The Business Plan
What is your plan? Are you a “legacy” owner? Do you plan on passing this building to your heirs?
Are you just using the building for a short period and then plan on selling and realizing as much money as possible?
Whatever kind of owner you are, you need a plan…each owner will be distinct and quite different and require some major impactful different decisions
Every commercial property should be managed and optimized to a plan. This is in fact a business plan. It should be prepared once a year and just before the commencement of the financial period to which the building performs. It is an overall Business plan and then a Financial Plan. It should be monitored monthly and adjusted as required quarterly during the year. At the end of the year your good management practices should have brought you in on target to your plan or very close to it. This gives the property a performance plan and annual increases for rental and expenditure performance. Plus, this plan sets you up to reach your goal.
The parts of your plan should include:
Income budget for current and future (3 years)
Expenditure budget for current and future 3 years
Rates and taxes
Repairs and maintenance
All other known expenses in separate categories
Expense recovery budget for existing tenants
Lease recovery provisions
Net rents (existing and targeted)
Gross rents (existing and targeted)
Lease options and expiry strategy for all tenantable areas
All tenant rentable areas
Standard lease practices and terms for new leases
Incentive strategy where necessary on new and existing leases
Capital expenditure strategy for 3 – 5 years
Arrears processes and default monitoring of tenants
Refurbishment plans and timelines
Maintenance plans for ongoing property performance
Insurance and risk monitoring
Any environmental matters and risks
Any workplace health and safety matters and risks
The monitoring of critical lease dates and covenants
Tenant contact plans and progress reports
Expansion and contraction plans for existing tenants
Matching of the plan to the owner’s holding pattern or disposal pattern within their portfolio.
When looking at these things you need to consider all known and expected issues. First and foremost you concentrate on what you have in your building by way of tenants. What size and type of rental can you get from the property? When looking at the potential return of the property from the tenancy mix angle, the cash flow aspects requiring future awareness include:
rent review profiles
The more tenants you have the more complex this gets.
Elements such as these will affect the potential income from the property into the future. Look for the peaks and troughs as well as opportunities in tenant mix and placement.
You should explore the ramifications of all such tenant events, and any others in the relative property leases that impact the owner. In doing this the property is carefully prepared for sales activity, leasing opportunity, and all other future income opportunity.
Seek to minimize major 'dips' in cash flow and the threat of vacancy periods. The lease and the balance of all the leases against each other is therefore a big part of tenant balance.
You would not normally want to have a number of leases falling vacant at or around the same time. This is only done when you want to remix or redevelop the property and hence the only way to achieve that would be through the creation of vacancies.
The best way to consider and construct the multiple tenant activities and plans in a complex property is to graph the tenants in a calendar display over say the next 3 years. You can then see where you need to handle cash flow exposure issues created by lease vacancies and expirees.
The larger the property, the greater the need to have a business plan to consolidate the performance of the property.
The business plan will have ramifications on the design of the tenancy mix.
The business plan will set directions for the property given known demographics of the community and the local businesses.
We believe property ownership is crucial to a broad base economic strength and gives equal power to a wide section of people. It is our goal to help 1,000 companies/entrepreneurs to own their own real estate. To strengthen their financial position, to secure theirs, their employee’s economic future.
We hope this helps you with your investment. If you need help with any part of this process please call on us. This is our specialty.