A complex office or retail investment property needs an Asset Plan. Things should be considered and decided as part of the planning process. Over time that then allows the right indicators to be tracked, negotiated, and changed as required. (NB – you can get Commercial Property Asset Planning tips in our Snapshot program right here)
Investment properties can be improved over time; they can also be neglected. This is where the planning process really helps and works when you cover all the important issues.
The property manager should develop the Asset Plan for the landlord and the asset. Many things come together as part of that. The manager of the property should know about the prevailing market conditions, the Asset, and the landlord’s targets.
Indicators of Property Difficulty
All too often you see an investment property that is neglected in the planning process. Typically, the things you will see include:
- Poor property presentation internally and externally
- Higher vacancy factors in the asset above the ‘averages’ for the location
- Uncontrolled tenants when it comes to presentation and permitted use
- Lack of signage, brand and image control in common areas
- Erratic cash flows and net returns
- Rents and outgoings that are outside the ‘market averages’
- Common areas within the property that are dysfunctional, etc.
So, the list goes on. These things usually lead to investment instability with income, tenants, and risk.
Factors in the Asset Plan
This is where the Asset Plan becomes a useful strategy within the investment, and that is for the landlord and the property manager. To establish the procedure, here are some key considerations and indicators to define and review in the property as you start the planning process:
- Describing the Asset – the property type will be industrial, office, or retail by type. Describe the property as it exists including improvements, location, tenant mix, leases, rents, vacancies, and cash flow. Position the property into the existing market by explaining the physical and financial aspects that could be important strengths, facts, or weaknesses.
- Existing market conditions – consider the location with special factors including competing properties, vacancies, business types, rents, valuation factors, risks, and business sentiment. Through a given year, the market conditions will change, so be alert to key indicators that could impact your property and its performance. Watch other buildings and precincts for signs of pressure or change.
- Existing property condition – review the property from the physical aspect, to know where pressures and risks could apply. Typically, in that review you would cover services, amenities, property age, presentation, structural matters, environmental, plant and machinery, lettable areas, and common areas. Doing a SWOT analysis across the asset in these categories allows you to see where the challenges of the property may evolve. Controls and strategies can then be set.
- Landlord targets – know how long the landlord wants to hold the property and how they see the asset in their investment portfolio. Consider the alternatives of rental growth, capital improvements, growth in capital value, renovation, expansion, and redevelopment. All these strategies bring challenges and changes to the asset. Decisions can then be made with any upcoming negotiations with leases, rents, prices, and tenants. The landlord may also have limitations with spending given loan finance, lease covenants, and tenant obligations. The review of the landlord’s situation can be quite deep and time consuming.
When you have all the information about a property, the landlord, and the location, the Asset Plan can then take shape. Merge these ideas into your planning process and set the targets for the landlord. Look for the ways you can improve the property as an investment given all the known targets.