All Forum Posts by: Mike Giudici

The CRE market cycle

I think that the asking price is certainly an indicator of where the current owners mind is at with what they can get for the property.

If you are looking to spend half a million dollars (or somewhere in that ballpark with your offer) I would shift my efforts to the New Center or Corktown areas. They haven't caught on quite like Mid Town has...yet, and are more affordable. They will also have more of a potential upside than anything around the area of Greenfield and Fenkell.

Are the leases NNN? Are they personally guaranteed? If they are guarenteed, are the tenants collectible should they default?

I took advantage of 179D a few years ago on a boiler replacement on a 60k SF office building.  It's a one time incentive, so if your going to use it, I would recommend taking a multi faceted approach (hvac, building envelope, roof, lighting, etc.) and maximize the PSF return on the incentive rather than just using it for a small one time project.

Keep in mind you will need to hire an engineer to certify your results and sign off on the final paperwork.

 you can combine 179D projects with local utility rebates for even better returns.

Good luck.

asking price?

Most commercial PM firms would charge a minimum flat fee or a percentage of cash collections, typically in the neighborhood of 2.5-5%. Keep in mind that they would be performing all management functions, including the ones you are not interested in doing, for this fee. Additionally, there may be additional construction/project management fees, administrative fees, etc. on top of the base management fee. 

On a property of this size I would suggest trying to partner with an established management firm so you can learn the business until you get your arms around this project. In my opinion, going into this with little to no commercial property management experience is not acting in the best interest of the ownership and is a way to quickly loose the trust and confidence of your friends and acquaintances.

A few questions to get started:

How large is the property (SF)? 

Current occupancy rate?

Why did you think the fees were too high before, and what duties was the previous manager doing (or not doing)?

Do you have working knowledge of commercial office building operations and systems?

You can do a basic "oil and grease" contract fairly Inexpensively or "all inclusive" contracts for a little more. How old are your machines?

In my opinion, it's better to have an elevator under a maintenance contract of some type rather than none at all. Elevators can be very expensive to repair and sometimes simple maintenance can catch small issues before they become big problems. 

I would also check to see if your state has any minimum maintenance intervals in addition to to the required annual fire service fire and load/no load testing requirements.

I agree. An absentee owner without a strong Property Manager is never going to realize the full potential of his/her investment.

This depends on the services you are receiving. If you want a "Property Manager" who strictly collects rent, answers phones, and calls contractors - then your strait commission model is fine.

A property management firm that offers additional services (in house engineering/maintenance, construction, leasing, accounting, financial reporting services, etc.) in addition to the basic property management functions mentioned above will more than likely have a fee structure that includes additional fees that are above and beyond the base "management fee".

To the OP - Are you surprised to see the fee in general, or do you feel it's an unreasonable/unjustifiable fee period?

Very few tenants fail to pay the shortfall, especially if it's reasonable and legitimate. Mom and Pop Tenants will be the most likely to give you problems and you'll have to deal with these guys one on one, situation by situation. As you mentioned above, favorable recourse can be difficult.

While predicting exact increases for taxes, insurance and utilities can be difficult, it can be done with a reasonable level of accuracy. 

It's good to hear you regularly petition your taxes and shop insurance annually. Have you tried looking into capital type projects that will help reduce energy consumption (LED light fixtures for example)? Depending on the lease, sometimes you can pass these "energy saving" capital improvements through to the Tenants. These types of improvements can also be subsidized in whole or part by utility companies and can be eligable for federal tax credits/deductions.