Reposition Underperforming Property Serving SMBs

Governments are preparing to re-open their economies as vaccinations complete for the US population by the early part of Summer 2021.  Stimulus funding includes a large infrastructure bill to put the public back to work en-masse.  Large enterprises are using a hybrid work environment of on-prem and cloud.  Mid-tiers are planning to engineer it into workplace solutions for the foreseeable future.  Small businesses may be more agile about workplace location to maintain productivity.

If a hybrid work environment and socially distanced layout is likely for the foreseeable future, it prompts evaluation to reposition underperforming properties within your portfolio.  Repositioning includes capital expenses to strengthen attributes of public health, capital improvements to make the property more attractive, updating hard and softscapes, changing the tenant base, rent rates, and lease expirations.  A repositioning plan needs to be planned, prepared on paper, then sharpened to meet investment objectives.  View leases as a portfolio of investments within each property; a property could benefit from repositioning to capitalize on future economic cycles.  (Note: commercial property prospers during economic cycles when it meets the needs of a tenant mix and has lease terms to realize ROI objectives over a holding period.)


Run a financial analysis to assess room to raise rents and whether operating expenses are supporting economic performance.  Categorize each property by asset class (e.g., A, B, C).  Key financial ratios such as operating expenses to effective gross income, breakeven, and DSCR express the economic health of a property.  Identify comparable properties and compare incumbent rent rates to external listings in the space market; this informs how offered and lease rents compete with substitute properties.  Evaluate how the tenant mix helps or harms property operations and performance.  For example, a high traffic use above a second floor could increase maintenance costs of HVAC, elevators and common restrooms, causing capital expenses to upgrade them before projected useful life.  Functional systems and cosmetics per floor should match the impact of use by tenants.

Market Research

A repositioning plan is positioned to succeed when the asset manager and property owner understand how market conditions can impact [the terms of] lease renewals and relets.  Tenants sign leases because the building, lease terms, and landlord relations enable them to reach future operating objectives; when that stops, tenants relocate to other buildings (which may include subletting their space).  Such facts in mind, thorough market research influences the success of a repositioning plan (e.g., competing buildings, concessions, amenities, asset class).  The asset manager should fully understand how a property competes for tenants, retains them, and what upgrades are worth evaluating to improve ROI from the property.

Current, Transitional, Progressive Economics

Its useful to run economic models of income, expenses, debt service, and capital expenses to determine how current, transitional, and progressive economic plans will affect ROI.  The property owner and asset manager should know what a property could be worth every few years if the owner chose to sell to revise returns from the property (and for the portfolio) and/or reward investors with profits from sale.  Substantial investors in real estate expect to be paid for use of their equity; real estate is a fixed investment that pays a planned return over a holding period of years.  Be aware of how your properties will generate returns for equity partners and how long you’ll need use of their money to generate portfolio returns.  (I recommend reading my post on “Efficient Frontier” to optimize ROI per property.)

Repositioning Plan

Maintain as-is.  A repositioning plan could be achieved by talking with your tenant base about their interest to pay more rent if the property were upgraded.  (Note: It’s likely cheaper them to renew their lease and endure a refresh project than invest time and money to relocate.)  These meetings could identify opportunities to change space allocations, the tenant mix, and lease terms.  Completed results could be used to revise economic projections for the property.

Transitional Plan.  A transitional plan could be useful to renew rents to provide time and funding to build a cogent progressive plan.  A fully leased building provides funding for a fixed number of years to plan to refresh a property.  It also gives tenants lead time to prepare to endure the refresh project, carry out strategic planning to change economics, or carry out a relocation project. This plan is carried out via project management to ensure the objective is met on-time and within budget.

Progressive Plan.  This is your capital improvement plan; the objective is to refresh the property to raise its asset class, perhaps add a mix of uses per floor (e.g., retail, healthcare, office, data center, multifamily or hospitality), realize economic performance in the future, and compete for a different class of tenants.  This plan is also carried out via project management, yet timelines and resources are monitored and controlled closely.  The project must be completed on time and within budget; ROI and promises made to tenants depend on it.

Course of Action

A repositioning plan should explain how alternate courses of action could impact ROI for the property.  The repositioning plan should be compared to alternate choices to evaluate which plan to approve for implementation.  This represents decision support to decide which course of action helps the property owner achieve their investment objectives at scheduled future dates.  The plan to approve should be explained as recommended course of action.  Economic projections and supporting data should be presented in Appendices of the repositioning report.

