Take commonsense measures to optimize your CRE portfolio
With some investments, you simply buy, hold and wait for the value to grow – a relatively passive endeavor. Commercial real estate portfolios are different: Optimizing them can increase ROI, sometimes significantly.
Obviously, the first step in that process is evaluating your portfolio, crunching the numbers. You want an accurate picture of your costs and how they sync up with revenue.
It’s also a good idea to do some market research at this point. For example, find out what similar properties charge for rent in the area. Assess whether the surrounding locale is in decline or holding strong, and what kinds of businesses are looking for commercial property for lease. Importantly, determine whether your rent is in line with what other area owners are charging.
Your analysis should reveal whether you’re keeping up with today’s trends and behaviors. It may have been profitable 10 years ago to lease sprawling floor space to a company that did business at the property and operated an onsite data center. Increasingly, though, businesses have remote data centers and may no longer require so much business office space. Be aware of shifting trends in technology so you aren’t caught off guard with a property that becomes difficult to lease.
After the fiscal picture emerges of your investment properties, you can go to work on how to reduce occupancy cost and improve ROI.
For example, consider how you might cut energy costs with such measures as automatic off/on lights for offices, LED lights and other energy-saving strategies. By making repairs and upgrading equipment in your buildings, you may also save on ongoing insurance costs. Find out from your insurance agent how upgrades can trim your premiums.
Speaking of insurance, look into ways you might save on that front. You may be carrying more insurance than is necessary for the properties you’re leasing. On the other hand, you may discover that you’re underinsured, which can have dire fiscal consequences in the event of a disaster or other unforeseen event. Either correction is an important optimization of your portfolio.
It’s also a good idea to automate leasing processes as much as possible. When tenants pay via an impersonal medium, they tend to be more reliable as opposed to paying you directly (the impersonal process doesn’t cut them any slack and they know it).
When you have unleased space, go to work devising ways to remedy this. If you have a team, set up a brainstorming session on how to make it happen. Square footage that’s not taking in revenue is working against your overall bottom line.
Robert Hamman, a senior advisor with SVN Florida Commercial Real Estate, said that simple improvements are also a good way to increase the value of a CRE portfolio. “Keep the property fresh and crisp, update painting, create curb appeal,” Hamman said. “Keep the windows cleaned, the parking lot resealed and striped — anything that can make your building stand out from the rest.”
He added that it’s also helpful to ask tenants what they might like to see in the spaces they rent. “Treat your tenants like cash flow, because they are,” he said.
Once you’ve performed your analysis, you’ll have a better sense of which portfolio properties are making you money and which are losers that you should put on the market.
Remember, too, that when you’re adding properties to your portfolio, you’ll benefit significantly from multi-use zoning. Don’t hem yourself in, buying too many buildings that are zoned for one purpose only. Your pool of potential renters is much smaller under those circumstances and you may have trouble leasing all your space. And refrain from buying a bigger facility than you can fill – for example, a huge warehouse in an area where there’s only marginal demand for such expansive square footage.
Most of this is just common sense. Assess what you have. Based on that analysis, determine how you can boost ROI and then get busy executing your strategy. A better-performing portfolio is only a few steps away.