Key Strategies to Maintain - or Grow - Property Values

Commercial real estate has been hit hard by the recession, and many owners have struggled with falling property values. By implementing some simple property management strategies, you can help maintain or even increase the value of your properties. Here how.

Cost reduction

The value of commercial real estate often is a function of the property net operating income (NOI). NOI equals gross rental income less vacancy and operating expenses. One way to maximize NOI is to reduce expenses.

Commercial properties are often ripe with expenses that could easily be reduced with a little vigilance. You might, for example, adjust energy-related expenditures, such as your automated energy management system. Don't just set the start and stop times and forget about it. Rather, adjust the settings to take advantage of downtimes such as weekends and holidays.

A surprising amount of energy is consumed overnight, when buildings are essentially unoccupied. Train your cleaning staff to turn off lights when they finish a room, or install sensors that will automatically turn them off. Copiers, printers and other office equipment should also be turned off at night. And building fans and motors probably don't need to run nonstop around the clock.

Reducing energy costs may also fuel tenant satisfaction. In fact, research indicates that environmentally friendly practices improve tenant satisfaction, while simultaneously boosting property value. A recent tenant satisfaction survey conducted by Kingsley Associates found that 44% of respondents ranked a sustainable green building operation as important or very important.

Speaking of tenants, when is the last time you've examined your properties' monthly utility and water bills to ensure that you're charging your tenants properly for their consumption? Be sure to watch for unusual spikes in usage.

It can also pay to revisit your service contracts. Do your windows really need to be washed so often? Rebidding or renegotiating contracts may lead to cost savings, particularly if you take advantage of economies of scale by hiring the same contractor to service multiple properties.

Reconsider your internal maintenance, too. Do you take a preventive approach to maintenance, abiding by a time-based schedule? You might fare better by adopting a predictive approach that relies on statistics and past experience to determine the optimal intervals for servicing equipment.

Other expenses worth re-evaluating include real estate taxes, insurance and interest expenses. As property values decrease, you should pay less in taxes and insurance premiums. But reassessments aren't automatic. You'll need to contact your county assessor and insurance agent for adjustments. Moreover, it may be time to refinance loans. Rates are low, and banks may be willing to negotiate if you're creditworthy.

Vacancy management

Another way to boost NOI is to decrease vacancy. Careful management can result in lower carrying costs and quicker leasing. Consider visiting all your properties regularly to check for any problems that might delay leasing, such as a leaky roof or malfunctioning security system. Keep the premises clean and free of trash and pests. Ensure that maintenance continues on the roof, HVAC system, elevator and similar components so that they're in working order for new tenants.

Keep in mind that, while it important to confirm that these systems are fully functioning, they don't need to function 24/7. As with occupied space, adjust the startup and shutdown mechanisms to reduce energy costs.

Tenant retention

It much more economical to hold on to existing tenants than to land new ones. Retaining tenants requires keeping them happy.

Regular communication is critical. Answer your phone and respond to e-mails promptly. Give tenants both your office and cell phone numbers. Also consider conducting annual tenant surveys to determine whether they're satisfied and if they see areas that could be improved. At the very least, a survey shows that you value the tenants' opinions.

Your employees will probably constitute the front line of tenant relations. So, develop an incentive structure that encourages them to provide outstanding service. And then reward and recognize those who go the extra mile.

Finally, remember that janitorial and HVAC issues usually top the list of tenant complaints. By keeping a close eye on these services, you can preempt many problems.

Beyond mere survival

You've made it this far, even saddled with declining property values. Now the time to start thinking about how you can increase NOI, and therefore, value, in an improving or stagnant market.