How to make commercial real estate profitable
There are several ways that a commercial real estate investor can increase the value of your property and make your commercial real estate more profitable.
Increase annuities
– Increase in below-market rents when leases expire: check the market to determine average rents; If it is below average for your property type, increase rents accordingly. Increase rent over time for existing tenants; however, when renting a vacancy, charge at the new increased rate. You can check rental rates online to search for “rental rates” or by contacting a local property manager or leasing company in the area.
– Expand existing tenants to a larger space
– Improve tenants’ creditworthiness by filling vacant spaces (improve cap rate) by marketing vacancies to regional or national tenants.
Lower operating expenses
– Compare your expenses to the market: Review all your expenses carefully and analyze them by unit and cost per square foot, as these are industry standards. Compare each expense with your other properties. Talk to your property manager or an experienced local property manager to compare with other properties in the area. If some of your costs are higher than standards, you know to explore ways to lower them.
– Competitive offer of all your contracts, including insurance.
– Convert gross leases into triple net leases
Make improvements to the property
For office buildings, shopping centers, and industrial buildings, cosmetic upgrades can make a big difference and can allow you to increase the amount of rent you charge. Upgrade the exterior, upgrade the lobby, or re-pave the parking lot to enhance the property.
For apartment buildings, you’ll get the most benefit from sprucing up the interiors, installing new appliances, or doing a landscaping facelift.
Add services or explore revenue-generating ideas
Services you can add:
– concierge services
– a fitness center
– a conference room
– business center with fax and copier
– a coffee bar
Ideas that generate income include:
– rent your roof space for mobile phone towers
– Adding a laundry room and coin-operated machines to an apartment complex
– rent their common areas for art shows, car shows or kiddie rides.
Property taxes
Get an appraisal on your property and appeal the appraised amount if the appraisal is less. Hire a real estate attorney who specializes in tax appeals to help you, or hire one of the companies that get paid based on the savings they make for you based on the appeal.
Change management or leasing companies
Sometimes all it takes is looking at your property through a new set of eyes. Different energies or philosophies can add value to your property. New leasing managers or agents can give you ideas on how to increase income, decrease expenses, and give your property a fresh, new look.
Zoning or change of use
Changing the use of a property can significantly change the property’s value. Some examples are:
– convert an industrial space into a retail use
– renovation of a hotel to apartments
– fit the usual office space to the doctor’s office space
Make tenants pay your utility costs
If you are paying for electricity, gas, and / or water use in office buildings or apartment complexes, consider separately measuring or sub-measuring utilities and passing the costs on to tenants. If you have a furnace, you may want to install baseboard heating in each unit so that tenants can control their heating and pay for it.
Divide your property
If you own a piece of land, dividing it into smaller parcels can generate more per acre or square foot. Additionally, you can install roads, add utilities, or authorize the property, all of which can add to the property’s value substantially.
Negotiate existing leases
If you are trying to sell the property or borrow money for the property, it is best to have long-term leases. A five- or ten-year lease with rent increases is worth more to investors and lenders than a one-year lease. Renegotiate or extend existing leases to maximize the value of your property.