Commercial or Retail Property Managers - Risk Management Strategies and Tips

When it comes to the performance of commercial and retail property today, there are factors of risk that need to be managed and controlled. Given that every property is different, the property manager or retail centre manager needs to be diligent in the process of risk assessment and management.

So what could be factors that fall into the risk management assessment process? Here are some of the main one's for you to consider:

  1. The expiry of any lease document and end of lease term is a threat to the income recovery for the property. Depending on the size and type of the property, income reduction can be a big issue for some landlords. On this basis it pays to monitor the lease expiry profiles within the commercial or retail investment property for the next two years. This allows you to see any threats to occupancy or income well in advance.

  2. Outgoings for the property form part of the property cash flow and net income. Each year the outgoings for the property should be reconciled so that you understand the status and comparisons of the property to others of a similar type in the same area. It could be that the outgoings are recovered in part or in total from the tenants in occupancy. The reconciliation will form part of this assessment and recovery process. Outgoings can be a factor of risk given that they can slip out of control or escalate beyond acceptable financial boundaries.

  3. Changes to property zoning and usage in the local area can be a factor of risk for serious consideration. If the local planning authorities change the zoning or transport infrastructure within the property precinct, your commercial or retail property can be significantly impacted. On this basis it pays to keep in touch with the planning authorities, and obtain copies of the current development plans as they apply to your area. Understand what each of the categories of your zoning provide and allow property owners and tenants to undertake on each property.

  4. The use of each tenancy can involve risk. The tenants may undertake some form of business that involves certain risk factors. For example they could be doctors, dentists, preparation of food, preparation or storage of chemicals, excessive threat of fire, noise, or dust. On that basis it is important that each lease document covers the risk factor comprehensively and effectively. It is then up to the landlord and or the property manager to ensure that the tenant complies with the rules and regulations of the lease.

  5. The function of each and every property will also involve risk from the aspect of property usage and the improvements installed. Through the attrition of time, improvements can degrade and even become dangerous. This will impact the landlords position of risk and on that basis needs to be managed. In older properties, it pays to get an engineering report and an architectural report on a regular basis to identify any risk factors that need to be rectified or improved.

  6. It is common today for insurance risk assessors to inspect commercial and retail properties on a regular basis. They do this as part of the annual insurance renewal. Be prepared for this process as the assessors will be diligent in their assessment and critical in the recommendations that they make. The essential services for the building will be assessed as part of that process to ensure the safe conditions of occupancy and building usage exist.

So these are some risk management processes to consider in your building management strategy. Depending on property type, there can be others that need to be included in the list. Be aware of the process and take control of your property to ensure that nothing slips through the cracks.

Commercial Property Managers - Tips for Business Planning Your Managed Asset

When it comes to the performance of a commercial property today, the impact and sentiment of the local business community plus the greater global economy can detract from the income and capital growth for the property. This says that you have to be very careful regards planning property activity, lease strategy, and tenancy mix.

To achieve this effectively, it is best to implement a business plan for the property asset. Whilst every property is unique and different, here are some of the main categories to consider and structure into the commercial property business plan:

  1. In the initial instance, it pays to have a look at the property itself and the quality of improvements. Questions need to be asked as to whether the improvements in your property are sufficiently serviceable for the expectations of tenants in today's property market. As part of this process, it may be necessary for you to look at comparable properties in the same area together with assessing their tenancy mix and rental levels.

  2. Any physical matters of building performance or integrity of improvements should be assessed by qualified consultants. They would normally be engineers, architects, and quantity surveyors. From this group of experts you can obtain a clear understanding of property performance and longevity of the asset.

  3. As part of the business plan you should look at the stability of income from the tenancy mix and the leases in the property today and those that are expected to change over the coming two years. Any new lease negotiations should be incorporated into the consideration of income. When you look at lease is, there are critical components to consider such as the exercise of option, the stability of income, the growth of income from the rent reviews, and the needs of expansion or contraction as they apply to each and every tenancy. It is best to meet with the tenants as part of this process and assessment.

  4. The outgoings that apply to the premises have a direct flow through to the bottom line or net income. Your building should be compared to the others in the area when it comes to outgoings. Importantly your outgoings should be comparable to other buildings so that your attempts to leasing the vacant premises are not frustrated. When you assess the property outgoings, have a look at the larger categories of outgoings that could escalate in the immediate future. They would normally be council rates, energy, insurance, and repairs and maintenance.

  5. Any items of capital nature should be removed from the net income cash flow. Capital expenditure items are normally handled separately to the day to day running costs for the property. This is because the taxation rules that apply to capital expenditure are distinctly different than those that apply to day to day running costs. When in doubt seek a good property experienced accountant or solicitor to help with this process.

These are some other main items that apply to the business planning process for a commercial property today. They can be modified and other issues can apply depending on the property type and location. It should also be said that retail property will have a far more complex level of business planning and performance. This is due to a critical need of tenant mix optimisation and the underpinning of sales and turnover for each and every tenancy.