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Developing management budgets in an era of progressive institutional management.

Property and asset managers have significantly expanded their level of expertise as the institutional ownership marketplace has evolved. Managers have become more sophisticated and are presenting a larger plate of offerings to meet the demands of these savvy owners.

The crunch in real estate has created a situation where a property management team has to be very creative and professionally skilled. Property managers typically rose from the building "boiler rooms," but in today's environment, they are more likely to hold advanced degrees, act as asset managers, and are often called into lease negotiations.

A growing part of our function as ownership services representatives involves budgeting. This complex assignment not only involves property management, but also marketing and leasing, development of strategic business plans, financial reporting, and economic modeling.

The institutional owner's asset managers must take on their building assignments with the owner's specialized goals at the forefront. In fact, properties have an increasing tendency to move from one institutional owner to another, with the goal being a shortened holding period. Many owners may just want a property leased up quickly to increase its value for a near-term sale. So, you must clearly understand the owner's goals before developing a budget.

For instance, the assignment may be tailoring the property into a strongly performing asset that will become a long-term component of their portfolio. Or, perhaps the owner just wants to give the property a facelift which will boost its leasing rates, positioning it for a quick sale. Other times, the assignment may call for a long-term management strategy. But, despite the property's fate, the question the owner wants answered is: How do we maximize the value of these assets?

One of the functions that sophisticated property owners request most often from property and asset managers today is construction planning and supervision. In fact, construction functions can consume the majority of a building's budget. Many facilities that were built in the '70's and early '80's are now in need of facelifts to remain competitive or at the top of their markets.

The first step in determining a budget for a commercial real estate property is to analyze the market's perception of the building and what specific negatives are involved. These negatives are what must be attacked to build the property up in the market's eyes.

For example, a building may have the reputation of being shopworn, usually signifying that a minor facelift is in order. At Plaza Nine, a 110,624 square-foot office building in Woodbridge, NJ, CB Commercial/Hampshire was hired by the building's large institutional owner to perform asset management, property management, construction supervision, and consulting services.

The owner asked us to do a repositioning of the building, and part of that process involved developing, a budget that would accomplish this goal. CB Commercial/Hampshire analyzed the building and determined it needed a lobby renovation, new HVAC system, improved landscaping, new parking lot, and drastically improved signage.

After our project team analyzed the building, we presented the owner with a proposal for a $1.3 million renovation project that was just completed this spring. The parking lot has been repaved, new landscaping was installed, shrubbery has been planted, and the entranceway and lobby was renovated. As building renovations continue, the interior, lobby, and building grounds will he further upgraded and refined.

CB Commercial/Hampshire is also putting Hauppauge Corporate Center in Hauppauge, NY through a major capital improvement campaign that will strengthen its position as one of the premier buildings in the Hauppauge/Islandia market. Included in the capital improvement program is a new interior and exterior signage program, including a new entrance monument, new carpeting, wall-coverings, and improved lighting, a new interior corridor and tenant door design, upgrading of the elevator interiors, and a renovation of the building's 1,500 square-foot health club and racquetball courts. The parking lot was recently resurfaced and the landscaping was upgraded. The 195,000 square-foot, Class A building is truly one of Long Island's best corporate facilities.

Not all clients need to perform major construction on a project to position it to be competitive in the market. At Sylvan Corporate Center in Englewood Cliffs, NJ, CB Commercial/Hampshire was commissioned to reposition the 126,000 square-foot property as one of the top Class A office buildings in the market.

Sylvan Corporate Center has one of the very few large blocks of contiguous space available in Englewood Cliffs and the surrounding Northeastern Bergen County market, at 43,000 square feet, making it ideal for a headquarters or regional office operation for a major company.

To fill this space, we have instituted a marketing program that projects the property as one of the key office buildings in the "Billion-Dollar Mile," a prestigious office submarket just north of the George Washington Bridge. We are relaying the market that the property now has financial stability from an institutional owner with long-term objectives and the wherewithal to complete building improvements and tenant fit-outs, as well as deliver timely commission checks.

CB Commercial/Hampshire also developed marketing budgets for these assignment, anchored by advertising and public relations components, and on-site brokers' open house events. We are also utilizing direct mail campaigns to support our messages about renovations and institutional ownership.

For most building repositioning projects, each of these functions must be considered when developing an overall budget. They will also need to be carried out over a set time-frame, such as six months or a year, and coincide with the renovation aspect of the assignment.

As building assignments become more complicated, property managers will need to expand their level of expertise to include sophisticated budgeting functions. The property management team has to be very creative and professionally skilled in order to accomplish these feats.
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Copyright 1997, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Mid-Year Review and Forecast; real estate management
Author:Moore, Charles F.
Publication:Real Estate Weekly
Date:Jun 25, 1997
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