We’ve all read the news and have watched what the markets are doing. To say that we all have a headache from this would be a drastic understatement. The Fed has kept raising rates, which has caused banks to raise their rates.
These high borrowing costs have made selling commercial real estate much trickier. Investors need a spread between interest rate and cap rate to avoid negative leverage. This is putting significant upward pressure on cap rates. One of the best things an owner can do is focus on the operations of the asset. There are a few key things that an investor can do to help improve their property and have it set up for future success:
- Focus on leasing. If you have a vacancy, a troublesome tenant that’s behind in rent, near-term expirations, or you have tenants with below-market rents, then turn your attention to leasing. Despite the turmoil that the capital markets are experiencing, leasing is as strong as ever. Tenants still need to roll out stores at a high rate in order to satisfy either Wall St or to help improve their own cash flow. Hiring a local commercial real estate brokerage firm is always a great idea. These firms are well connected with national, regional, and local tenants, and have the pulse on where the activity and markets are headed for leasing. In addition, these firms can help review existing leases and rent rolls to find ways to improve the property value.
- Pay attention to property management. This is such an important point. If your goal is to sell your asset when the market calms down and rates decline, then one important key element is to make sure that your property is in tip-top shape. Hiring a professional property management team is an ideal way to ensure that your property conditions remain at their best. Having a monthly walk of your asset with your property manager will help you uncover and identify areas of need such as common area maintenance or capital expenditures. When your property is kept in good shape, your tenant retention will remain high. Additionally, it will also help investors when they attempt to acquire your asset as there will not be any deferred maintenance items that could cause an investor to re-trade the purchase price. Finding little problems early on is a great way to avoid BIG PROBLEMS in the future.
- Bookkeeping is absolutely essential. Each of these points is important in the day-to-day operations of your property. However, bookkeeping is a critical and vital aspect of property ownership. If you hire a professional property management firm, they will provide accounting services for you such as tenant reconciliations, budgeting, bill paying, and rent collections, to name a few. The tighter your accounting is, the easier it will be to dispose of your asset in the future when you are ready. Investors will be able to spend less time in their due diligence trying to piece together the financials of the property if they are all in order in a professional manner. This will also help investment brokers with their underwriting and marketing of the property. Also, lenders will have an easier time underwriting the property as fairly accurately as possible.
Should you follow these small, but necessary steps, your property will come out ahead of the rest. You will have set your property up for the future when the economy relaxes and interest rates reduce.
Quantum Real Estate Advisors is a full-service commercial real estate brokerage firm, and we are happy to help you best position your property for future success, just give us a call.