ACHIEVING OPERATIONAL EFFICIENCY KEY FOR RETAIL REO PROPERTIESGeneral Real EstateUpdated on May 28, 2010 View more like this | Visit PLAINFIELD, NJ | Contact Caryl Communications, Inc. |
ACHIEVING OPERATIONAL EFFICIENCY KEY FOR RETAIL REO PROPERTIES
Short- and Long-Term Strategies Maximize Value to Position Centers for Resale
By Matthew K. Harding, President and Chief Operating Officer
Levin Management Corporation
North Plainfield, N.J.
May 27, 2010 – With the lingering effect of retail store closings, the reluctance of some retailers to open new ones and an increasing number of retail assets in default, this is a very good time to examine ways to protect shopping center property value. Positioning assets taken back by lenders (REO properties) for resale requires a careful, balanced approach to addressing financial and physical conditions.
Focusing on operational efficiency and aggressive leasing are critical components of this strategic plan.
Savings can be achieved on two levels. The first deals with day-to-day operations and what can be done to achieve immediate cost reductions. Maintenance and utilities provide a clear starting point. Many shopping centers – REO and otherwise – today have more vacancies than they would in a healthier economy. It is common sense to approach existing contractors – landscapers, sweepers and others – to negotiate lower fees in exchange for longer contracts. Contractors are not surprised, shocked or negative about being asked. They are happy to still have the work now and going forward.
Levin also evaluates the level of services performed at properties. For example, higher rates of vacancy translate to less trash. This sometimes allows for reduced sweeping – usually on a Tuesday (traditionally the slowest day at shopping centers). However, this does not apply to grocery-anchored centers, which need more sweeping and maintenance than others. Maintaining the highest level of service and curb appeal the budget allows is the priority, and each property’s needs should be considered on an individual basis.
Utility costs also should be watched closely. Reducing heat and eliminating cooling at vacant stores can make a major difference. In the winter, keeping vacancies at a safe 50 degrees can reduce heating bills up to 30 percent.
Long-Term Strategy
The second level of savings involves long-term cost control. Working to reduce the costs of doing business with municipalities is one terrific savings strategy. New Jersey’s local property tax is a good example, where commercial property assessments are based in part on income. Vacancies should produce a decrease in taxes, but few municipalities will grant a decrease without a formal appeal. Levin hires counsel and appraisers to review our clients’ situations on a case-by-case basis.
We also see great long-term savings through reduced energy costs; lighting is a key area. While maintaining proper lighting levels makes shopping centers more attractive and safer, there are ways to save without compromise. Converting to the most energy-efficient bulbs and controlling the use of lighting during non-business nighttime hours present viable options.
At Levin, we also stress energy efficiency when replacing glass, roof insulation, HVAC systems and even landscaping. With landscaping, for instance, we select plant varieties that require no supplemental water.
However, the biggest potential savings for REO assets can come from what is NOT done. In tougher economic times, that means deferring capital projects, when appropriate. For example, in a parking lot we may patch and fill cracks, rather than replace the lot. We may repair sections of a roof, rather than re-roofing. Of course, these large jobs will still have to be completed at a later date, so it is very important to be prudent in choosing which projects to postpone.
Are Tenants Paying…And How Much?
Rent collection bridges short-term and long-term operational planning. In these troubled times there is renewed emphasis on closely monitoring tenants that may be facing economic challenges. It is imperative to communicate clearly that late rent payments are unacceptable. While every owner would much rather avoid the vacancy, when necessary they must be willing to default or evict tenants.
At the same time, tenants are requesting rent reductions. It represents good practice to assist those who truly need help and have a good chance of surviving. Levin works closely with tenants to look at the numbers - evaluating financial and operational information - and create a realistic solution. Of course, the property owner’s interest is the priority, and sometimes it is in the owner’s best interest to grant assistance.
Adding to the Income Stream
The drive toward savings should be coupled with an on-going effort to increase income through leasing. Yet with vacancy rates at all types of retail venues still rising, the competition for new tenants is intense. Owners must adjust their income expectations to be competitive, and leasing agents must reach out to a wider range of prospects through active canvassing.
An analysis of tenant categories present or missing at the property and throughout the market area is mandatory. And consideration must be given to non-retail uses at some properties.
