| FEATURE ARTICLE, SEPTEMBER 2010
ON TOPIC: PRESERVING ASSET VALUE
Lynn Davis
In true Texas spirit, the state is leading the charge out of the recession toward a recovery. Texas commercial real estate is in an enviable position of being ahead of the national curve in terms of market stabilization, but there are still untapped opportunities for Texas property owners to improve the value of their assets in order to better position themselves for growth.
Commercial property owners may have a tendency to work with the different elements of real estate and/or handle the various milestones of building or property ownership in a discrete manner, independently of one another. But any commercial real estate owner can maximize the value of his assets by taking a more integrated solutions approach.
Acquisition
An investor’s decision to acquire an investment property can be complicated, time consuming and expensive. In large part, this is because there are so many disconnected moving parts in the transaction process, from defining investment criteria and sourcing investment options to post-acquisition investment performance. Typically, these involve siloed business lines lacking real-time reciprocal information exchanges, which tend to frustrate the acquisition effort despite well-meaning service providers.
In contrast, the integrated approach promotes providing immediate and complete information directly to the investor with one-touch point accountability. Capital markets professionals are seamlessly integrated into a unified platform shared by leasing, property management, research and analytics, and marketing professionals, each openly communicating with the other. The siloed approach no longer serves the raised expectation and performance bar of today’s recession era buyers.
Managing Operating Costs
After the acquisition...game on! Good stewardship is an ethic that compels good decision making in growing asset value and preventing loss while on an owner’s watch. It’s a game where cash-flow performance drives value, whether its moving behind tax shields, leveraged or not. Since owners leverage cash flow through capital markets, leasing and property management techniques, it makes sense to distinguish an integrated approach.
An integrated property management approach shifts the property-management view from the playing field to 30,000-square-foot optics, where the property management team sees its shared role on the larger team moving the asset downfield against the clock to the financial goal line. Subtle moment-to-moment actions, such as turning off a light switch in a vacant space or establishing a rapport with even the smallest tenant, take on a larger purpose. There may not be a line item for this effort, but it sure does increase revenue.
Increasing Revenue
Leasing is all about increasing revenue and cash flow through a pro-active, sense-of-urgency hold strategy. It’s all about connecting owners to compatible tenants. In good times and not-so-good times, leasing has always been the rallying cry shared by Texans with owners across the nation and around the globe. The distinction in an integrated approach to leasing is quite simply to leverage the asset team’s shared goals and stakes into a game winning performance.
An integrated asset team will proactively seek opportunities to add value at all operating levels and will offer direct and immediate access to real-time market information across all discipline fronts. A truly collaborative, globally integrated leasing team delivers awareness and access to every leasing opportunity across all covered geographies and time horizons.
Disposition
In an integrated solutions scenario, the capital markets team works closely with the owner to set realistic goals and strategies for the acquisition. The entire asset team then deploys all of its collaborative resources to fulfill those goals throughout the holding period and collectively influences all decisions with real-time market research and analytics. Key performance indicators are either met or exceeded, giving confidence to an owner in its decisions.
Texas leads the way to the recovery because of strong fundamental economics that preemted the volatility felt between the East and West Coast markets. Not only are the market waves shallower, but the swells are not as high. There is a price for this investment-safe harbor, namely that owners and investors pass on gains from larger upswings. To compensate for that loss, the idea is to exploit the opportunities to acquire assets, manage and grow cash flow and compete that effort in the market.
Success depends on game-changing collaboration across service lines with real-time reciprocal communication in an open and trusting culture. Participants must be stakeholders working together in an intersection of common goals with the owner.
— Lynn Davis is senior vice president with Jones Lang LaSalle in San Antonio.
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