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.

This was a great plan and could pay off tremendous dividends. Leverage allowed percentage returns into the 3 digit number ranges. Life was good.

Unfortunately things tend to change. Somewhere in the early 2000s prices started to escalate so much that our perfect investor with the perfect plan had trouble finding a property to buy that was priced in a distressed range whether it was distressed or not. So the investor started moving farther and farther from home base.

Suddenly Orange County investors started to find themselves in the middle of San Bernardino. Maybe even the High Desert or worse. Not only that but soon even these returns were in full retreat. Pretty soon the investment with all of it’s risks started paying off like a certificate of deposit. In other words, lousy.

Now the business plan needed to change. Now the cowboy investor had to start figuring that he would need to live with this investment for awhile. Maybe even 5 years. If that was the case, property management became more and more important. Operations were where the money was going to be made.

Admittedly this was pretty tame stuff. Returns could be better than certificate of deposits but they were not going to be like hitting the slot machine bonanaza either.

Today the investor may need to plan on a 6 or 7 year hold and he probably needs to pay attention to tenant retention and deferred maintenance. He needs to become a property manager or hire a good one to keep the cash flow coming and eventually to make that big pop on sale that came so frequently in the good old days. 

In today’s world blind luck has been replaced, once again with good management.  True, blind luck is much more fun to talk about at cocktail parties, but usually management triumphs.  This marketplace has driven us back to the mundane.