BREG Team can prepare a detailed property management plan to reposition each property of choice from your portfolio; it’s influenced by a certificate in Asset Management from BOMI and a graduate course in commercial property management from Boston University (based on IREM). If you find the above approach useful to properties in your portfolio, please select the About Us webpage. fill out “Request a Consultation” at the base of the page. Enter “Reposition” in the subject line; please include the name, email address and telephone number of you or your executive assistant in the message body; I reply within 24 hours to arrange an exploratory conference call.  Thanks for reading and listening.###

Commercial Space Use: Synergies from Operating Near Customers and Suppliers

Market demand emerging from a recession awaits economic activity to grow and scale each business.  Market demand emerging from a global pandemic requires a healthy society and safety of public spaces to begin growing economics that scale.  With Q22021 upon us, municipal microeconomics await a path to reopen their economy.

Here are key points to assess how your business plans to re-open its work environment:

  • Public health of mass transit or parking services to commute to work;
  • Landlord’s efforts to provide public health and touch-free services to common spaces;
  • Landlord’s efforts to improve and monitor air quality within the building;
  • Leverage cloud services to establish hybrid work environment of on-prem, remote, and flex;
  • Carrying cost of space and flexibility to sublet or divest unused space;
  • Ability to divest space and convert to digital infrastructure to enable productivity remotely temporarily if economic conditions require it.

The goal is maintain business continuity and worker productivity when unexpected external shocks impact business operations.  Securing a lease or buying workspace should not occur in a production vacuum because it often leads to taking the wrong space at terms unfavorable to the business.  Securing the right space at terms right for the business enables it to thrive. 

Broadband and 5G mobile is enabling people to work from anywhere, even workers that reside in remote locations.  That enables business to operate with less commercial space to maintain productivity.  The real estate committee is composed of stakeholders in the space to be secured (e.g. business unit leaders) and a leader to guide activities of the committee (e.g., COO).

The best way to reach that objective is hire a business analyst to evaluate the need and prepare a detailed report that is submitted to a real estate committee that evaluates and oversees the real estate project.  The BA is trained to identify needs, engineer a solution, and present a report how to achieve the objective.  The BA report includes:

  • Location of office with parking or mass transit support;
  • Amount of space needed;
  • when;
  • for how long;
  • estimated monthly carrying cost;
  • how to sublet or divest unneeded space during the holding period;
  • How to divest space if the event of merger or acquisition;
  • Layout and floor stacking;
  • IT needs;
  • Furniture.

The BA report provides support to the committee about how to proceed to locate, negotiate for, secure, divest space, and transfer to remote operations if needed.  The committee uses the BA report to support their decision-making to sharpen company objectives about future space needs.  Space needs typically translate to refresh existing space, renew, re-cast lease to contract or expand, or relocate.  Planning the project in detail facilitates a prepared response (what to look for and how to secure it) vs. an unprepared reaction that disrupts operations (dealing with a series of events).  Before commencing this project, it’s recommended to interview different real estate service providers and landlords to assess how your objectives can be met; a one-page summary appended by a matrix of choices can make talking points efficient.  If the business will lease or sublease, talk the concept out with a commercial real estate attorney; they’re trained to advise you on protections in the lease and important legal clauses.

All the information above becomes decision support to generate a project charter to search for space.  The real estate committee has established the scope of the project and its completion date.  There are co-project managers; one key member of the real estate committee plus the exclusive real estate services provider (a/k/a tenant rep).  Plan for 3-4 weeks of post move-in support to ensure all staff are settled into their space and can work productively.

BREG Team’s web page about Corporate Real Estate Services and [educational] slide file at YouTube discusses our approach; find the link in the web page “About Us”.  I recommend at least 24 months lead time to carry out a space change from 3500sf of office space and 7500sf of industrial space.  A minimum of 12 months to plan and secure the space, 12 months to build it, move-in, and settle in; add time for larger space. If a change of the real estate for your business is on your horizon of projects, I encourage you to contact me to talk it out.  BA reports, test-fits of space and transaction modeling have worked well for BREG Team’s clients since the late 1990’s.  Please click “Request A Consultation” link at the base of the “About Us” web page.  Enter “Synergies” in the subject line; please include your name, email address and telephone number in the message body; I reply within 24 hours.  Thanks for reading and listening.###

Transaction Modeling IDs Best Deal

Topic: Transaction Modeling

Financial projections don’t lie, yet the accuracy of each projection lies with the integrity of the numbers. If you’re a single user of property or space, transaction modeling is vital to negotiating the sharpest deal terms. Real estate options should not be limited to discussions supported by rough back-of-the-envelope analysis. A good deal per market conditions may not meet the economic (and layout) needs of your business. Evaluate your options via formal transaction modeling (e.g., Pro-Calc, ROI-Muse, etc.) that is presented by an established and mature commercial real estate agent. (Note: It’s not likely you would accept accounting or legal advice from an inexperienced CPA or attorney.)

