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Weekly UpdatesOUR CLIENTS ARE NERVOUS ABOUT THE MARKET AND ECONOMY. REAL ESTATE MANAGERS IN CITIES ACROSS THE NATION, FROM THE LARGEST OFFICE BUILDINGS IN NEW YORK CITY TO THE SMALLEST OF RETAIL SPACES IN KANSAS, ARE FEELING THE PRESSURE TO MAXIMIZE ASSET PERFORMANCE.
The unfortunate increase in sub-prime loan foreclosures has been magnified by the media with hourly reports. The downturn of the residential market has transferred to the commercial market, making owners and investors cautious to sell, fearful they will not secure a satisfactory sale price.
During the summer of 2008, buyers and sellers continued to make deals, but the prices paid for properties were not nearly as strong as we had seen just three years ago. Highly-leveraged debt buyers have, for the most part, been pushed out of the market. Banks and other institutions are watching their lending closely. During the fourth quarter of 2008, deal flow all but stopped as everyone watched and waited for reaction to the latest government bailout.
So, the question now is, how can real estate managers keep their business viable during this economic crisis?
One good strategy would be to get back to basics. It is critical for property management professionals across the United States to focus on management fundamentals--tenant relations, proactive communication, capital projects and expense savings. Brokerage, project management and asset services need to function as a team. Vacant spaces must be clean and ready to show. Accurate building information and a list of amenities should be readily available, and systems must be in place to welcome new tenants on time and on budget.
In a weak economy, ownership groups will look for concrete ways to reduce expenses while maintaining tenant satisfaction at properties. Implementing the following steps in your personal business plan is the key to meeting owner objectives:
* Establish enduring relationships with others
* Retain existing tenants
* Collect all revenues
* Focus on expense savings
ESTABLISH PROFESSIONAL RELATIONSHIPS
Strong relationships in business are essential. We often hear it is who you know, not what you know, that allows managers to keep up with their busy lives and meet numerous deadlines on time. Active participation in networking groups like IREM or CCIM, or through online Web sites like Facebook, are critical to growing relationships between managers and their daily contacts.
With Owners
Regular communication with your asset manager or owner during these times is very important. A real estate manager's goal should be to provide solutions. Owners should be presented with the best answer to an issue and be given a chance to modify it, but rarely should they be asked questions without an answer already in place. It is important to analyze a problem and to try and think two steps ahead.
Like us, owners hear the media tossing about the word "recession" on a daily basis. They are concerned about the condition and performance of their properties. In addition to regular monthly reports, it is also advisable to communicate with owners of industrial properties at least twice a month and owners of office buildings on a weekly basis. Multifamily ownerships typically prefer regular contact several times a week from the local managers to keep informed of the operations on the property.
Communication with owners is always determined on a case-by-case basis. Some owners may wish to speak with managers daily on high-needs properties. Be sure to ask your ownership their preferred communication method and frequency. With a heavy reliance on e-mail, some owners may elect to receive regular written updates in lieu of phone calls; but remember, it is very difficult to communicate tone and build a meaningful relationship through e-mail. Communication can be as simple as sending a newspaper article that features a building tenant, a group of site photographs showing work in progress, or pictures of work to be performed along with a brief note describing the task. The digital camera is the lifeline to owners who are thousands of miles away and may only visit a property once or twice a year. Be sure to document and quantify any savings provided to an owner.
You should also ask yourself the question, "Is this necessary?" before presenting a capital project (budgeted or otherwise) to your owner. Many owners have chosen to postpone projects until 2010. Investors in private and public REITs are overly focused on their returns. If postponing a project is not a detriment to the property, it may be a wise decision. Ask yourself, "Can this wait?"
