Commercial Property Being Mismanaged
Hi Everyone,

My parents owns a commercial strip center property (triple net) in the Bay Area, which I think is being mismanaged. It is anchored by 7 eleven, with a mix of 4 retail stores neighboring it. As of now, the property is being "managed" by the person who used to own the property previously for a fee of $500 a month. I believe he is a broker and manages other properties. The problem is that there are a host of problems with the property as landscaping is not being paid attention to and tenant problems are not really being listened to. And from anyone's first glance, the exterior is irritating to look at.

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From my understanding, the region is growing and the location is in a fantastic location. And with 3 contracts up for renewal in about 4 months, I believe that the rent currently being received can be increased as these leases were formed when the economy was in full recovery mode. Although when it comes to renegotiating or finding a new tenant, I want to make sure I have justification for the increase - meaning that the property is well managed. What do you think would be the next best moves? I'm persuading my parents to find a new property manager, but I'm not sure what would be the route to go about this. Will finding a new property manager be enough? And are there things I can do in the meantime? Thanks a ton!
[{"id": "e4vu6ru", "text": "Sounds like you need a new broker/PM. Don\u2019t even think twice about it. ", "replies": [{"id": "e4vub00", "text": "What do you think are the best methods to look for one? And should I go with a firm or an individual for best results? ", "replies": [{"id": "e4vvgq9", "text": "Go to LoopNet.com and search brokers with a lot of good listings in your area. ", "replies": [], "depth": 3}, {"id": "e4w1s1s", "text": "Find a nearby center in decent shape, and find out what company manages it.", "replies": [], "depth": 3}, {"id": "e4xdfet", "text": "Go through the CCIM database for your local area is a good start. ", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "e4vv9k5", "text": "$500/month to manage 5 tenants is really, really, really cheap.  And it sounds like you are getting what you pay for.\n\n3 tenants rolling over this quarter isn't just bad brokerage, its negligent.  Space should have been marketed for lease months ago, especially if the exisiting tenants are not receiving good service from your PM person.\n\nSo you need to fire the current PM/Leasing agent and hire a new one, but make sure you understand the fees associated with the PM will rise by a multipler, and be prepared to pay LC when/if the current tenants lease.\n\nContact your local CCIM/CPM groups, ask for a list of those who have those certifications, and interview some folks.  This listing might not be enough to really motivate the big boys, but you never know.\n\n", "replies": [{"id": "e4vvwjb", "text": "Thanks for your response.\n\nYeah this is what I was thinking. The payment doesn't justify the work involved. I think proper management should result in higher rent for the future so this is something I'm prepared for. Should I contract the new PM based on percentage of rental income? And would it be more effective to try to work with the \"big boys\"? As of now, I think the primary focus is getting the property back to properly managed status. This is just my thinking, but wouldn't it be better to find a firm that's more focused on the managing aspect and find a broker separately? Thanks again highly appreciate your response.", "replies": [], "depth": 2}, {"id": "e4wuim3", "text": "Excellent response. I was going to give my thoughts but this guy provided the perfect advise. In particular, he is right that it will be more expensive but worth every penny to get a good PM in there. Definitely a good idea to contact CCIM/CPM groups and interview new PMs. ", "replies": [], "depth": 2}, {"id": "e4wy4sk", "text": "This - \n\nIt\u2019s likely your parents property has been neglected.\n\nThat space should have been renegotiated prior to expiration - it\u2019s tight but some of that could still be done. Staggering leases to minimize vacancy and maximize opportunity to generate additional rents is a basic skill you want in a property manager -\n\nFind a CCIM and be prepared to pay market management and lease commission rates, it will be worth it in the end.", "replies": [], "depth": 2}], "depth": 1}, {"id": "e4w7tcy", "text": "I do some Management work and we charge 5% of rent for commercial properties.\n\nIt seems like you need a better/ more experienced manager- but it will cost you more.", "replies": [], "depth": 1}, {"id": "e4w9tr3", "text": "Have you spoken with your upcoming rolling tenants? If their renewal probability it uncertain you need to act fast to prepare for the worst case scenario.. if all of them were to leave could the property support it's debt service &amp; opex? If the property is in a state of disrepair it may give tenants a reason to start looking elsewhere and also make it harder to attract new ones.. ", "replies": [], "depth": 1}, {"id": "e4wuw7g", "text": "Fire the PM/leasing agent immediately and be ready to lose 50% or more of the tenants rolling.  You may have saved a good bit on property management during their lease terms, but be prepared to lose a lot more money than saved when you can\u2019t backfill their space because the property has not been maintained for the last however many years. You\u2019ll also have to pay big TIs and LCs given where the market it at currently.  You\u2019re way late to the game. You should\u2019ve been marketing the space months ago.", "replies": [], "depth": 1}, {"id": "e4wxvgo", "text": "To add a different comment...there is absolutely no reason the maintenance should be neglected.  The NNN tenants pay for the landscaping and maintenance, it doesn't come out of the rent to the owners.  Neglecting maintenance brings down the value of the property but doesn't save the owner any money.  That is unacceptable.  I say fire the manager.  ", "replies": [], "depth": 1}, {"id": "e4x91de", "text": "\"Better the devil you know than the devil you don't.\"\n\nCommercial real estate isn't like renting residential apartments. Finding good tenants is even more difficult and often times means the lot sits vacant for over a year. Any increase you think the property may justify will easily be nullified if the property sits vacant for even a few months. Your current manager sucks but you're paying him close to nothing. Your new manager may or may not be better but you'll be paying a lot more for those services just to see if they're just as good. Your current manager also knows about the property a lot better than anyone else and you may lose that knowledge when you fire him. Not to mention he may have a good relationship with your tenants. Perhaps he didn't push them for better upkeeping because he knows they can't. You need to find out these things. Are the tenants happy with the property manager?\n\nReally though, the point I'm trying to get at is you really need to know the property better before you make any changes. Get to know your tenants. Understand the issues that the property is currently facing. Why does the place look run down, what are the factors preventing it from looking better. Is it lack of resources on your tenants or is it lack of investment by your family or is it just that no one wants to deal with it. If you can't identify the issues your property is currently facing aside from it looks dumpy and I should be getting higher rent for this space, then how can you know your new property manager is doing his job correctly. I'm not trying to sound critical or being mean. I just believe there's no free lunch here and you need to get your hands dirty You can't just throw it all on your property manager and wipe your hands clean. ", "replies": [], "depth": 1}, {"id": "e4z10sd", "text": "Find yourself a separate Property Manager and Broker. As a property owner, it's to your advantage to have this setup and will bring you better tenants.  In South FL retail property management services usually fall around 8-10% of gross rent income so long as expenses are kept in check (agreed to amount) and on annual contractual basis.", "replies": [], "depth": 1}]