Intangibles (eg. loss factor) and tangibles (eg. free rent, escalations, and layout via Tenant Improvements (TI)) become a baseline [of costs and concessions] to add to relocation expenses. The goal is to compare projection results in a structured matrix to identify deal terms that meet your specific needs. This approach will help you identify deal terms that meet your specific needs, and arrange opportunities in succession of preference. Be prepared to select opportunities that meet your needs AND be prepared to choose none (starting over) if your terms cannot be met. Your real estate agent can suggest enough lead time for the search, secure, and build process to afford you leverage to negotiate for a space at your pace.

Make the Match

Identifying deal numbers reveals the “price” of each [building] choice to decide its worth/fit to your business. Commoditizing each deal positions you to focus on how the attributes of a choice meets the operating needs of your business and staff; prioritize choices to fit your needs. Your commercial real estate agent (a/k/a Tenant Rep) should be working closely with your real estate committee or designated project manager to ensure your space options are aligned with space needs, budget constraints, and legal flexibility of use. (Note: An agent with a QPCR or MCR designation from Corenet Global will refer to this as Enterprise Alignment engineered with a Work Place Solution.)

Deal terms can be sharpened by knowing the owner’s cost to carry the building (i.e. operating, maintenance, utilities, TI costs, mortgage(s)) and softness for legal terms. An established commercial real estate agent who is well-versed with the local market may have these answers. (Note: I identified this for most deals I made; it contributed to negotiating sharp deals (business and legal terms) for each choice.)

Lease vs Sale

Lease. The business terms of a lease are created by crossing the cost and profit needs of the owner, with your budget needs, with the market value for the space. Knowing the owner’s rough property costs and softness for legal terms will help guide you to negotiate the sharpest business and legal terms of the lease. The content of each term sheet drives the financial model of the deal. (Note: renewal options and expansion rights are negotiable; each property owner addresses them to match the needs of their property).

Sale. Whether you’re selling a property or buying one, the most effective means of identifying its market value is to compare its capped NOI to comps adjusted to the property. Rent of all space, less expenses, equals NOI, divided by a capitalization (cap) rate. (Accurate income and expense figures will produce an accurate NOI.) The offered price can be tuned up or down via the cap rate (1 point = 100 basis points). Compare the estimated property value to comparables, adjusting the comps up or down for differences to your property. The result will give you the property’s market value (and its ability to compete with comps). Capitalized Price Estimate

Caveat: When buying income-producing property, ask the seller to represent that the income and expense figures are accurate. Sellers often require buyers to sign a Non-Disclosure Agreement (NDA) before issuing their data; ask the Seller to add that representation to the NDA. (Note: If you’re dealing with a slippery seller, your CFO or CPA may need to negotiate obtaining reliable property figures.) Risk from questionable income and expense figures can be factored by raising the cap rate with a risk premium (e.g., tenths of or full basis point(s)). Your analyst’s model of the data will reveal which property you’re reviewing is worth buying and is the most financeable. A sale contract (and deed) that protects the seller and buyer fairly is critical.

If your commercial real estate (brokerage or investment) business needs a savvy analyst for a lease or sale deal, who can also present with charisma, please contact me to discuss your specific needs. If I can be of help to your transaction, see Publisher’s Corner to learn how to hire me and my read my bio.

Apply Efficient Frontier to Guide Property Returns

MT Ofc



Are you bringing spaces to market for re-let 1-3 months ahead of the lease expiration date?  Are you applying the same lead time for lease renewals?  (Even 6 months lead time puts your property cash flows [and relationship with tenants] at undue risk).  Do you know if market competitive lease terms, or transactional renewals and re-lets are good for property returns?    Consider viewing your multi-tenant property as a collection of investments (i.e. leases) that generate a portfolio return from the interaction of cash flows.