With Brokers
It is important to establish good working relationships with brokers to promptly pursue new tenant deals. Brokers are typically self-reliant by nature and have been known to keep details of prospects to themselves as they fear someone else might "take" their deal. On our team in my office, we have found the opposite to be true. The closer we work with the brokers on projects, the faster and more accurately the deals are completed. This benefits the brokers as they make more commissions, and benefits the manager when they receive a happier tenant and more accurate lease document. The days of working in silos (brokerage, management, etc.) are gone. A team approach is here to stay.
With Coworkers
Real estate is inherently a people business. Experts say we spend more time at work than we do with our families. A happy work environment is critical to your team's success. Hire new employees slowly and carefully, but take care of sub-par performance issues quickly. A weak link in a team brings the entire team's performance down.
Finding a coworker on your level that you can confide in will make your team stronger. Partner a less tenured employee with a more senior member of the office to create a mentor/mentee relationship in which the junior member feels comfortable asking questions. Doing so will improve the team performance while freeing valuable time for the department managers to attend to more important matters.
Developing alternate and innovative ways to manage effectively is also an excellent way to involve newer coworkers. After years in the business, we tend to become comfortable with our routines. Be sure to listen to new or younger members of your staff for innovative ways to manage effectively. They can often amaze you with well-thought-out ideas.
A happy employee will be a well performing employee, so look for innovative ways to build loyalty, team work and happiness. Recently, my management team met at a local dinner preparation franchise (www.socialsuppers.com or www.letsdish.com are two examples). Once at the store, we split into teams and worked together to prepare meals. Junior members were encouraged to take a senior role at this event. Completed meals were donated to the local Ronald McDonald House. The half-day event not only allowed the entire team to give back to the community, but it also allowed the team to get to know each other a little better.
RETAINING TENANTS
Your relationship to your tenants is also very important, especially during hard times. Retaining a tenant is far less expensive than finding a new one. Experienced colleagues have reminded me it is pennywise and pound-foolish to lose a tenant. The lease document governs the services we provide for a tenant, but we must also think outside the box from time to time. Even if the lease says the tenant is responsible to change a ceiling tile, it may be wise to change a tile or two for them. This simple gesture of goodwill may keep them from moving down the street. Vacancy is expensive. Tenant improvements are expensive. Keeping tenants happy and renewing is good practice.
Holiday gifts such as a tin of popcorn may seem cliche, but a simple inexpensive gesture allows a manager valuable face time with tenant contacts. During a visit last December, I observed a substantially lower employment base at a site. I quickly inquired about the tenant's business and learned there were staff cutbacks. Gathering this information allowed me to alert the ownership about a potential issue before it became detrimental to the property.
Each year our office also generates a newsletter for tenants describing upcoming projects on properties. By clearly documenting upcoming work, tenants often feel they are getting more value for their rent money and are subsequently more loyal to the property. Similar to your owners, regular phone calls and e-mails to your tenants that proactively communicate elevator closures, special events or routine maintenance that may affect them are always appreciated.
COLLECTING REVENUES
IREM Members have learned to live by the adage, "Collect the rent, collect all of the rent, collect all of the rent on time."
In a stressed economy, it is imperative we focus on this message. The first sign that a tenant might be struggling is slow rent payment. As sales begin to slide, a tenant may delay rent payments to remain financially afloat.
Managers who have already developed a strong relationship with their tenants will have an easier time collecting rents than managers who have been distant. Regular personal tenant visits are an important part of establishing a good relationship. If your tenants know you as a person, they are more likely to be honest with you. This makes everyone's job easier.
Recently, one of my tenants forgot to pay rent. Since we talk regularly, my call to request prompt payment was received on friendly terms and the electronic transfer of funds was received the next day. If I had been a distant manager delivering bad news, collecting rent would have been much more challenging.
While rents are expected to be received on the first of each month, it is important to review an aging report on the 5th and 10th of each month. Tenants who have not paid by these dates should be contacted and prompted for payment. Be sure to document when contact was made with each tenant and provide this to your owners regularly. In tough economic times, it's a good idea for managers to review aging reports on riskier properties daily, to ensure tenants are paying on time.
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