Troubled Property? A Look at Past Solutions

Toward Better Management
 
By learning from history, property management professionals can better navigate the current troubled waters plaguing the industry. One key may be better educated property managers, according to the Institute of Real Estate Management (www.irem.org).
 
“With more and  more distressed commercial real estate assets expected to come on stream as a result of serious liquidity and other problems, the need for superior real estate management, marketing, and leasing skills – and a proven record of performance – will become increasingly and acutely apparent,” said IREM® President Pamela W. Monroe, CPM® in Chicago, Illinois.  “Our nation’s economic viability requires real estate management professionals with top-notch credentials to inject value back into distressed properties by protecting income streams, controlling expenses, positioning and/or repositioning them to deliver the best possible ROI and, ultimately, to command the best possible price when they are sold.”
 
Observations from Past Property Predicaments

Monroe reports that IREM recently convened a group of some of its volunteer leaders who experienced the real estate market turmoil of late 1980s and early 1990s and asked them to share their observations relative to today’s financial crisis.  Here are some of their top-line thoughts: 
  • The culprit that triggered the S&L crisis of the early 1990s was overbuilding, too much supply and not enough demand.
  • Today’s culprit is excessive leverage and unrealistic appreciation expectations.
  • While real estate is cyclical, not all property types are at the same place in the cycle at the same time.  One property type may be doing well while another may be suffering from overbuilding.
  • The starting point for managers when dealing with distressed properties, no matter what the circumstances, is to analyze them for best use – this could mean short- or longer-term – based on the owner’s goals. 
  • The best resolutions are based on the specific property and specific location; there is no room for generic solutions.
  • The end-product of comprehensive research and analysis should be a management plan that carefully details all aspects of the property and includes an analysis of marketplace dynamics; identification of the property’s problems and challenges; identification and analysis of possible solutions; and, finally, a recommended solution that reflect the owner’s goals.
  • The “devil is in the details” and thinking “out-of-the-box” is essential.
Highly skilled property managers know how to “salvage, maintain, reshape, and remarket” troubled real estate assets. It is possible to resurrect distressed properties, provided one has the skills, smarts, and ingenuity to do so.

By Rita Henry
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