EF clip art

Efficient Frontier

Apply Modern Portfolio Theory (MPT) and Efficient Frontier (EF) to your renewal and re-let efforts to curate preferred property returns consistently. defines EF as follows “The efficient frontier is the set of optimal portfolios that offer the highest expected return for a defined level of risk or the lowest risk for a given level of expected return.  Portfolios that lie below the efficient frontier are sub-optimal because they do not provide enough return for the level of risk.  The efficient frontier rates portfolios (investments) on a scale of return (y-axis) versus risk (x-axis). Compound Annual Growth Rate (CAGR) of an investment is commonly used as the return component while standard deviation (annualized) depicts the risk metric. The efficient frontier theory was introduced by Nobel Laureate Harry Markowitz in 1952 and is a cornerstone of modern portfolio theory.”

View the multi-tenant property of focus as one investment portfolio.  Identify the rate of return your organization would accept from alternative investments to earn on equity invested in the property (e.g. other properties, notes, equity or debt securities); that rate is the opportunity cost of capital (OCC) to discount cash flows of potential rents.  IRR is the annual return derived from the interaction of positive and negative cash flows, assuming profits are re-invested into the property.  As noted above, leases are individual investments whose cash flows generate a trend of IRRs that achieve EF for the property over a holding period.

EF clip art XAction Spreadsheet






The EF can be realized from renewals and re-lets by determining the market value of: renewals, most likely uses of re-lets from basement to rooftop, optimal subdivisions of floors, and exterior signage on highly-visible exterior walls.  Give yourself enough lead time to evaluate whether to change tenants and lease terms to sharpen performance of the EF.  (The lead time enables social responsibility for the incumbent tenant to relocate within a reasonable period of time.)  Projecting the discounted cash flow (DCF) will enable you to identify the rent psf required from each lease over its term to achieve EF over a defined holding period.  The DCF is necessary to factor the rent roll, expense schedule, and debt service to identify equity returns, NPV, and IRR for each year of the investment’s holding period.  Discounting NPV annually at OCC will show EF trend per year from cash flows.

economic cycle

If your organization is a long-term holder of property (i.e. up to 30 years), I suggest viewing EF in cycles of microeconomics that factor lease terms of your anchors.  Lock-in lease terms ahead of declining microeconomic conditions to ride out the cycle until rents begin rising and concessions decline.  For example, storage, retail, loft, office, healthcare, and multifamily spaces each have different market values with different needs from leases.  If your anchor leases are 20 years and microeconomic cycles are 7-10 years, cash flows from anchors are a hedge against market cycles, improved by cash flows from mid-range leases (e.g. 7-10 year terms), and improved from volatility of transient leases (e.g. 3-5 years).

Cmcl Lease

Ensure lease templates match the needs of use categories, yet are fine-tuned to economic and legal terms negotiated with each tenant.  The sum of lease templates per space category contributes to posture the property with inherent strengths and residual risk to support its market value.  This posture plus accurate financial reports showing EF can attract capital markets or buyers, extracting the most market value from the property (to finance or sell).

Prior Planning Guides Efficient Frontier

Re-letting space at favorable market terms may not perpetuate the EF.  IRR can be negatively impacted if space is brought to market within a few months of becoming vacant, causing lost cash flows from systematic (e.g. uncontrollable) forces of supply and demand.  Months may pass when no lease terms or property sale can recover all lost cash flows from vacancy; that state could also bring DSCR too close to NOI, upsetting your investors and lender(s).  In contrast, if renewals or re-lets are planned to factor lead time and market timing to complete them at preferred lease terms, EF is maintained, optimizing returns derived from cash flows (e.g. rent roll, expense schedule, debt service).  (Note that EF helps to improve tax benefits derived from depreciation and interest expense.)

Therefore, factor microeconomic forces of supply and demand to restore cash flows from new leases; add lead time for construction permits, construction, and rent concessions.  Each expiring lease should be evaluated with 6-8 months lead time from tenant’s move-in date.  Add time to secure construction permits, building materials and labor, for lease negotiations, space tours, and space marketing; the lead time could become 18-24 months ahead of a lease expiration date.  Any tenant should know whether they’ll remain in a space two years ahead of lease expiration.  Marketing to re-let spaces should occur when rents are full and robust; tours of units to become vacant are carried out per notice terms in the lease.  The goal of re-let is to optimize cash flows from a synergistic rent roll at lease terms approved to realize EF for the property.


