Once the preferred investment vehicle, commercial real estate in many locations around the country is stressed. Tenant vacancies and the inability to refinance have increased the burden on investors anxious to cut their losses and reinvest in more productive or diversified real property.
There are action steps to consider in breaking up the doldrums of a winter market. First and foremost, stop watching the market! It can be likened to watching the proverbial kettle boil. Your real estate is far more attractive if it can spin off cash flow.
What have you done lately to improve the operating results of your portfolio? Action Step One: Analyze the expenses and tie a discount reward system for tenants that help manage the overhead in a way that benefits you. This shouldn’t sound crazy to you or your tenants. Energy costs can be controlled; outside services like trash removal can be mitigated with a recycling program (managed by the tenants). If a reward system reduces the cash outlay of the tenant, investor and tenant win.
Action Step Two: Review your rent rolls and the tenants that you rely on month in and month out. If you have a vacancy, ask your tenants to recommend a replacement. Yes, a reward is also in order; your success depends on it. Consider rewriting the current lease agreement to keep the tenants that you do have. If you understand their pressures you’ll be better prepared to respond to changes.
Action Step Three: Understand the advantages of Section 1031 exchanges. When activity returns to the market, know where you are going with your investment dollars before the sale. The time to defer capital gains tax is before the transaction is finalized. Once the cash is in hand, the tax is triggered.
Don’t just bide your time, develop a strategy to improve the portfolio and your New Year’s outlook.
