The Nasty World of CRE Grunge

There is a lot to be said for quality. There is a lot to be gained by a commitment to quality property management.

In the world where being grunge is often applauded and rewarded, I remain convinced that being tacky is a cultural statement about one’s point of reference.

Is it just me or have you also noticed some of the creeping influences of grunge within the world of CRE?

Of late, I’m becoming more acutely aware of the relationship between cracked stucco, peeling paint, potholed parking lots, leaking roofs and the level of an owner’s commitment to creating and maintain property value through capital improvements and dedication to property management.

I See Ugly Properties

My recent observations of properties in the metro Phoenix, Arizona commercial real estate market have led me to the conclusion that something grungy is happening. Once pristine properties are now left to the elements. The same grunge is becoming more and more apparent in the Prescott, Flagstaff and Sedona, Arizona commercial real estate markets.

There appears to be a deliberate draw-down on capital commitments and property management. It’s obvious, it’s annoying and it most certainly can impact a commercial property’s actual and perceived value. Capital is tight and owners are hesitant to spend.
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Freddie’s Back and He’s Your Tenant!

freddie krueger 200Owning commercial investment real estate requires a lot of hard work, discipline and knowledge in order to create a successful investment.

Tenants come in two forms, good tenants and not-so-good (okay, go ahead and say it, “bad”) tenants. There seems to be no middle ground.

Tenants are capable of odd if not bizarre behavior and often they succumb to the same economic pressures impacting owners and landlords. Pressure can create abnormal responses in any person but when those pressures find their fundamental genesis in the economy, expect surprising tenant behavior.

Stories I have heard or read about lately make some tenants sound like Freddie Krueger…a bad Nightmare on Elm Street.

How to Handle the Next Nightmare. Whether on Elm Street or a strip mall in Atlanta, if you are a commercial owner, landlord, broker or property manager, you are going to eventually meet Freddie and have a nightmare tenant on your hands.

Dealing with Mr. Krueger begins with tenant screening and qualifying. If there was ever a precept that was violated by many owners during the market run-up from 2000-2006, it was qualifying tenants.

However, even after qualifying tenants economic and other factors can erode the performance of any tenant, creating desperation and a propensity to go sideways.

Owners can reduce but not totally control the “Freddie effect” by bearing down on the up-front analysis of the tenant. Controlling a future nightmare on your street begins with qualifying the tenant but it does not end there…read on.

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