Commercial real estate has evolved into market consciousness as an institutional investment grade option among equity and debt choices available from primary (investment bankers) or secondary (stock exchange) investment markets.  Therefore, factor investment objectives for your multi-tenant property over the holding period, approaching economic management from an asset manager’s perspective.  Realize objectives by determining most-likely uses of space, fair market rent, cost-effective operating costs, low financing and re-let costs.  Model these attributes into a DCF projection, add sensitivity analysis to test tuning attributes.  Optimize your rent roll through anchor, mid-range, and transient leases as outlined above.  Discount annual NPV at the OCC to determine rent needed to achieve EF from the interaction of positive and negative cash flows.  EF is achieved when the rent roll (IRR from cash flows on x-axis) equals risk (lease years on y-axis).  Hold mindshare meetings with senior staff to agree on lease terms the leasing team will secure to achieve EF.  Hand an abstract of the approved lease terms to the managing agent or agency leasing rep to guide them to secure from renewal and re-let deals.  This is a spiral process of steps as renewals and re-lets come due within 30 months.  Re-model terms of the abstract within 12 months of each new microeconomic cycle; the results will position your property to achieve EF from its next holding period of cash flows.

I trust the approach outlined above has been helpful to shaping economic performance of your multi-tenant property.  BREG prefers to take leasing assignments by applying Modern Portfolio Theory to achieve the Efficient Frontier from stabilized cash flows.  BREG can create the Efficient Frontier for your property by applying template spreadsheets in MS-Excel; we will prepare an asset management plan for you to review and edit or approve.  Please click “Request A Consultation” link in the upper right of the screen.  Enter “MPT: Efficient Frontier” in the subject line; please include the name, email address and telephone number of you or your executive assistant in the message body; I reply within 24 hours to arrange an exploratory conference call.  Thanks for reading and listening.###

Portfolio Management: Position Commercial Property for Sale

A natural goal of property sale is to leverage market conditions to optimize value from equity, operating cash flows and/or capital appreciation.  A high-level business analysis of objectives can position the price to attract your target buyers.  Stabilized long-term future cash flows are likely to attract low-cap core buyers.  Expiring leases totaling 25-40% of GRA are likely to attract value-add buyers.  Vacancy of 41% or more or sale of surplus land is likely to attract opportunistic buyers (e.g. property reposition or land development).  Feasibility analysis should factor stakeholder interests of property ownership (e.g. equity invested), portfolio management (e.g. return on investment), and asset management (e.g. value of cash flows).  Analysis should produce 3-4 sale paths that meet yield objectives of equity invested.  The holding period should be limited to the asset’s ability to generate preferred yields.

Sale to a core buyer can occur from stabilized cash flows of moderate to high credit tenants lasting 7-10 years forward.  A peak selling price is likely; future returns are likened to a low-risk bond.

Sale to a value-add buyer can occur from 60-75% stabilized cash flows lasting 5-7 years forward.  The sale price will be a risk premium [over the core cap rate] that factors re-lets to occur within 5 years, costs of deferred maintenance, and economic conditions of the submarket.  A value-add sale could tap capital appreciation to place into an attractive investment opportunity.

Sale to an opportunistic buyer can occur from 59% or more upcoming vacancy, extensive capital improvements to bring the property to modern standards, or to sell banked land for development.  The sale price will be a risk premium [over the value-add cap rate] to factor hard and soft development costs.

The success of each sale choice is dependent on a feasibility study aligned to stakeholder objectives.  Fine points of the listing will shape marketing and closing terms of sale.  BREG can prepare a detailed feasibility study to present to stakeholders; it can also provide asset management services to prepare the asset for sale.  This post outlines that service.

CPA as Trusted Intermediary for Client’s Space Change

Agency Leasing

Users of commercial space need negotiating advantage and a level playing field to perpetuate and/or facilitate their competitive advantage.  Handling space change as a demand-driven commodity often leads to overpaying and gives up legal rights of space use; that can become a material encumbrance on future revenues and operations.  Commoditized space change (e.g. listings, business terms, legal, uses of cash) enters a deal’s lifecycle 2/3 of the way into the transaction.  It enables the landlord [or seller] to benefit well economically and legally over the lease term [or at sale closing].  As space costs rise, a planned space change is more likely to facilitate operating objectives during the occupancy period (e.g. sharp cost, legal flexibility of space use).

