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Property Management in Tough Times

January 15, 2009 – 3:57 pm

“I can’t mpay my rent on time this month” is the beginning of many a conversation that that I have had in the past 2 or 3 months.  The next sentences is something like: ” my hours at work have been cut”, “my business has fallen off dramatically” or “my wife (or husband) lost his/her job and we’re having a tough time”.

In the past 5 years our response to these problems has been something like “I’m sorry to hear that but we just can’t carry you while you solve your problem”.  Maybe a little cold sounding but  we really hadn’t heard very much of those kind of issues and secondly there were plenty of other tenants to take the current tenant’s place.  Maybe, if the tenant had a good record with us we gave them a little time to catch up and they almost always were able to.  Times were good.

In today’s upside down world, things are very different.  We are having lots of these conversations and we need to do lots of analysis and thinking about what we are going to do.  There are no longer lots of other tenants waiting in line and if there are they may well be planning on paying much less than the current tenant.  In addition a vacancy that once leased up in a matter of days or weeks can now take months.  More to the point is that so many people need some help it behooves us to try to mitigate their problem in some way.

Commercial rent concessions are commonplace these days where once even the thought of a concession ellicited a sneer and a scoff.  In many cases commercial tenants are demanding to reneogitate their leases or are just walking. The landlord can sue of course but it takes a great deal of time and money to do that.

The goal of Property Managers is to enhance the property owners asset value by operating the property efficiently, maintaining it for the future and to provide profits to the owner.  How do you do all that in an economy where there is so much hurting going on and that seems to be going further and further downwards towards a possible depression (whatever that is defined as)?

The answer lies in running a tight ship, mitigating rent losses by working out payment programs with good tenants with good payment histories, trying not to incur large vacancies problems by keeping the better tenants if at all possible.  Saying all that it is important that tenants are not allowed to fall too far behind because many will never be able to get caught up.  If they are unable to pay any rent then it is probably better to have a vacant office or store.

  Maintenance must be kept up but perhaps some projects can be delayed awhile and still keep the integrity of the physical plant.  Costs for the more sizable projects can be negotiated down to some degree these days where that was almost impossible just a year or 2 ago.  Obviously stretching the dollar in tough times becomes a necessity.

Good management is key to success today, more than it has been for many years.  I believe that those that have it will get by the next couple of years without too much pain. Those that don’t will have to start planning their comeback in 2011 or 2012.

 

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  1. 2 Responses to “Property Management in Tough Times”

  2. Sylvan,

    Given the slow market outlook in 2009, what do you recommend for the owner of a commercial property who need is out of cash and out of credit?

    By John Bradley Jackson on Jan 16, 2009

  3. Sometimes an owner in financial trouble needs to sell and take the required financial hit. If a property is losing money and credit is not possible there are not too many choices. If the loss on sale causes even more pain a bankruptcy or even a foreclosure may be required.
    Of course a discussion with the lender should be the first thing tried to see if they can get some mortgage relief. If it looks like it may eventually work out better for the lender they may just do that.

    By sylvan on Mar 27, 2009

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