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Four Ways to Turn a Property That’s a Liability into a Financial Advantage

Blog

Four Ways to Turn a Property That’s a Liability into a Financial Advantage

By: Steve Sadler, CEO of Allegiancy

September 05, 2014

If your commercial property is in trouble, it doesn’t have to stay that way. My company, Allegiancy, has a long track record of turning distressed properties into profitable ones, and I am happy to share four of our best secrets for successful turnarounds with you:

1. LOVE THE LENDER

If your property is at risk for defaulting on its mortgage, tackle that issue first. Mitigating risk is often about developing a new relationship based on trust with the lender, and demonstrating that you have a plan to get your property back on track. Then of course you have to deliver on your promise.

For example, Signature Place, a large office building in Greensboro, N.C., was almost bankrupt when its owners hired my company to manage it. We immediately focused on establishing an excellent relationship with the lender, which afforded us greater freedom in making decisions.

Of course that relationship was helped by our making sure that the property started performing and meeting its debt obligations right away. As a result, within a year, we had successfully refinanced the property.

2. LISTEN TO THE OLD GUYS

What we have learned is to actively listen to the existing tenants. This may seem obvious, but we have found that in all too many cases, listening to tenants may not have occurred for many years.

Based on what tenants said at Signature Place, for instance, we were able to select a few low cost, high-impact improvements. These included targeted landscaping, refurbishing the insides of elevators, and improving curb appeal. One result of addressing these issues included winning back the tenants’ trust in the property leadership.

3. KEEP ONLY THE BEST VENDORS

Central to any turnaround is finding out which vendors are irreplaceable and which ones need to go. Consider re-bidding all work whenever possible. Through onsite observation and conversations with tenants, you can quickly determine which vendors make a property hum, and which ones are just collecting their fees.

In the Signature Place case, the re-bid and re-evaluation of all vendors saved the property at least $150,000 a year, which added approximately $1.5 million to property value in a sale.

4. FIRE UP THE LEASING AGENTS, AND GRAB NEW TENANTS

Getting an occupancy rate to above 90 percent is key to the success of any property. Many believe that a lack of cash reserves means that new leasing is hopeless. That’s simply not true, as we have seen firsthand. By decisively taking control and demonstrating a personal interest in problem-solving at a property, you can rekindle enthusiasm among leasing agents and prospective tenants alike.

At Signature Place, we did this by meeting in person with prospective tenants and agents and delivering proposals to them within 24 hours of the meetings. We then offered prospective tenants a full landlord build-out, or a compelling alternative that limited the need for owner spending. All new tenants chose the alternative.

So in the declining real estate market of mid-2009, we signed a new 50,000-square-foot, 15-year-lease which added more than $2 million in value to the owners.

The good news for all property owners is that it is possible to generate positive returns across properties. You get positive results by focusing on protecting the investor. At Allegiancy, we are all about maximizing the owner’s return on investment with integrity. 

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