“7 Tips For Great Commercial Real Estate Management” written by Mike Marko
Are you about to get yourself a commercial real estate property?
Investing in a commercial property can be considered as a rewarding milestone. However, it doesn’t just end with that. What you do with the property after the investment is critical.
This is when good property management comes in. Property owners spend a portion of their finances to look for a commercial property manager to assist them.
Not all property owners have the time or experience to market their commercial properties.
The value of a property increases through good commercial real estate management. This means you have to spend time to manage the property and you have to understand the basics of real estate management.
Commercial property management involves a lot of tasks such as advertising, marketing, and leasing processes.
Having good commercial property management in place is an asset to any property owner. If you want your investment to thrive, you should know how it should be managed.
That’s why in this article, we’ll discuss 7 tips that will help you with commercial real estate management.
The Basics of Commercial Real Estate Management
Developing a comprehensive commercial lease is a good start on commercial real estate management.
The lease should protect the building owner from unnecessary alterations or repairs. That is while accommodating the tenant’s needs.
But before that, let’s first discuss the basics of commercial real estate management.
Determine What Type of Lease to Use
As mentioned, a property manager has a lot of responsibilities including picking a lease type that will suit the property owner’s long-term needs. The lease should be able to protect the owner and the property.
It’s your responsibility to establish its nature. It should also cover the interests of the building owner. You have to review the lease with possible tenants to ensure that the leases will comply with the terms and requirements.
There are many types of commercial leases.
Before choosing a lease, it’s important to compare the different lease options and understand each one of them. By having an understanding of the different types of leases, you’ll be able to strategize for a better commercial real estate management.
A gross lease is also referred to as a “fully serviced lease” because the rent is all-inclusive. The tenant pays one lump sum for rent while the property manager pays for the other expenses. Other expenses include but are not limited to:
- Maintenance fees,
- Utilities, and
- Janitorial services.
This type of lease is more commonly used for office, industrial, retail and residential spaces.
Make sure you understand all costs associated with the building. You have to set rent accordingly to also ensure a profit. Lastly, make sure you and the owner don’t lose money by using this type of lease arrangement.
A net lease has a smaller base rent. However, other expenses are paid for by the tenant that makes it favorable to the property manager.
There are several subtypes of net leases to choose from. The tenant may pay for a percentage which is subject to negotiation of either taxes, insurance, and/or maintenance. They pay either 100% of one or all of them for less than 100%.
In a single net lease, the tenant pays the basic rent plus a portion of the property tax. The double net lease requires the tenant to pay the property taxes and property insurance in addition to the basic rent. While the triple net lease requires the tenant to pay the basic rent, taxes, insurance and maintenance fees.
Understanding tenant needs and costs associated with those needs will help you determine the percentage that tenant needs to pay.
Net leases are more common in commercial real estate.
Modified Gross Lease
The modified gross lease is also similar to a gross lease. The tenant pays the base rent while the property manager pays for all other expenses. However, the tenant will have to add proportional shares for taxes, utilities, insurance, and maintenance after a few years.
This type of lease is usually used for multi-tenant and single-tenant office buildings, industrial, or retail space. This lease is best suited for a building that has set costs associated with utilities. A modified gross lease is also suited for a building that has a low-cost solution for maintenance and upkeep.
Modified Net Lease
The modified net lease is an in-between of gross lease and triple net lease. This lease offers flexibility for both parties.
The property manager and the tenant can compromise who pays for taxes, utilities, and maintenance. For instance, the property manager can pay for maintenance expenses. Then, the tenant agrees to pay the taxes and insurance.
This lease is usually used for industrial, retail, or multi-tenant office space.
In a percentage lease, the tenant pays the basic rent plus a percentage of monthly sales. This is most commonly used in mall outlets and retail businesses.
As a property manager, you should understand the nature of your tenant’s business. You should know their monthly sales volume to be able to set the correct percentage to charge on their monthly sales.
Know Your Way around Finances
Establish and follow a budget that is agreed by you and the owner of the building. From this, you’ll be able to set the appropriate rental rates for your tenants.
Plan how and where to spend your finances. For example, you may suggest to the property owner advertising strategies such as paid marketing programs to attract more tenants.
Take into account the expenses of operations and taxes. Adjust your rates based on these. You may hire an accountant for taxes and finalize monthly statements if needed.
Maintenance and Repairs
Having a set budget for the property will help when doing regular maintenance and repairs. This will also allow you to identify costs that the tenant needs to cover in the lease they agreed to sign.
Usually, maintenance is the responsibility of the tenant. But some areas are within your responsibility as a property manager. Depending on the lease, you may be responsible for maintaining the cleanliness of the facility.
Make sure that the property is in good condition. Look out for concealed defects and plan according to the budget to resolve these in a timely manner.
Conduct inspections from time to time to help avoid major repair costs from the neglect of the building. If you postpone the maintenance, this might lead to costlier fixes later on.
You may also want to contact janitorial and repair companies. If your facility is maintained by a professional commercial cleaning company, it’ll be much better. This will attract more tenants and keep your current tenants satisfied.
Familiarize Yourself with Your Target Market
Commercial real estate management requires the property manager to be knowledgeable about a lot of things, including the target market.
Before leasing the property, you should determine your target market first. Are you looking for short-term or long-term clients? Know the nature of your tenants’ business. In that way, you’ll know their required amenities.
Aside from knowing your target market, you have to do research on your competitors to compare rental prices. You should also know what amenities and services your competitors are offering.
Depending on other commercial properties in your area, you should consider ways to set yourself above your competition for commercial business.
Improvements should always be done to increase the value of the property. These improvements include:
- Walls, and
Make it look new by repainting or renovating. This is less costly than new construction or replacement.
Focus on the outside of the building as well to attract businesses. Buildings with aesthetics will help in attracting renters and their customers.
Add amenities your target market would like – a gym, swimming pool, or an elevator.
Keep Your Tenant Happy
A property manager must understand the commercial lease and the responsibilities of all parties involved.
Set up an easy way for tenants to report repairs or other requests. You are obliged to meet the tenant’s demands and respond within 48 hours or earlier than that.
If you know your responsibilities, you’ll be able to establish a good relationship between you and the tenant. By doing these, you’ll be able to establish good communication and trust.
This will keep your tenants happy. It can even prevent them from leaving.
Plan for the Future
A good commercial real estate management takes into consideration the future.
As a property manager, you should be able to set short-term and long-term goals. One of your goals should include increasing your customer base. You should know when and where to advertise.
Also, part of your plan should be about renovations. You should be able to determine what and when to add improvements. Set aside a budget for property maintenance. Some properties set aside 10% of rents and keep them for major issues or repairs.
Looking for possible business expansion according to established budgets and profits from rents should also be taken into account. Plan a strategy to accomplish these goals.
Lastly, always be prepared and have backup plans for potential issues along the way.
Final Thoughts on Commercial Real Estate Management
Commercial real estate investment requires active management and participation. This is when there’s good property management.
Good property management is critical to increasing the value of a property. That’s why you have to understand the basics of commercial real estate management.
You have to choose a lease type that will suit your needs. When you have already determined what type of lease to use, deal with the finances.
Take into account the expenses and adjust your rates based on these. Have a set budget for maintenance, repair, and improvements.
You should also determine your target market and know the nature of their business to know what are the amenities you need to provide. Providing your tenants’ needs builds loyalty. Of course, planning for the future should also be considered.
If you have something to share about tips on commercial real estate management, leave them in the comments section below.
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