1 © 2006 by BOMI Institute Sustaining, Protecting, and Improving Property Value

© 2006 by BOMI Institute 1

Sustaining, Sustaining, Protecting, and Protecting, and

Improving Property Improving Property ValueValue

Sustaining, Sustaining, Protecting, and Protecting, and

Improving Property Improving Property ValueValue


Module Highlights Specific areas of PM

accountability How to make a case for PM’s

financial contributions Significant PM insurance and

liability issues Legal and regulatory trends

relevant to PMs


Learning Objectives Understand how ownership

objectives drive property value strategies and tactics (recap)

Understand PMs’ fiduciary responsibilities to ownership.

Explain how PMs can minimize property liability and protect ownership’s legal position.


Typical Business Strategies Hold property for long-term

gain Prepare property for sale Prepare property for disposal Maintain income stream in a

soft market


Business Strategy Impact Long-term gain:

Use maintenance to retain valueMix of income and capital

appreciation Local market share

Very competitive rental ratesGenerous incentives to sign


Business Strategy Impact Sale:

Curb appeal, great lobby, amenities

Good income stream/cost control Disposal:

Minimal maintenance & upkeepSpend only to find a buyerLittle incentive to retain tenants


Business Strategy Impact Maintain income stream in soft

marketTenant retention is keyTight control of costsStrong incentives to land new

tenantsMajor concessions on lease terms


Typical Financial Tactics Minimizing operating costs Assigning costs to capital or

operating if law provides options


Minimizing Operating Costs Energy (biggest wildcard)

Ability to switch from one fuel source to another, e.g., electric to natural gas

Preventive maintenance Especially on HVAC operating

equipment


Capital or Operating? Capital cost

Depreciated items are non-cash tax deductions, but…

Reduce overall asset value and balance sheet

Operating cost Reduces taxable income Does not affect balance sheet


Discretionary Items Parking lot repairs Major HVAC repairs Security system repairs Lighting system repairs Anything that could materially

extend the value of the property


PM’s Fiduciary Accountability Developing a property budget that

fulfills ownership’s objectives, based on mutual estimate of probable market conditions

Conforming to the budget, once agreed

Informing the owner if events or market changes require adjustments

Providing the owner with information about potential risks and liabilities to make informed decisions


PM’s Financial Posture

Steward of the cash flow Steward of the asset Steward of the landlord-

tenant relationship


Manager of Cash Flow

Track expenses against budget

Revise/update projections Competitively bid services

where appropriate


Steward of the Asset Practice active maintenance.

Preventive and predictive Responsive NOT reactive Make a financial case for avoiding

deferred maintenance

Suggest improvements to maintain market competitiveness. Lobbies, curb appeal, elevator cabs


Steward of the Landlord-Tenant Relationship Know the financial obligations

of each lease.

Convey fairness in all transactions.

Know where the owner is willing to exercise give-and-take.


How a PM Contributes and Influences Value Generating an income stream

Rent generation & collection Tenant retention Controlling expenses

Creating asset value Tenant build-out

Retaining asset value Astute preventive maintenance Predictive maintenance


PM Financial Contributions

Benefit Direct Contributions Indirect Contributions Creating Residual Value

• New construction• Improvements• Additions and upgrades• Sale of an asset with profit

• Good market strategy• Strategic property planning• Creating demand for a property

Retailing Residual Value

• Preventive maintenance• Responsive maintenance• Legal compliance

• Accurate budget forecasting• Housekeeping• Providing quality and durability• Skillful contracting

Generating an Income Stream

• Collecting rent• Parking revenue• Sales of ancillary services• Tenant retention

• Controlling expenses• Lease expense caps• Favorable tax posture• Balanced cost control


PM Negligence The most common liability for PMs The classics:

Slips and falls Security lighting Snow removal

Newer arrivals: Deferred maintenance Terrorism Tenants’ right-to-know provisions for

hazardous materials


Guardian of the Owner’s Legal Position PM actions demonstrate good-

faith efforts of owners to comply with regulations.

PMs act as informal advisors to tenants on their legal obligations. OSHA, worker safety & hazards Fire, safety codes Evacuations and emergencies


Litigation

PMs are instrumental in diffusing issues before they become litigious.

If you reach the stage of litigation, business value has usually been lost.


Contractual Remedies vs. Management Reality Many legal remedies in contracts provide

owners legal rights that don’t make practical sense.

Example: Supplier cannot provide raised flooring on time. Contract calls for liquidated damages. Rent start date cannot change; tenant must

move in. PM decides to pay more to get flooring from

another source, rather than pursue legal action, so tenant can move in on time.


Hot-Button Issues Indoor air quality

VOCs, headaches, allergic reactions

Asbestos Isolating work areas

Mold Responsiveness to tenant concerns

Communication of information that responds to tenant concerns and fears


Overall Legal Trends for PMs Increased responsibility as

guardians of public welfare and safety Safety in parking garages Escalator accidents

Movements at state level to license PMs; professional liability


Thank You for Coming!

Documents

1 © 2006 by BOMI Institute Sustaining, Protecting, and Improving Property Value