant relations is a good reputation for maintenance, responsiveness and professional management of the property.

If you own commercial real estate that you lease out, you may have used the services of a licensed real estate broker that specialized in commercial real estate properties in the past. Many owners select from the ala carte menu of potential services offered by real estate firms in our area, but most owners could benefit from a comprehensive asset management approach. Comprehensive asset management utilizes both property management services and leasing and brokerage services to maintain and enhance the value of a leaseable investment property. Although a comprehensive program from a top firm may appear as an added expense, the result is often an increase in both the net income from the property and value of the asset. The property management side of asset management involves both the fiscal and the physical maintenance of the property. The fiscal management tasks include timely collection and disbursement of funds related to the investment. Fiscal property management services provided by top real estate firms include rent collection, on time payment of sales and use tax, real estate taxes, and insurance premiums. In addition, fiscal services include contracting, monitoring, and payment for maintenance services and capital improvements. The proper selection of vendors and appropriate periodic inspections of key elements of the property, such as roofs and HVAC systems, can result in significant savings to the investor over time. A professional property manager will also handle the difficult tenant issues that may arise. Enforcing the conditions of a lease, while maintaining a good relationship with the tenant, can be a formidable task, especially when unforeseen events occur. The recent hurricanes have raised issues about timeliness and expense of repairs, but appearance of mold, roof and window leakage, vandalism, and other unexpected events require prompt attention and mitigation of potential disputes with the tenant. An efficient and effective property manager will utilize state of the art accounting systems to provide the owner with periodic reports of the income and expenses for the property. If the property management is provided by a top commercial real estate firm, a leasing report will also be included in the periodic reports to the owner. In fact, firms that integrate leasing and brokerage services with property management provide the owners with the benefit of a comprehensive oversight of the property or portfolio of properties. For example, weekly meetings between the property managers and the leasing and brokerage agents improve the overall management of the property. The leasing agent is kept informed of potential vacancies and tenant issues and the property manager becomes aware of new tenant prospects and the requirements for tenant improvements. As a team they work to minimize vacancy, assure a good tenant mix in multi-tenant properties, and enhance the value of the property. Although the onsite signs are a tried and true marketing tool, commercial leasing and brokerage professionals use a variety of tools to assist in the lease and sale of investment properties. The key tool is experience, which is evidenced by the years of real estate practice, accreditations and designations earned, and participation in key industry organizations. Most experienced professionals use a variety of commercial real estate internet listing and email marketing systems that are designed for the leasing and sale of commercial properties and sophisticated financial management tools to assess the potential value of leaseholds and assets. To identify key real estate professionals, property owners might look for realtors with designations such as CCIM (Certified Commercial Investment Member) or RPA (Real Property Administrator) or with membership in profession organizations like SIOR (Society of Industrial & Office REALTORS), BOMA (Building Owners and Managers Association), or REIS (Real Estate Investors Society).