V is for Value Enhancement

October 31, 2022

V is for Value Enhancement

The A-Z of Property Management

V is for…

V is for Value Enhancement.  It’s business, Increase the Value.

The basics, keep the tenants you have, gain additional tenants, increase rents, and decrease expenses to generate as much NOI as possible. Commercial Investment Real Estate value is most frequently determined by capitalized net income.

The basics sound simple enough

Buy Low, Sell High.  Increase value.  Your Professional Property Management firm should be laser focused on helping you increase the value of your asset.  Balance Increasing rents to as much as the market will bear with accelerating the frequency at which they are signed.  Determine what concessions will get more tenants signed and slow the rate of increasing costs or even reduce operating expenses where possible.

Previously, I worked with the ownership of a very large real estate portfolio spread coast to coast that included both office and hotel properties.  We were looking to refinance one of the office buildings to provide capital to be used to increase its value and met with a lender who financed many of our hotel properties.

He provided a quote but based it on only about half of our rent roll greatly reducing the amount of financing we were seeking.  When asked why, he said we do not consider those office tenants whose leases expire in the near term including many on month-to-month leases.

I reminded him that he financed several of our hotels (one of the most luxurious hotel brands in the country) where virtually all our leases were one or two days at a time in length, typical for the hotel/lodging industry.  He said that’s different and added all your month-to-month office tenants could move out at the end of the month.  I pressed him providing evidence that almost all our month-to-month tenants were very loyal stable tenants and had been with us a long time, some longer than 40 years.  He was not swayed.

As an owner you have choices, pressure the lender with your portfolio of business opportunities, seek an alternate lender, work to extend the length of lease terms of your shorter-term tenants. Or drop the financing request.  You need an experienced professional property manager to help explore all options to maximize your Value.

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