There are several ways that a commercial real estate investor can increase the value of his property and make his commercial real estate more profitable.
Increase Rents
– Increase rents below market when leases expire: Review the market to determine the average rent; if it is below average for your property type, increase rents accordingly. Increase rent over time for existing tenants; however, when renting a vacancy, you charge at the new increased rate. You can check rental rates online by searching for “rental rates” or by contacting a local property manager or leasing company in the area.
– Expand existing tenants into a larger space
– Improve tenant creditworthiness by filling vacant space (improves cap rate) by marketing vacancies to regional or national tenants
Reduce operating expenses
– Compare your expenses with the market: review all your expenses carefully and analyze them by unit and cost per square foot, since these are industry standards. Compare each expense with your other properties. Talk to your property manager or a local experienced property manager to compare with other properties in the area. If some of your costs are higher than the standard, you know you need to explore ways to lower them.
– Competitive offer of all your contracts, including insurance.
– Convert gross leases to triple net leases
Make Property Improvements
For office buildings, shopping malls, and industrial buildings, cosmetic improvements can make a big difference and can allow you to increase the amount of rent you charge. Refresh the exterior, upgrade the foyer, or repave the parking lot to enhance the property.
For apartment buildings, you’ll get more out of sprucing up the interiors, installing new appliances, or doing a landscaping facelift.
Add services or explore income generating ideas
Amenities you could add:
– concierge services
– A gym
– a conference room
– Business center with fax and photocopying
– a coffee bar
Income generating ideas include:
– rent your roof space for cell towers
– adding a coin-operated laundry room and machines to an apartment complex
– rent out your common areas for art exhibits, car shows, or kiddie rides.
property taxes
Get an appraisal for 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 get 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 managers or leasing agents can give you ideas on how to increase income, reduce expenses, and give your property a fresh new look.
Zoning or change of use
Changing the use of a property can significantly change the value of the property. Examples are:
– change an industrial space to a commercial use
– reform a hotel to apartments
– adapt regular office space to medical office space
Make tenants pay utility costs
If you’re paying for electricity, gas, and/or water use in office buildings or apartment complexes, consider separately metering or submetering utilities and passing the costs on to tenants. If you have a furnace, you may want to install baseboard heating in each unit so tenants can control their heat and pay for it.
Divide your property
If you own land, dividing it into smaller parcels can earn you more per acre or square foot. Additionally, you could build roads, add utilities, or title the property, all of which can substantially increase the value of the property.
Negotiate existing leases
If you are trying to sell the property or borrow money on the property, it is better 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.
