There’s nothing like a real good Real Estate downturn to illuminate all of the bad that trickled relatively “unnoticed” into our industry during the good times. Bad locations, bad tenants, bad deals, bad brokers, bad managers, bad planning, bad timing, bad loans, bad habits and sometimes bad luck, have led to what might be the worst commercial real estate downturn in 70 or 80 years.
Most of the news being given to owners these days is, understandably, not good. The industry is experiencing problems that its never seen before. The proverbial pendulum of landlord/tenant relations has swung in the tenant’s favor. Tenant work-outs, store closings, foreclosures, receiverships, bankruptcies, rental delinquencies, consolidations and collections have replaced high rental rates, ballooning operating costs, and fantastic returns on investments.
Owners, who were used to receiving their monthly property disbursements, are now performing forensic inspections that help to expose weaknesses in budgeting, planning, managing and implementing. The euphoria, created by 17 years of explosive growth, is over for the time being. Managers and brokers are being asked to find ways to cut operating costs, improve collections and attract non-existent tenants to once full projects.
Landlords and tenants are rediscovering the fundamental reality that they are partners, each needing the other to be successful. Managers are discovering that basics — such as “zero based budgeting,” regular property inspections, frequent and personal tenant visitations, good communication skills and quick response — help to build the partnerships necessary to withstand economic downturns.
So how do you choose a property management team that can help you with today’s issues, and make sure that we don’t repeat the “bad” times again? Ask the prospective company for a list of tenants along with its references. Contact some of those tenants and ask a few simple questions such as: “How often does the property manager visit the property? Do you know the manager’s name? “How responsive is the manager or company to your request? Would you recommend the manager, the management company and owner to other tenants? Can your firm provide meaningful assistance and expertise in capital repairs, value engineering, leasing assistance, potential legal issues, market trends?”
You should ask standard questions relating to the experience of the firm, experience of the individuals within the firm, maintenance and cost containment systems, tenant relations, financial reporting and references. However, verify! Saying and doing are two different things.
Having a plan relating to tenant relations, tenant retention, and implementing such plans depends on the core values of an organization and the experience of its people. Who is the management company working for?
The real estate industry can teach the basics of real estate management, but it can’t teach a strong work ethic, dedication and integrity. It can’t magically bestow knowledge, honesty and experience. So it’s important to identity those values in a company, before making the final decision.
From a commercial real estate standpoint, this has been a wonderful time to identify and weed out those organizations and people who shouldn’t have been in Commercial Real Estate.
Historically, this too shall pass. My only hope is that we, as individuals and together as an industry, will help mediate some of the risks with strong core values of honesty, integrity, knowledge and dedication.
Paul Falbo is the President of Eagle Commercial. Thoughts are expressed by Paul Falbo and not by CEM.
