Property Assessments Are Key
In Measuring Value and Potential
For Podolsky|Circle CORFAC International, ensuring that a property’s value remains viable has always been an emphasis when advising and guiding clients on how to maximize the value of their assets.
When evaluating a property, look at these key criteria and components:
- Is the property operating efficiently and effectively? Is there room to make cost cuts in areas that will not adversely impact the level of service desired? Renegotiate contracts, maximize operating services and reduce operating costs while protecting the residual value of the property. Properly balancing cost and service is critical to occupant satisfaction.
- Conduct a hold-versus-sell analysis. This would include return on investment (ROI) and carry cost analyses. Uncertain future markets and variables such as lease roll-overs, CAP rates, constants on debt and alternative investments require this comparison be made often.
- Assess current leases and leasing potential. Determine where value can be created. Will future vacancies and turnover cost drain resources? Are there any value-added opportunities?
- Assess maintenance programs. Preventative maintenance measures and capital improvements can save time and money. Building components such as parking lots, mechanicals, exterior facades and roofs can be economically maintained, saving significant long-term costs. Preventative measures can be deployed without draining cash flow or reserves.
The bottom line is to understand the objectives of ownership in order to best deploy the operating scenario that suits the investment – and returns- optimally. Thinking like a buyer and a seller simultaneously is key!
Be keenly on the lookout for trouble spots:
- Underperforming revenue streams: The property is not operating at full occupancy; leases are below market levels or short-term, or do not match expectations or pro forma.
- Overrun operating expenses: The costs to operate and maintain the property have increased beyond budget or exceed reasonable norms.
- Unserviceable debt: The property cash flow is unable to meet debt-service obligations.
- No reserves or liquidity: Ownership is not financially capable of weathering market downturn.
Any one of those trouble spots is likely manageable; two occurring at the same time is problematic; and evidence of three or more represents “the perfect storm” in real estate!
TDepending on the situations faced in today’s marketplace, and with proper planning, different courses of action can be taken. These fall into three distinct categories:
- Financial issues. There is no substitute for accurate and reliable budgeting and reporting. Very tangible impacts of financial weakness are evidenced in the inability to complete new deals or lease renewals or needed routine capital improvements. Deferred maintenance shows at the curb and will detract from leasing and sale potential.
- Property management and physical plant. Practice preventative versus reactive maintenance. Focus on preventing fires, not putting them out! Pursue government and manufacturer incentive and rebate programs. Think green: Conversions to efficient alternative energy sources and products pay off.
- Transaction oriented response. Leasing versus sale strategies often require more in-depth review and analysis. The ability to be competitive in rents and have ample room for growth and value creation is the key to buying for investment. Both short- and long-term objectives must be considered in order to analyze whether it is better to have a tenant in place or to wait for the market to turn.
Regularly assessing a property and its investment stability, regardless of market conditions, is one of the most important services a real estate advisor can provide. It measures value and potential, creating a road map for property ownership and operations that will meet or exceed set objectives.