24 Dec Top 5 Commercial Real Estate Owner Mistakes of 2019
This is Mathew Laborde, CCIM, coming to you on Christmas Eve from Elifin Realty. So far in 2019, I’ve done a total of 84 transactions. In those 84 transactions, I’ve seen a lot of good and a lot of bad. Here’s my list of the top 5 mistakes that I’ve seen commercial real estate property owners make in 2019, that I’d love to see not repeated in 2020. Let me know what you think, comment below!
#5 – Not closely reviewing “registered persons” provisions in listing agreements
So this is, admittedly, incredibly meta. This is the most meta item on the list, but it struck a chord with me, it’s really important, so I decided to include it. All right, what does that mean, “registered persons” provisions? If you own commercial real estate and you’ve listed it for sale or lease, when that listing agreement is terminated or expires there’s usually a provision in the agreement that says the prior broker can list a few names, and if a transaction takes place within a set time period from the listing agreement expiring, then you have to pay the prior broker.
Where that can be problematic is… let’s say you didn’t like the prior broker, right? They didn’t do a good job in your estimation, and you hire a new broker, and you’re so jazzed up about it. You’re super excited. This new broker has got a lot of energy and you’re telling them, “hey, I want you to really make sure there’s no stone unturned. Make sure you market this property to its fullest extent. Our last broker didn’t do it and that’s why we’re choosing you… By the way, here’s a list of 20 names that if they do a deal, you’re going to get paid zero.” Well, your current broker’s not gonna like you that much, and is not going to like that fact very much.
So what do you do? You make sure that if you’re going to have registered people, that they are earned by the prior broker, and not just a list of names that the prior broker picked out of a hat.
So in 2020, what you’ll do is consider limiting the provision in terms of length. A typical time period is between 180 to 365 days. Next, and most importantly, limit who is eligible to be a registered person. You don’t want it to just be anybody that the prior broker ever dreamed up or thought up. You want it to be people that they’ve earned. You want people that they’ve earned the right to register. So consider limiting it to prospects that have toured the property or prospects that have made an offer on the property. That’s a good way to limit it to people that are justifiable.
#4 – Making it hard for the prospect to do business with you
This really goes without saying, but I’ve seen it enough that it warranted being on this list. So in 2020, consider being quick to respond and having property details ready to go. Especially when you get offers and when you get inquiries for information about the property that help a tenant or buyer make a decision. You need to be quick to respond with that information. Because we all know, time kills deals. So be quick to respond and see more deals go through – hugely important. Let’s make an effort for quick responses in 2020!
#3 – Not having a social media strategy and presence
This plays out in two particular areas, the most. Retail centers and large apartment complexes.
When you have a retail center and you have the opportunity to build a brand and drive traffic to that retail center, use social media. Maybe you’re highlighting your current tenants, specials that they offer, services that they offer, sales that they’ve got going on. You might be highlighting events going on in around your shopping center – maybe there’s a farmers’ market that meets every week. Or you can highlight when the Christmas decorations go up. Whatever it is, start building that brand on social media. It’s free! And if you’re driving customer traffic to your retail center, then your tenants are going to be very happy, and they’re likely to stay a lot longer than otherwise.
Another opportunity that I see for this, where it’s completely underutilized, is for owners of large apartment complexes that have huge advertising budgets but for some reason none of that advertising spending is getting allocated towards social media. I can promise you, without a shadow of a doubt, that those tenants are on social media and that the best way to reach them is on social media. So consider it in 2020. Consider building a brand for your apartment complex and doing some both organic and paid advertising on social media. Test it out. Let me know how it works for you.
#2 – Not staying on top of deferred maintenance
Huge one. In the student housing market around LSU – and this is a trend across the country – there are too many apartments being built. There is an excess of apartments and because of that owners have gotten away with being lax or slow to address deferred maintenance. And those owners that were doing this while still maintaining high levels of occupancy are now getting slaughtered. Their occupancy is dropping. Their net operating income is suffering because tenants are making decisions on amenities, price, and how good of a landlord you are. So, you need to address that leaky roof. You need to address that landscaping. You need to make sure you’re on top of your property and all the maintenance items that go with it. You want to be the landlord that you would like to rent from.
This also applies if you are an owner and you have a property manager. You want to make sure that you are not being too hands-off. You want to be a hands-on owner in 2020 and make sure you’re managing the property manager. Make sure you’re on top of it because if your income is down and your occupancy is down, then most likely the property is not being managed the way you would manage it if you were more hands-on. So, dive in, figure out what the problem is and get it on track.
#1 – Wanting the market to buy or lease what you build
Obviously everybody wants the market to buy or lease their space, but – especially when you’re doing speculative development, and I have the most admiration and appreciation for these people because these developers really build landscapes and environments of our city – but in 2020, please consider instead of wanting the market to buy or lease what you build, consider building what the market wants to buy and lease.
How do you do that? You make sure that you not only rely on your expertise, your experience, your intuition… But you have a good team around you that specializes in the property type that you’re looking to develop. The two most important people on that team are your architect and your commercial real estate broker.
So if you’re doing an office development, you want an architect that is, all day every day, talking to tenants and buyers of office space. You want that person because the knowledge that they bring to the table, you will absolutely see pay back to you. The other thing is a broker. So a broker can not only determine or help you determine where to locate – because that’s huge. If you’re locating an office development just outside in-demand sub market for office you might get killed. Because office tenants may not be attracted to that area at the price point you’re aiming for. So bringing a broker in that’s dealing with office tenants and buyers every day is invaluable.
The earlier you get these people involved, the better. The later, the less effect they can have and the less money they can save you and or make you.
So that is the top five commercial real estate mistakes to avoid going into 2020. Have a Merry Christmas everyone! Comment your thoughts below!