The underlying principals of commercial real estate investment are pretty simple, you own a building, and tenants pay you rent to lease space from you.
But what goes into being successful from an asset management standpoint can vary drastically with commercial properties and the property types that go with them.
On one side of the spectrum, you have an absolute triple net retail building leased to a single national retailer, or maybe a large single tenant industrial building leased to a Fortune 500 company. These types of assets are the closest thing you can find to a “coupon clipper” in the commercial real estate business.
Since the buildings are under an absolute NNN lease structure, the tenant is responsible for everything involved with the real estate. If there’s a roof leak or an electrical issue, the tenant takes care of it. If the dumpster is overflowing, it’s the tenant’s responsibility.
Many times, in absolute net situations, the tenant hires their own vendors and signs their own service contracts. Additionally, if the building is leased to a major corporation, the rent usually gets paid in a very timely manner. And since there is only one tenant, there is even less management intensity. These assets are easy to run remotely and are the “municipal bonds” of the commercial real estate business.
On the complete other side of the spectrum, lies the large multifamily apartment building. Not only do you have, say, 300 tenants to deal with, but you’re also now dealing with people’s homes. You have tenants in your space outside of normal business hours. An asset like this is incredibly management intensive. You’ll need boots on the ground, an entire on-site staff. You’ll need a maintenance team, a property manager, a leasing and marketing team to be sure all vacancies are being properly shown and filled. You’ll probably need a full-time bookkeeper as well just to handle all of the financial transactions for the asset.
And with all of the staff, comes the intricacies of managing a staff and giving them direction and leadership. It goes without saying, that a “Class C” garden apartment building in the United States is also going to be more intensive than a “Class A” building in the US.
So that’s what the spectrum looks like with commercial buildings. All other types of assets (office buildings, industrial spaces, etc.) fall somewhere in between. Here are a few other factors that contribute to an assets management intensity:
Amount of Tenants
Amount of Financial Transactions
Age of The Building
Commercial or Residential
Vacancy Downtime Factor
Location – Commercial real estate markets will have different needs.
Just because an investment property is more management intensive, certainly does not make it a bad thing. In fact, having a very effective real estate asset and property management system for highly intensive hands-on properties can be a huge competitive advantage for a real estate firm.
In closing, managing commercial real estate runs the gamut from the property owner “clipping a coupon” each month, to requiring the full-time efforts of an entire staff of people. Whatever your strategy or style of investing is, it is important that you have a game plan and the necessary resources to be successful with each asset.
First National Realty Partners is one of the country’s leading private equity commercial real estate investment firms. With an intentional focus on finding world-class, multi-tenanted assets – including service-oriented retail shopping centers – well below intrinsic value, we seek to create superior long-term, risk-adjusted returns for our investors while creating strong economic assets for the communities we invest in. Whether you’re just getting started or searching for ways to diversify your portfolio, we’re here to help. If you’d like to learn more about our retail investment opportunities, contact us at (800) 605-4966 or send us an email at firstname.lastname@example.org for more information.
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