Executive Summary
The paper comprises of a real estate property management plan designed by Zee Best Realty on the behest of Susie Speculator. The objectives set by Susie comprise the need to transform the Class A office building in downtown to a profit-generating venture which can enable her to meet the commitments made to the investors. The key objectives set by Susie entail the development of the capacity to increase cash flows, enhance the value and worth of the property, and enable her to meet the pressure points set by the investors. With 4 to 5 years to change a $25 million property into $35 million worth structure, various measures are fundamental to adopt in order to set obligations. Zee Best Realty outlines renovating, rehabbing, and repositioning of the property as crucial to enhance its competitiveness and performance. Also, identifying tenants’ needs, tenant retention, and energy audit is crucial to minimize the operating costs at the same time increase the total income revenue. Thus, meet the set objectives effectively within the stipulated period.
Introduction
This real estate property management plan is designed by Zee Best Realty to resolve issues presented by Susie Speculator on her newly acquired downtown Class A office building. The property investment is a potential business when efficiently managed to transform the low-income generation into profit venturing opportunities. The primary objective of the owner is to chat a way forward to enable her to fulfill the commitment she made to her investors when convincing them to venture into commercial real estate. Having bought the property at $25 million, Susie hoped to transform it into a $35 million worth building in the next 4 to 5 years. Thus, resolving the revenue, operational, capital, and practical issues undermining the performance of the building is fundamental. Therefore, Zee Best Realty comes in to provide viable solutions and recommendations that can expedite the profits generated by the property and raise its worth to meet the commitment made by Susie to the investors.
Purpose of the Plan
The primary objective of the plan is to transform the property into profit generation and ensure Susie meets the promise she made to her investors. This comprises improving the property value and worth in the next 4 to 5 years from $25 million the purchasing price to $35 million ready to sell. The capacity to generate profit is essential for the property to meet the obligations made by Susie and live to its standards of a Class A office building (Cheah et al. 2014). The real estate property management serves a fundamental market opportunity which is essential for investors and property owners. The operations of the property at the current position need a thorough turn around to position the building in the market as a better place for tenants to lease for a better and conducive environment (Burke et al. 2010).
Therefore, Zee Best Realty as a business leader and performer in the real estate industry focuses on generating respective solutions to the direst problems impeding the performance of the property. This will be significant to meet the objectives which facilitate the property to better perform and compete effectively (Olayonwa et al. 2012). The capacity to resolve to change tenants’ needs is integral to ascertain the transformation of the property from poor revenue generation and low occupancy into a booming business of revenue and profits generation. The capacity to reach a break-even state is critical to ensure that the capital is returned and generate benefits for the investors.
Conditions
At the current condition in which Susie bought the office building at 400 Main Street Buffalo, NY 14203, it has a rentable space of 500,000 square feet. The building was opened in 1992 presenting an enormous need for thorough renovations and rehabbing to reposition it as a great destination for clients. Since the purchase date in June 2015, the average rent to the tenants has been offered at $20/RSF. The owner’s equity stands at $5 million. In its full capacity, the office building can generate $10 million in annual revenue (Honig & Samuelsson 2014). However, due to the conditions outlined below, the office building has a 70 percent occupancy. That accumulates to $7 million of rents in 2018 below the target value. The total operating expenses of running the property accumulate to $4.525 million leaving $2.475 net operating income. With a debt service of $2,007,748 and reserves for replacement of $350,000 – the cash flow constitutes $11,252. Thus, it provides a need for restructuring the client’s mortgage to increase net income revenue and subsidizing the total operating expenses to save investors’ strenuous spending and unsustainable operations.
The janitorial contractor which has been in place for 10 years provides a payment of $1.175 million per year. This amount is unsustainable at the current low occupancy rate. The contract expired in 2015 giving room for renewing. The utility costs including electricity and natural gas are high and untenable. The reliance on utility companies is a better approach essential to save the company some running costs. The tenants are unhappy and dissatisfied with the current state of things at the building (Seetharaman et al. 2017). The extensive complaints by the tenants are unresolved asserting a state that makes the tenants feel no one cares about their living and utilizing the building (Pyhrr et al. 1999). The control of energy and temperature in the building is inconsistent making the tenants experience a horrible tenancy period. With Susie’s busy schedule, the building requires better management to transform into profit generation and sensible cash flow that can give a return on the investment (RIO).
