To maximize value, property owners should tune out the distractions
Updated: Apr 18, 2020
One of the unique characteristics of real estate as an industry is the particularly wide range of factors that influence every investment decision owners make. All the “typical” business elements are there, like supply and demand, location, competition, regulation and innovation. However, real estate has some unique influences as well. Architecture is an important characteristic, both for building exteriors and interiors. Landscape design matters, too. Urban planning counts, particularly as it feeds into location decisions (check out this great report on corporate location planning from JLL) and the zoning and entitlements process. And of course, tenant experience is also a factor.
This multitude of influences is both an opportunity and a challenge for property owners around the world. The wide range of things that can be influenced or made more effective provide a wide-open canvas that entrepreneurial, ambitious landlords can use to generate value. On the other hand, the reality is that not all of these factors can really be influenced in any meaningful way.
Property investors can always choose where to place their capital, but once they’ve made their purchase decisions they’re thoroughly stuck with their choices.
What this means is that there are some areas where landlords should spend more of their time and effort affecting serious value growth, and other areas that might not be worth that much time and money.
Let’s start with the things that owners can’t really make much of an impact on. First things first: the economy. Broadly speaking, owners can’t do a heck of a lot to influence things like interest rates and the cost of labor. Owners can work towards qualifying for specific tax credits and other development incentives, but barring lobbying action, government policies are tough to impact as well.
Similarly, it’s hard to do much more than simply guide demand. While owners can contribute to things like local tourism boards and events in an effort to drum up interest in particular areas, the reality is that one owner alone, and in particular owners that aren’t titans within the industry, can’t really hope to do that much to build demand where there is none. The same goes for demographics as well as demographic trends in general.
Location is a bit of a trickier one. Property investors can always choose where to place their capital, but once they’ve made their purchase decisions they’re thoroughly stuck with their choices. Property comps, new development, or the fact that a great new bookstore just opened up - or closed...all out of the owner’s control.
So what can owners control? Let’s talk about the biggest areas.
This one is straightforward. It's quite simple (if not easy, per se) for owners to keep their property operating in tip-top shape. Whether that means HVAC, elevators, or even just sweeping and vacuuming, this is a matter of paying staff to handle the work. Of course, it's even easier for owners to lose points with their tenants by neglecting to properly maintain their spaces.
It's a little less straightforward to ensure high-quality marketing goes into a space, but still completely under the owner's control. Whether that means hiring a broker or pounding the pavement themselves, drumming up good business just takes time and money.
It might be a little harder to redesign a property than to ensure it stays well-maintained and freshly painted, but this is also an opportunity for owners to add real value. Perhaps that means modifying unit layouts to "get with the times" or perhaps it means putting gardens in where a concrete courtyard was - it's up to the landlord.
Regardless of what a building looks like, the way tenants interact with their space is something that landlords can ensure is of the highest caliber. That means ensuring access control systems are easy to interact with, delivering a stress-free communication system, and connecting occupants to their neighborhood.
Finally, operating efficiency is not something that is set in stone. Leaky windows can be replaced, poorly-trained staff can be equipped with new knowledge and buildings can be retrocommissioned. While the up-front costs of this type of project can be high, the long-term reductions to operating expenses can make it well worth it.
It's easy for owners to spend their time in the wrong places, wishing that a given competitor never showed up down the block or hoping that more people pop up in town. More often than not, these wishes are fruitless. Real estate is a business dominated by the pragmatic, the utilitarian and the efficient. By spending time only where it really matters, owners can ensure they fall into that category.
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