Increasing Cash Flow in a Declining Lease Market

INCREASING CASH FLOW IN A DECLINING LEASE MARKET

By Brian O'Brien

Times are tough, lease rates are trending downward. It is imperative that commercial property owners look for non-traditional ways to keep your properties performing at their peak maximized value. Here are a few tips to potentially add value without necessarily increasing rents:

Market Review: Re-examine your local market and get ahead of potentially declining market. Find out the most up to date comps in your market area to detect if there is a declining trend. You may want to re-negotiate with existing tenants early then waiting for their current leases to expire. Tenant retention is extremely important in a challenging market. Vacancy is expensive, not only are you potentially losing income stream but you are picking up additional operating expenses, tenant improvement dollars, and leasing commissions. “RETAIN IS THE GAME”.

Investigate a tax abatement: Is your property assessed accurately for the current market conditions? Don’t wait for a municipal Assessor to act to lower your assessed value, probably not going to happen. In most cases the Assessors are not working off current market information and it is important to keep abreast of your real estate taxes on an annual bases. A proper tax abatement specialist may be able to know only get you relief in a current year but may also go back to a previous year and years going forward.

Cost Segregation Depreciation: If you paid approximately $750,000 or more for your property you may realize significant savings and/or rebates through accelerated depreciation tactic called Cost Segregation Depreciation. Cost Seg is a form of depreciation where the components of a building are analyzed and broken down by individual depreciation schedule vs. standard straight-line depreciation method. The theory behind cost seg is that different building components have different life cycles. Carpets, HVAC equipment or moldings may have 7, 15 or shorter life cycles that traditional bricks and mortar. Thus, the property owner may accelerate the depreciation leading to significant rebates and or expense deductions, increasing your depreciation and increasing your after tax bottom line. Firms specializing in cost segregation can advise a property owner if it is feasible to do so.

Building Maintenance and Operating Cost Review: Have you re-bid your vendors lately? Have you explored new ways to operate your building more efficiently? Is your building energy efficient? Are there programs from your utility companies or tax incentives to upgrade your mechanicals to better energy efficient equipment? Now is the time to a conduct a top to bottom review of your building expenses and see if you r leaving anything on the table by not running your property at it’s maximize efficiency.

Financing: Interest rates are at historic lows. It is time to review your financing. You may be able to get a better rate, stretch your current amortization Schedule for better monthly cash flow. Reassessing your current financing for not only your interest rate but additional term and conditions could be another way to maximizing your bottom line.

These are 5 quick points a property owner can take, to ensure they are maximizing cash flow.