Chapter 6 Commercial, Office, and Industrial Property Management

I. Commercial Property Management COMMERCIAL PROPERTY involves the buying and selling of commodities or goods A. HOW MUCH COMMERCIAL SPACE? Number of Household Discretionary Purchasing Power The greater the discretionary income, the better the business is for the sale of nonessential goods and services Demographics As a general rule, the need for commercial space within a community is inverse to the average age of its residents. Drawing Power of Area

I. Commercial Property Management (cont.) B. TYPES OF PROPERTIES 1. Pedestrian Shopping Streets 2. Urban Pedestrian Mall 3. Strip Centers 4. Mini Malls (Convenience Center) 5. Neighborhood Shopping Center

I. Commercial Property Management (cont.) B. TYPES OF PROPERTIES (cont.) 6. Community Shopping Center 7. Regional Shopping Center The greater the draw by anchor tenants, the higher the rent other tenants are able to pay. When anchor tenants line up to lease space, far better lease terms are possible from a management standpoint.

I. Commercial Property Management (cont.) B. TYPES OF PROPERTIES (cont.) 8. Mega Malls Mega-malls do NOT compete with neighborhood shopping centers, mini-malls, or even factory outlet malls because of different customer appeal. 9. Factory Outlet Center 10. Large Freestanding Retailers 11. Wholesale Operations Warehouses with large office areas are ideal for wholesalers.

TYPES OF PROPERTIES (Case Example)

I. Commercial Property Management (cont.) C. TENANT SELECTION 1. Tenant Mix The tenant mix becomes very important whenever a property has more than one tenant. Successful tenants pay rent on time, meet all lease terms, abide by property rules and are unlikely to move out. “First Come, First Served” should NOT be used for tenant selections.

I. Commercial Property Management (cont.) C. TENANT SELECTION (cont.) 2. Tenant Quality As a lessor, you should evaluate the economic viability of various business and anticipate their profitability. The depth of a tenant’s pockets or the pockets of a lease guarantor is important in tenant selection. The two major reasons why businesses fail are undercapitalization and lack of knowledge about the business.

I. Commercial Property Management (cont.) D. RENT SETTING 1. Determining Rents There is NO simple rule for how much rent a commercial location is worth When renewing leases, the prosperity of your tenant has a direct bearing on any rental increase. 2. Don’t Be Unreasonable A commercial property manager must realize that success of both owner and manager depends upon the success of any tenant. You don’t succeed if your tenants don’t succeed.

I. Commercial Property Management (cont.) D. RENT SETTING (cont.) 3. Bargain Rents E. PARKING Employees Taking Customer Spaces Parking is Someone Else’s Spot An employee’s feeling of self-worth is another advantage of assigning a parking space by name rather than number. Tenant monopolization of Parking You might have to consider NOT renewing the offending tenant’s lease.

I. Commercial Property Management (cont.) F. OVERBUILDING Construction of commercial as well as office projects tends to be directly related to the availability of mortgage money for the projects. When the vacancy factor is reduced to a controllable point, rents will start to rise. G. COMMERCIAL LEASES

II. Office Property Management A. CATEGORIES OF OFFICE BUILDINGS 1. Class A Office Buildings Because of their desirability, Class A buildings command high rents for office space. 2. Class B Office Buildings 3. Class C Office Buildings Normally NOT in a prime location, Class C buildings do meet office use requirements.

II. Office Property Management (cont.) 4. Class D Office Buildings 5. Garden Office Buildings 6. Low-Rise Office Buildings 7. Mid-Rise Office Buildings 8. High-Rise Office Buildings

II. Office Property Management (cont.) B. REPOSITIONING OFFICE BUILDINGS We have changed our attitudes from (New is better” to “Old is more desirable.” Class C and D office buildings can command Class B rent if the demand for the particular space is there. C. TROPHY BUILDINGS

II. Office Property Management (cont.) D. THE INTELLIGENT BUILDING Building pre-wired with high-speed, fiber optic T-1 Internet lines, for example, are highly desirable. E. COMBINATION BUILDINGS In high-rise office structures, the lower floors are the least desirable because they are noisier and lack views

II. Office Property Management (cont.) F. R & D FACILITIES MANAGEMENT R & D differs from industrial and most office management in that R & D facilities frequently require an extremely high level of cleaning. G. SICK BUILDINGS At the first indication of a problem, you should contact an HVAC (Heating, Ventilating and Air Conditioning) engineer who has had experience with sick buildings.

II. Office Property Management (cont.) H. DEMOLITION OF SERVICEABLE OFFICE BUILDINGS I. VACANCY FACTOR 1. By Category The office vacancy factor for an area is NOT uniform as to category of office buildings. J. NEW CONSTRUCTION As property managers, we try to anticipate the future demand for space.

II. Office Property Management (cont.) K. COMPUTING SQUARE FOOTAGE To measure the square footage of entire floors, you would use the interior of all exterior walls and exclude ducts, stairwells and elevators. L. FIXTURING ALLOWANCE

II. Office Property Management (cont.) M. KEEPING TENANTS HAPPY N. OFFICE LEASES

III. Industrial Property Management LOCATIONAL NEEDS STRUCTURAL NEEDS SPECIAL USE STRUCTURES INDUSTRIAL PARKS WAREHOUSE SPACE EVALUATING A SITE PREPARING TO LEASE INDUSTRIAL LEASES CHANGING USES

Chapter Summary Commercial Property Management Types of Retail Properties Tenant Selection Rent Setting Parking Overbuilding Office Property Management Industrial Property Management