For commercial real estate investors, one of the biggest make or break factors in asset performance is tenant management. Why is it so important? How do you master this part of your portfolio and property investing?
It’s All in the Execution
The projections and estimates of what a multifamily, office or retail property can produce in returns upfront can mean very little if it all falls apart in the execution. Just as superior management can take underperforming properties and unlock incredible value and cash flow.
When it comes to asset management for real estate, a huge part of that is managing tenants. These are just a few of the reasons it’s so pivotal, and what good management can achieve.
- Reputation and ability to attract great future tenants, investors and buyers
- Cultivating positive online reviews and harnessing micro influencers
- Less damage on exit and fewer tenant defaults
- Tenants willing to pay premium rents
- Referrals and a pipeline of ready tenants
- Lower operation costs
- Lower turnover costs - Consistency in income
As a result, this all results in higher, predictable net income and yields, and asset value. If you’ve ever leased a residential or commercial property, you already know exactly how you feel when you have a bad landlord, versus what you’ll do for a good one.
This question comes up quite often, not just for new owners, but also for owners who realizes their current management team is a bit stagnant and needs to redefine what makes for good management.
Here’s a short list of what makes for good management.
- Intentionally and proactively cultivating good tenant relationships
- Doing what you say, versus just what you can get away with
- Clear communication, with honesty and transparency
- Having a spirit of adding value and caring for them and their success
- Good management and maintenance of the overall property
Since the vast majority of these factors will all fall on a third party property manager, how do you know if an investment firm or property manager is good at tenant management and relationships?
Number one; know their philosophy towards tenants. How do they speak about their tenants? Are they just about burn and churn for short term cash, or do they invest in retaining long term tenants? Do they have leases with same tenants across multiple properties? Do they have long term tenants? Look at the actual amount of time they stay versus what the leases states. What do other tenants and real estate brokers say about the asset manager?
Managing real estate is a business. Good tenant management is not about giving it all away, or letting bad tenants skate on their responsibilities. It's about knowing your tenants, having a consistent plan and executing it. This is how ReDev Properties, a major player in Canadian CRE, has consistently unlocked value and propelled growth in their CRE investments, by providing good tenant management. Having an experienced tenant manager on your team, who understands the importance of good tenant relations, is key to success. Done well, this one factor can improve your investments and grow your bank account