Portfolio Management: Commercial Multi-Tenant Portfolio

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Whether you’re an investor and/or developer of a local or mid-tier commercial multi-tenant property portfolio, portfolio management is a critical first step towards realizing return objectives for equity of the firm and for investors.  How will NOI, financing and depreciation contribute to generating preferred returns from the asset?  What holding period and reversion is needed to generate preferred IRR/MIRR?  These objectives will be factored into your Asset Management plan; your asset manager will advise your portfolio manager and owner how market conditions will impact portfolio management objectives.  Leases for each property are independent investments [with staggered lease expiration dates] that shape the cumulative IRR for the asset and shape the exit cap rate used for reversion.  The asset manager relies on the property management staff to maintain the integrity of the property, and a skilled agency leasing team to lease-up vacancies and renew leases consistent with the asset management plan.  Roles of key team members are as follows:

Owner.  Sets objectives for portfolio returns, secures locations, sources and secures the lead architect, construction manager, financing, and anchor tenants; evaluates leased properties to invest in.

Corp Advisor

Portfolio Manager.  Is in-tune with investment philosophies and methods, has relationships with private equity investors and commercial lenders in capital markets, and is well-versed with returns generated from alternative investments.  Provides owner with advice about fair market value of assets considered for purchase, advises how equity placement can produce desired returns based upon internal competencies and market conditions.

Asset Manager.  Akin to a COO who creates an asset management plan to realize owner’s objectives, which may include how economic performance of the asset contributes to returns from the portfolio.  Some asset managers specialize at turning around troubled assets within a timed project.  Direct reports are from the Property Manager, portfolio controller, marketing director, leasing team, and property attorney; the Asset Manager manages scheduled audits of property economics by outside auditors.  The asset management plan is the result of extensive analysis of the current state of the property (e.g. physical, economic, and staffing), its SWOT analysis, and how market conditions influence shaping of the asset management plan.  The plan typically includes most-likely uses for vacancies, a capital improvement project, a marketing plan to lease-up the vacancies, a tenant improvement allowance, rent concessions, a tenant retention plan, costs for marketing and brokerage commissions.  The asset management plan is measured for performance at scheduled intervals to identify strengths to maintain or sharpen, and gaps to close.  The asset manager maintains a consistent relationship with the portfolio manager, yet as needed with the [busy] owner.

Property Manager. Manages all physical operating activities of the property to maintain the physical integrity of the property and its daily economics.  They follow the asset management plan to reach owner’s objectives for the property.  Is hired by and reports to the Asset Manager.

Marketing Director.  Responsible to create a marketing plan and materials to market vacancies, promote promotional lease transactions, and property messaging to retain tenants.  Assists the Asset Manager as internal service provider.

Leasing Team.  Responsible for sharp and current knowledge of the local space market, where to look for prospective tenants, and handles lease renewals.  The team leader is a public-facing, approachable personality, bridges owner’s objectives with tenant’s needs for space via lease negotiations, and coordinates space planning services with the building space planner.  Is hired by and reports to the Asset Manager.

 

Asset performance occurs by buying at a mid to high cap rate for the current 12 months of income, identify a plan to improve the property physically and economically, secure financing at terms favorable to the cash flow, upgrade and relet the property, choose to keep it, or sell in the future at a lower cap rate of NOI to realize yield goals.  (Stabilized income is reflected in a lower risk cap rate (e.g. exit cap rate).  Some developers sell a percentage of the accumulated equity in the project a few years after the cash flow is stabilized to re-start the process with a new project.

MT Ofc

The success of each asset is dependent upon aligning owner’s objectives with market conditions, interpreted by the portfolio manager and asset manager.  Mutual agreement about asset goals facilitates economic success.  Holding periods exceeding 7 years may require the asset management plan to be revised to re-align SWOT of the asset with market conditions.

Whether your investment house is considering acquiring new assets, upgrade owned assets, or exchange an asset for a different one, BREG can assist as portfolio manager, asset manager, investment sale agent, or team leader of your leasing team.  Please click “Request A Consultation” link in the upper right of the screen.  Enter “Portfolio Management” in the subject line; please include the name, email address and telephone number of your executive assistant in the message body; I reply within 24 hours to arrange an exploratory conference call.  Thanks for reading and listening.###

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