Economic and Market Analysis
The CBRE market report indicates a competitive market analysis for downtown Class A buildings. This places the building as profoundly underperforming the average market value of the class and level of its property. The vacancy rate for Class A downtown buildings comprises of 15 percent against the recorded 30 percent that the building experiences. The rental rates average for the Class A buildings category entails $22/RSF compared to the $20/RSF offered in the property (Honig & Samuelsson 2014). This creates a room to increase the rental rates to impact positively on revenue, profits, and cash flow increase. Zee Best Realty’s focus is to enhance the income and value of the property through tenant retention and better services.
By conducting a market survey, Zee Best Realty can enhance the competitiveness of the building with others of the same class. This is bound to create a list of premium tenants who can pay a long duration of the stay. The capacity to compete with other buildings in the market is fundamental to position the building as a lucrative premise. The intensity of inspecting the building through visual analysis and at high frequency places the management’s capacity to resolve tenants’ issues efficiently (Buranasiri & Nittayagasetwat 2012). Thus, transform the building from poor performance and low occupancy to a competitive venture.
Solutions and Recommendations
Renovating, Rehabbing, and Repositioning
The facility has been in existence since 1992 requires thorough renovations and rehabbing. Despite the high expenditure costs induced in running the facility, renovating and rehabbing will save Susie more than 50 percent of these costs. This culminates in increased cash flows and profits acquired from the facility. The renovations entail interior designs and exterior decorations to give the building a facelift. The capacity to renovate and rehab the building proves to the tenants that the landlord cares about them contrary to what was previously viewed (Wilson et al. 2015). Also, with an effective running facility – it is bound to cut the visual time for Susie every now and then to the building. This necessitates minimal visits to the facility and reduces the strain on Susie’s demanding schedule.
The renovations and rehabbing will improve the state of the floor space, elevator system, water and gas pipe systems, ceiling, and electricity systems. This will impact on reducing the running costs with quarterly inspections scheduled to access the state of the building (Seetharaman et al. 2017). The smooth functioning without arising issues cuts down the total expenses revenue ascertaining the building can generate high profits. The RIO is bound to be achieved above $1.5 of every dollar invested in the facility. Consequently, the break-even value is bound to be attained within a minimum possible duration which is critical for the building to give dividends and benefits to the investors.
Identifying Tenants’ Requirements
Susie must pay closer attention to the tenant’s changing needs to improve the competitiveness of the building. By listening to the tenants, it asserts the connotation of caring towards their plight which is vital to improving tenant retention (McDonald 2000). The capacity to ascertain tenant satisfaction in your building and services can be met by sustaining a conducive environment – clean, noise-free, and odor-free. This impacts in raising the confidence of the tenants in your services and place the building among the most competitive in its class. Consequently, the high performance is bound to attract more tenants to fill 100 percent of the facility occupancy.
Tenant Retention
Tenant retention is one of the most significant aspects of real estate. The market performance and competitiveness are maintained the building’s capacity to sustain high tenant retention. This establishes the market position of the properties that provide the best care, services, and efficiency to its clients. As a result, low occupancy and poor performance leading to low cash flows and minimal revenues can be changed (Burke et al. 2010). The tenant mix can be improved through better retention capacity which instills confidence to new clients towards occupying and establishing their businesses in your facility. As a result, the investors are bound to meet the value of their money committed to the capital of purchasing the property.
Tenant retention can be attained through the provision of better lease negotiations and renewals to the clients. The space to negotiate for the lease slightly by the tenants creates an implication of the landlord’s minding about their views and expectations. The room for renewal is essential to give the building a chance to reevaluate the average rental rates to charge in the stipulated duration of the lease term. Positive communication between the landlord and the tenants is established developing mutual agreement and respect between them (Olayonwa et al. 2012). This is crucial to impact on the capacity to meet financial and service delivery obligations from respective ends. In turn, the increased performance of the building is guaranteed with it set to generate more net revenue income and minimal expenses and operating costs.
Energy Audit
Running the energy audit on the total consumptions of the building is vital to assess and reevaluate the required amount. This can eliminate the wastages which are experienced as a result of many years of the building being in place. With renovations being done, energy audit goes hand in hand with the transformation capacity of the building (Pyhrr et al. 1999). Susie has an opportunity to reduce the energy – electricity and natural gas expenses as much as possible to ensure the total operating costs remain low. Subsequently, the cash flows can increase with all the other expenditures, equity, and debts deducted from the total income revenue generated from the property tenancy. Thus, the positioning of the building in the market as the changes provided creates an opportunity to turnaround its performance and enable Susie to meet her obligations to the investors within the target duration.