Cpa - Certified Public Accountant, Word Cloud Concept 8

Clients expect their CPA [and CFO] to advise how to keep more of the revenue they make.  Unbeknownst to [client-facing] the firm’s practice partners, the CPA team can be leveraged as trusted intermediary to help evaluate feasibility, prepare for, and complete space change.  The client-facing [practice] partner should offer preliminary due diligence services that includes projections of future space costs, occupancy term per trends in [client] revenue history, plus a budget for space change.  The result is Occupancy Cost Ratio (OCR).  OCR suggests revenue as consistent healthy multiple of space costs; what ratio is in the client’s best economic interests?  What do operating trends suggest the term of the lease to be, limiting the impact of space costs on revenue?  If a property purchase is considered, what size should the land and building be to meet operating and future growth needs?  Should a portion of the building be leased until needed to grow daily operations?


The CPA team projects a budget for space change, that plans for rent security [or down payment], tenant improvements, and moving costs, leaving room for unexpected nominal items.  Space change costs can be factored into the change year’s P&L to assess its impact and payback term.  Any tenant improvement costs may be depreciable over the lease term.  The CPA team also explains the tax advantages of property ownership when applicable.

Biz Partners

The firm’s business development executive should build a network of savvy commercial tenant reps to partner with when client’s require space change.  BREG’s 7-Point Service partners with CPA’s to process their client’s space change; the project partnership factors Occupancy Cost Ratio.  Click here to learn more.

Portfolio Mgt: Commercial Real Estate

Investments in CRE  are Affected by Two Factors

One.  Equity.  As equity allocations [for investment] compete with commercial real estate, stock and bond markets, investors are evaluating the returns they could obtain from investing equity into opportunities of interest that receive a larger net amount in the future (a/k/a investment returns).  Investors will compare the returns they could receive from investing in real estate vs. stocks or bonds, and the tradeoffs made to invest in illiquid real estate vs. more liquid stock ownership.   Liquidity enables the investor to end the holding period of an investment to reallocate the principal plus capital appreciation into a more lucrative investment opportunity.

Two.  Basket of Leases.  A large percentage of property value is derived from the discounted value of the lease-up.  Investing in new development could be a 3-7yr hold pending the value of the lease-up or could be likened to a bond by investing in a long-term lease.  Leases within the commercial building are likened to individual investments within a portfolio (the building).  As leases expire, the space may re-let at a higher rental rate, or a lease renewal is made to maintain the stream of cash flows.  Renewals are often made at discount to market value to attract the tenant to remain operating from the building.

Larger cap investors tend to match investment opportunities with the returns they set for equity or equity funds.  Portfolio returns are the result of how equity is placed into the project in relation to NOI derived from dynamics of the basket of leases.  Thanks for reading; please comment or write “Portfolio Management” into the “Request a Consultation” form at the base of “About Us” page.  I will reply to your inquiry within 24 hours. ###

Over-valued Property

If you received a notice of proposed market value for the next property tax year, that attempts to “mark your property to market”, overvaluing your property, it’s likely the proposed market value is based on comparable properties that are incomparable to yours.  You could retain legal services to contest the assessment to lower the market value.  However, if your property needs capital improvements, a cost approach is needed to convince the small claims judge and assessor that the market value of your property should be based on comparable properties less the aggregate value of construction bids to perform basic and reasonable capital improvements.  The following is a multi-point approach to contest your assessment to mark your property to market accurately.

county assessor office 02


Preparing to Contest Your Assessment.  Schedule a meeting with a member of the assessor’s office to discuss the source of the proposed market value and discuss the procedure to contest the proposed assessment.  Take detailed notes; they will guide you to plan to file the grievance claim and how to present it well in small claims court.

Ppty Condit

Assess the condition of your property.  If it was sold, what capital improvements and remodeling would a reasonable buyer make to modernize the property?  (Note: the more reasonable your presentation, supported by fair documentation, the more likely it will be approved.)

Comp Anal

Comparables.  Make an earnest and diligent effort to source comparable properties to yours, whether listed or sold within the past 12 months.  An accurate comparison helps to make your grievance case more reasonable in court.

Const Bid

Cost Approach.  Evaluate your property thoroughly, from top to bottom.  What capital improvements would a buyer make to modernize the property with basic capital improvements.  It would be a good idea if you recruited the help of a friend who is a general contractor for the property type you own.  Spend an hour or so touring the property with them to evaluate what basic improvement would be reasonable to make upon closing on the property.  If it’s a home, what basic capital improvements would a new homeowner need to reside in the home with safety, efficiency, and low cost operations?  If it’s a commercial property, what basic capital improvements would be needed to make the property attractive to renew a lease or relocate to?  Examples are changing old inefficient windows, modernize the furnace, fix broken sidewalks, remodel where necessary, etc.  Some physical parts of your property could be functionally obsolete.

