The COVID-19 pandemic has affected many people and businesses across the country. After a year has passed, many thriving businesses are now barely breaking even while struggling businesses have been closed permanently. This can leave both property owners and landlords in financial trouble, because a loss of tenants and rent may cause buildings to fall into disrepair. This problem can also cause remaining tenants to leave, having the owner losing even more money, and possibly threatening a loss of the property. Before the problems get worse, it may be time to review steps and options that real estate investors can take to turn around property issues.
Related Read: How to Make Your Property as Profitable as Possible
Taking the first steps
Setting an early plan increases the chances of turning around a struggling property. You should consider all parties involved and resources available to get help with your property:
Negotiate With Lenders
You should communicate with your lender to get some extended or adjusted terms. An early discussion about new, lower or extended credit terms can help restore liquidity. For example, you may try to renegotiate interest rates or restrictive loan covenants.
Hire a Turnaround Manager
You may consult with or engage a qualified real estate manager to lead the turnaround effort. This person can help by meeting with lenders, vendors and tax authorities to look for alternatives to free up resources.
Evaluate the Property
You should identify and prioritize problems, brainstorm for solutions and obtain cost estimates. Some issues require a quick fix, while many others will take time. For example, a roof leak is a priority problem, but it can be relatively simple and easy to address.
You should hire temporary help or pull workers and equipment from other buildings to focus on the building in disrepair. If you have an advisor or turnaround manager, you may need to calculate which resources can or could be reallocated.
Restore Your Reputation
You need to be sensitive to your reputation which can quickly become tarnished by mismanagement making disrepair problems far more difficult to turn around. The “image is everything” slogan is especially relevant when a landlord’s reputation has gone downhill with a struggling property. Make it a priority to reposition the property with tenants and the brokerage community. Then, notify the media that the building has been taken over by new management. A large banner across the building may be helpful in announcing the change.
Decreasing tenant loss
One of the most problematic issues for a landlord is the loss of tenants. When tenants leave, their space can often remain vacant for six months or more. A rental loss from vacancies, new tenants’ improvements and leasing commissions all point to the same conclusion that tenant turnover is expensive. It can take a year or longer to recover losses even after a tenant is found.
Competitive commercial brokers are always looking for tenants and dissatisfied tenants are their prime targets. What are some ways to keep your tenants happy and decrease the risk of losing tenants? Consider conducting a tenant survey to determine what tenants are satisfied with and what areas they would like to see improved. At the very least, a survey shows tenants that you value their opinions. It is important to respond to their input promptly; responding is just as valuable through text, email or phone. It is also equally positive when a tenant has routine requests for maintenance and you act promptly. One good practice is to calendar tenant requests so that they do not have to ask multiple times.
Another simple strategy is to turn your property management company into a service-oriented management team. This plan could involve making your team available around the clock. The goal is to be sure that you are listening and responding promptly to tenant feedback. This helps create loyalty, which may outweigh the financial benefits offered by your competitors.
A property manager can do more for a tenant than just manage the property. They can expand their influence by becoming “concierges” for their tenants, helping tenants with problems and items that are outside the scope of property management. This includes offering basic advice such as referring cleaning, landscaping, security, delivery, insurance, banking and professional service providers that tenants may need.
Another way to improve relationships with existing tenants is to use their products and services and refer them to your business contacts. A property manager that helps tenants grow their businesses not only creates goodwill and provides cash for lease payments, but may also increase their square footage needs.
Working with professionals
As the country recovers and moves toward a post-pandemic economy, it is important to keep common recurring problems from spiraling beyond your control. It helps to create a proactive attitude to keep your troubled properties afloat and begin to recover and flourish again. Consider consulting with ORBA’s financial and business advisors to create an effective and timely turnaround strategy.
If you have any questions or comments, please call your ORBA business advisor or Tom Kosinski or [email protected] at 312-670-7444. Visit orba.com to learn more about our Real Estate Group.