Building Owners and Managers Association ( BOMA ) suggests energy conservation and retention can help commercial property managers ride out a tough economy.
Dwindling capital budgets. Old mechanical systems that don’t stop aging because the economy is in a recession. Tenants lured away by cheaper lease offers. Buildings in receivership.
While good management practices may have helped position some properties to better withstand the economic turmoil, today they are more important than ever in helping managers find solutions to these problems. That means retaining tenants and keeping a property well maintained, despite fewer dollars.
“Retention is absolutely key in a down market,” says Marii Covington-Jones, a real estate manager for CB Richard Ellis’ asset services division, and BOMA member.
Covington-Jones manages the Mesa Financial Plaza at 1201 S. Alma School Rd., which is wending its way through receivership. When she began managing the high-rise, it was 75 percent occupied. Today, occupancy is at 50 percent.
Real estate professionals across the Valley are facing similarly declining rates. According to figures from CBRE, the vacancy rate for Metro Phoenix went from 12.62% in 2005 to 26% in 2010.
Declining tenancy rates mean declining dollars.
“The first thing that happens in an economic downturn is your capital budget goes away,” says Susan Engstrom, senior real estate manager of The Great American Tower, a 24-story building at 3200 N. Central Ave. Engstrom manages the 25-year-old tower for Tiarna Real Estate Services.
Covington-Jones and Engstrom say good property management practices are helping to shave operating costs and do what it takes to keep tenants.
BOMA – Saving Energy Is Good Business
Covington-Jones estimates that efforts to reduce energy consumption have saved $2 a square foot in the 323,000 SF building. When she began managing the tower, it scored in the 30s on the U.S. government’s Energy Star scale. It now scores in the 90s.
Management professionals, particularly those overseeing older buildings, can look into:
- Installing a variable frequency drive on major motors to regulate start-up and start-down based on usage.
- Installing energy-management controls on boxes in each suite, so they can be remotely turned off during non-business hours.
- Establishing programs for after-hours energy use. Covington-Jones says she implemented an “On-demand Saturday” scheduling system, which regulates after-hours usage. “… only using what someone actually needs,” she says.
- Getting serious about recycling. Engstrom says taking cardboard out of the trash pickup reduced the tower’s trash bill by 35%, from about $1,700 a month to just less than $1,000 a month.
Do What It Takes To Lease
Property managers must continue leasing in a down market, Engstrom says. When ownership recognized that prospective tenants were tightening their budgets, it cut $3 or $4 a square foot from the pro forma lease agreement, helping them continue leasing throughout the previous year. Today, the tower is 83% occupied.
Getting approval for such changes is more difficult when a property is in receivership, Covington-Jones says, but fortunately there are steps a manager can take that don’t require outlays of capital or everyone’s signature.
It is particularly important to work closely with leasing agents, even joining them on walkthroughs with prospective clients. Covington-Jones says it is wise to walk through “every inch” of a building at least once a month to assess what can be done to a suite to make it more attractive or to ensure it is clean enough to show.
Retention, Retention, Retention
Being responsive to tenants’ needs is paramount and doesn’t always cost money. That means property managers must be vigilant to avoid the trap of deferred maintenance, Engstrom says. Hiring a good chief engineer is worth the cost, she says, particularly one who knows the building’s operating systems inside and out, and has the expertise to keep them maintained.
While it may be more difficult to keep a building clean and secure during lean times, it can be done. Engstrom recommends keeping long-time vendors, such as a janitorial firm, to prevent disruptions to service and having to work through learning curves with new vendors. That may mean a manager has to renegotiate a contract, but good vendors often are willing to do that in order to hold onto business.
If a manager must hire a cheaper contractor for landscaping or cleaning, he or she should insist on monthly inspections.
“Sometimes you may have to be a little more on top of people,” Covington-Jones says.
She has had to get creative to lower maintenance costs, even picking up a paintbrush to help spruce up some worn planters. Replacing perennials that needed lots of water with lantana also saved about $4,500 a year.
Being attentive to tenants’ needs always has been important, and it doesn’t always cost money, Engstrom says. But in today’s market, it is one more tool in her arsenal that helps keep the property viable.