While focusing on collaborative short- and long-term efforts to save operationally and increase revenues, is it vitally important to watch the bottom line. Savings should be coupled with impeccable service and aesthetics. This balance will work to protect, and even improve, asset value for REO shopping centers.
Short- and Long-Term Strategies Maximize Value to Position Centers for Resale
By Matthew K. Harding, President and Chief Operating Officer
Levin Management Corporation
North Plainfield, N.J.
May 27, 2010 – With the lingering effect of retail store closings, the reluctance of some retailers to open new ones and an increasing number of retail assets in default, this is a very good time to examine ways to protect shopping center property value. Positioning assets taken back by lenders (REO properties) for resale requires a careful, balanced approach to addressing financial and physical conditions.
Focusing on operational efficiency and aggressive leasing are critical components of this strategic plan.
Savings can be achieved on two levels. The first deals with day-to-day operations and what can be done to achieve immediate cost reductions. Maintenance and utilities provide a clear starting point. Many shopping centers – REO and otherwise – today have more vacancies than they would in a healthier economy. It is common sense to approach existing contractors – landscapers, sweepers and others – to negotiate lower fees in exchange for longer contracts. Contractors are not surprised, shocked or negative about being asked. They are happy to still have the work now and going forward.
Levin also evaluates the level of services performed at properties. For example, higher rates of vacancy translate to less trash. This sometimes allows for reduced sweeping – usually on a Tuesday (traditionally the slowest day at shopping centers). However, this does not apply to grocery-anchored centers, which need more sweeping and maintenance than others. Maintaining the highest level of service and curb appeal the budget allows is the priority, and each property’s needs should be considered on an individual basis.
Utility costs also should be watched closely. Reducing heat and eliminating cooling at vacant stores can make a major difference. In the winter, keeping vacancies at a safe 50 degrees can reduce heating bills up to 30 percent.
Long-Term Strategy
The second level of savings involves long-term cost control. Working to reduce the costs of doing business with municipalities is one terrific savings strategy. New Jersey’s local property tax is a good example, where commercial property assessments are based in part on income. Vacancies should produce a decrease in taxes, but few municipalities will grant a decrease without a formal appeal. Levin hires counsel and appraisers to review our clients’ situations on a case-by-case basis.
We also see great long-term savings through reduced energy costs; lighting is a key area. While maintaining proper lighting levels makes shopping centers more attractive and safer, there are ways to save without compromise. Converting to the most energy-efficient bulbs and controlling the use of lighting during non-business nighttime hours present viable options.
At Levin, we also stress energy efficiency when replacing glass, roof insulation, HVAC systems and even landscaping. With landscaping, for instance, we select plant varieties that require no supplemental water.
However, the biggest potential savings for REO assets can come from what is NOT done. In tougher economic times, that means deferring capital projects, when appropriate. For example, in a parking lot we may patch and fill cracks, rather than replace the lot. We may repair sections of a roof, rather than re-roofing. Of course, these large jobs will still have to be completed at a later date, so it is very important to be prudent in choosing which projects to postpone.
Are Tenants Paying…And How Much?
Rent collection bridges short-term and long-term operational planning. In these troubled times there is renewed emphasis on closely monitoring tenants that may be facing economic challenges. It is imperative to communicate clearly that late rent payments are unacceptable. While every owner would much rather avoid the vacancy, when necessary they must be willing to default or evict tenants.
At the same time, tenants are requesting rent reductions. It represents good practice to assist those who truly need help and have a good chance of surviving. Levin works closely with tenants to look at the numbers - evaluating financial and operational information - and create a realistic solution. Of course, the property owner’s interest is the priority, and sometimes it is in the owner’s best interest to grant assistance.
Adding to the Income Stream
The drive toward savings should be coupled with an on-going effort to increase income through leasing. Yet with vacancy rates at all types of retail venues still rising, the competition for new tenants is intense. Owners must adjust their income expectations to be competitive, and leasing agents must reach out to a wider range of prospects through active canvassing.
An analysis of tenant categories present or missing at the property and throughout the market area is mandatory. And consideration must be given to non-retail uses at some properties.
While focusing on collaborative short- and long-term efforts to save operationally and increase revenues, is it vitally important to watch the bottom line. Savings should be coupled with impeccable service and aesthetics. This balance will work to protect, and even improve, asset value for REO shopping centers.