Biz Meeting

Prepare a detailed presentation of current property state, proposed market value, accurate comparables, formal written estimates for capital improvements, and clear pictures of each part of the property you plan to improve.  Pictures help to tell the story of why the market value of your property is less than the assessor’s office proposes.  Take the package to a local lender or mortgage broker to determine what loan would be offered to a buyer.  Those underwriting terms would help prove the market value you’re proposing for your property.


Contesting the Assessment.  The goal of the paperwork you submit and the verbal presentation in small claims court is to prove, beyond a reasonable doubt, that your property would sell for less than the market value proposed by the assessor due its physical condition.  Be prepared to continue the contest through all phases of negotiation; you may need to provide additional information during that time to secure the market value you seek.  Also, be prepared to contest the assessment each year until you have won a market value that matches the value of your property; an annual contest may be necessary to maintain an accurate market value of your property.

I have taken several continuing education courses in property valuation, that education has often enabled me to value a property within 7% of the closing price per sale.  An accurate market value keeps your property taxes fair and enables you to list the property for sale at a competitive price.  If you’re faced with an overvalued property from your assessor’s office, BREG can guide you to prepare to contest the assessment.  Please click “Request A Consultation” link in the upper right of the screen.  Enter “Over-valued Property” in the subject line; please include the name, email address and telephone number of you or your executive assistant in the message body; I reply within 24 hours to arrange an exploratory conference call.  Thanks for reading and listening.###

Real Estate for Health Care or BioTech



Real Estate For Clinical Health Care or Biotech Use

Revenue for a healthcare practice can be uneven, pending results of billing vs collections.

% cash per visit

% private pay

% Insurance collections

% from medicare or medicaid collections; if applicable.

If space changes are planned for your practice, how will your revenue fit with space costs?  Analyze to make the right choice.  Apply Occupancy Cost Ratio, some principles from CAHIMS, and project management via CAPM.  Occupancy alternatives are Lease, Buy, Like-Kind Exchange or Sale-Leaseback.

Cmcl Lease


Leasing space affords relatively (predictable) fixed costs, includes outsourced management (from the landlord); most of the architectural services, fees and construction costs are borne by the landlord, yet amortized over the life of your lease.  Rent (that often includes electricity) is a business expense, reducing income subject to tax.  The business terms of lease (and renewal) should match the occupancy needs of your practice.



Pros: Owning has deductible tax advantages: i) mortgage interest, ii) depreciation, iii) property maintenance and groundscape expenses.  Investment advantages: I) equity appreciation, ii) asset appreciation, iii) adds financial value to your practice.

Cons: I) office space is fixed unless you lease extra space until ready to use, ii) you pay/manage construction/rehab to ready the property for use, iii) unexpected repairs [needing funding and project management] lower profits, iv) months to sell vs move at lease expiration.

Other important space expenses are I.T., phones, furniture, fixtures & equipment (their financing rent, maintenance), gas, electric, water/sewer and trash.

If its cost-effective, property management duties can be outsourced to a fee-based vendor.  The vendor typically explains the terms of their engagement in a Service Level Agreement (SLA). SLAs should be more specific about remediating disputes and what service are not included.  Your business manager should manage the performance of that relationship.


Like-kind Exchange

If moving to sell / buy is preferred, you can defer the capital gains taxes by making a Like-kind exchange; I review the activities necessary to complete this type of transaction.  In general, you must invest all proceeds of sale into the exchanged property within six months of closing on your existing one to defer capital gains taxes from sale.  There are business rules, tax rules and procedures to comply with.

Sale Leaseback

Remaining in your location may be the best choice, yet you want to exit property management to focus on patient care (and practice operations).  A sale-leaseback sells your property to an investor in exchange for a long term lease (7 years or more); business terms of the lease will be negotiated.  You get a big check for your property and flip property management to the investor.  Some doctors have chosen this route over others in 2011 because loans are available for properties supported by reliable rent from creditworthy tenants.


