Originally published in Forbes on Nov. 12, 2021
by Kyle Crown
Commercial property managers conduct business in the present tense. Most of our work has to do with reacting to the needs of property owners in real time. However, as a commercial property owner with the benefit of a property manager at your disposal, you should always be looking ahead. If you hire a commercial management company to handle the present, it may help lead to a more profitable future. That’s because property management professionals actively work to make commercial real estate more valuable. In this article, we’ll take a look at three of the most notable ways that happens.
Preventative Maintenance
The general concept of preventative maintenance is fairly self-explanatory: spend a small amount now to preempt a problem that would force you to spend a large amount later. Think of it like stretching before you play pickup basketball: Stretching takes 10 minutes, whereas a muscular injury that could result from failing to stretch might sideline you for 10 months. An excellent property management company will make adjustments and upgrades to your commercial property that keep it from suffering damage over the years, not only maintaining its value, but raising it. A classic example would be HVAC maintenance, even when the tenants are responsible for paying for it. Sending an HVAC vendor/technician through to every suite in the plaza/building at least once per year to check on the units and perform preventative maintenance can greatly extend the life of commercial HVAC units and decrease their energy consumption.
Best Practice: Sometimes a small upgrade goes a long way. For example, upgrading the electrical panel in an industrial or flex unit can broaden the variety of possible tenants and uses for the space. This can help attract more lucrative businesses as tenants for the building, which will result in you collecting more rent.
Detailed Financial Record Keeping
You might not find the phrase “detailed financial record keeping” very exciting, but in this case, you should, because it can make you money. If you entrust the management of your commercial property to an unqualified manager, chances are, you’re going to end up with files missing, reports lost and unreliable data on long-term upkeep. But a professional commercial property management company will keep precise and up-to-the-minute records of any changes to the property, including verification of inspections and repairs, which a buyer can’t then claim that he’ll need to carry out. Detailed financial record keeping will allow you to ask for the price your property is worth, and not a cent less. There are programs you can use that make it easy to produce P&Ls, balance sheets, detailed rent rolls, delinquency reports and the like.
Best Practice: Review your monthly, quarterly and annual financial statements carefully. Even the best and most cautious property management companies can make mistakes. It’s in everyone’s best interest that the statements reflect all of your property’s transactions in the way that most increases its worth. The difference between expenses and capital expenditures can affect the capitalized value of your real estate, so monitor these things carefully.
Cash Flow
The resale value of your commercial property may depend in part on what buyers believe it can bring them in monthly revenue. They’ll pay close attention to how much it’s earning in rent. A worthy commercial property management company will research local markets and create detailed comparisons to guarantee that your property earns the highest possible market rents, which can in turn lead to higher valuations from potential buyers when it comes time to sell. Make sure the company you hire has expert commercial leasing agents on staff.
Best Practice: Offering free rent to tenants up-front (or a tenant improvement allowance) can help boost the rates of gross rent, thus helping its appeal to buyers. Ask your manager about these benefits, because they also help attract great tenants.
Of course, a potential drawback of hiring a professional property manager is the cost that goes along with it. For commercial property, that’s usually 5% of rental income or less, but it’s something all owners need to consider.
The most commonly advertised benefits of hiring a professional commercial property management company are higher rental profits and less stress for you, the owner. And both of those do come in the immediate, but it’s important not to lose sight of the fact that great management also increases the reward you’ll receive when you eventually decide to sell the property you’ve taken proper care of for years.
