Everyone likes to see real estate go up in value, but obviously, the Global Financial Crisis has decimated commercial property values along with the much more publicized residential market. Restoring commercial values is not something that we can rely on inflation to do by itself, and even with a recovering economy, the headwinds are such that tenant demand will come back only ploddingly. Commercial property provides the medium for the conduct of commerce, so it is both a reflection of and a necessary tool for economic growth. And yes, that applies even to internet commerce, as goods have to be manufactured and (usually) warehoused somewhere.
However, not many in the industry are patient enough to simply wait around for demand for space to reduce vacancy rates enough to forge broad-based rental rate increases. Nor should they be. And while we’re waiting, interest rates are certain to rise, which will put upward pressure on cap rates by the time we get there. Further, over longer periods of time capital requirements and obsolescence may be found lurking at the door, waiting for the unsuspecting property owner to get lazy and forget to fasten that lock just one time too many, so they can jump in and steal profitability.
With that backdrop, the only thing that makes sense to do is to take a much more proactive approach to adding value back to commercial real estate right now. It is an intensive process, insofar as the details to consider seem like an enormous pile of stuff. But taken bit-by-bit, attending to those details will yield the desired result: A property with a competitive advantage in the marketplace.
But we mustn’t misunderstand; gaining a competitive advantage for your property is not the end, it is the means to the end of higher property value. Differentiation of the commodity that is commercial space provides the magnet for demand, and we then must take proper advantage of those opportunities. After setting our properties in the proper position, where the rubber really hits the road is in some of the following areas:
• Leasing and renewal efforts;
• Tenant balance and rollover decisions;
• Income statement management;
• Capitalization and financing;
• Timing of disposition.
In short, adding value involves both proper positioning and aggressive asset management in order to get the ball across the goal line. These are the areas where Triumph has excelled over the years, and we look forward to doing our part to restore commercial property values across the market in the years to come.