Real Estate Analysis

How would you know which choice is best for your medical practice?  Applying Occupancy Cost Ratio and vendor analysis methods from CAHIMS helps to sharpen your short list of choices.  BREG Health Care (with transactional contributors to the 7-Point Service) offers an unbiased neutral perspective of your real estate costs, free from fees of a transaction.  We review your space operating costs to produce a complete, cogent report to suggest tangible ways to operate lean and efficiently.  The team reviews market conditions, runs draft analysis to present a rough idea of market conditions to consider.  You get a financial picture of your options with strategic advice of which option to choose.  (You decide how to apply the net proceeds of sale to your medical practice.)

BREG has brokered 19,000rsf of long-term leases on behalf of health care providers and landlords.  If BREG Health Care and Biotech can be of help to your business, please click “Request A Consultation” at the upper right of the screen, write “Health Care of Biotech” in the subject line; add your comments, name, email address and direct dial number to reach you; I reply within 24 hours.  Thanks for reading, perhaps we’ll talk with each other soon. ###

Portfolio Management: Commercial Multi-Tenant Portfolio


Whether you’re an investor and/or developer of a local or mid-tier commercial multi-tenant property portfolio, portfolio management is a critical first step towards realizing return objectives for equity of the firm and for investors.  How will NOI, financing and depreciation contribute to generating preferred returns from the asset?  What holding period and reversion is needed to generate preferred IRR/MIRR?  These objectives will be factored into your Asset Management plan; your asset manager will advise your portfolio manager and owner how market conditions will impact portfolio management objectives.  Leases for each property are independent investments [with staggered lease expiration dates] that shape the cumulative IRR for the asset and shape the exit cap rate used for reversion.  The asset manager relies on the property management staff to maintain the integrity of the property, and a skilled agency leasing team to lease-up vacancies and renew leases consistent with the asset management plan.  Roles of key team members are as follows:

Owner.  Sets objectives for portfolio returns, secures locations, sources and secures the lead architect, construction manager, financing, and anchor tenants; evaluates leased properties to invest in.

Corp Advisor

Portfolio Manager.  Is in-tune with investment philosophies and methods, has relationships with private equity investors and commercial lenders in capital markets, and is well-versed with returns generated from alternative investments.  Provides owner with advice about fair market value of assets considered for purchase, advises how equity placement can produce desired returns based upon internal competencies and market conditions.

Asset Manager.  Akin to a COO who creates an asset management plan to realize owner’s objectives, which may include how economic performance of the asset contributes to returns from the portfolio.  Some asset managers specialize at turning around troubled assets within a timed project.  Direct reports are from the Property Manager, portfolio controller, marketing director, leasing team, and property attorney; the Asset Manager manages scheduled audits of property economics by outside auditors.  The asset management plan is the result of extensive analysis of the current state of the property (e.g. physical, economic, and staffing), its SWOT analysis, and how market conditions influence shaping of the asset management plan.  The plan typically includes most-likely uses for vacancies, a capital improvement project, a marketing plan to lease-up the vacancies, a tenant improvement allowance, rent concessions, a tenant retention plan, costs for marketing and brokerage commissions.  The asset management plan is measured for performance at scheduled intervals to identify strengths to maintain or sharpen, and gaps to close.  The asset manager maintains a consistent relationship with the portfolio manager, yet as needed with the [busy] owner.

Property Manager. Manages all physical operating activities of the property to maintain the physical integrity of the property and its daily economics.  They follow the asset management plan to reach owner’s objectives for the property.  Is hired by and reports to the Asset Manager.

Marketing Director.  Responsible to create a marketing plan and materials to market vacancies, promote promotional lease transactions, and property messaging to retain tenants.  Assists the Asset Manager as internal service provider.

Leasing Team.  Responsible for sharp and current knowledge of the local space market, where to look for prospective tenants, and handles lease renewals.  The team leader is a public-facing, approachable personality, bridges owner’s objectives with tenant’s needs for space via lease negotiations, and coordinates space planning services with the building space planner.  Is hired by and reports to the Asset Manager.


Asset performance occurs by buying at a mid to high cap rate for the current 12 months of income, identify a plan to improve the property physically and economically, secure financing at terms favorable to the cash flow, upgrade and relet the property, choose to keep it, or sell in the future at a lower cap rate of NOI to realize yield goals.  (Stabilized income is reflected in a lower risk cap rate (e.g. exit cap rate).  Some developers sell a percentage of the accumulated equity in the project a few years after the cash flow is stabilized to re-start the process with a new project.

MT Ofc

The success of each asset is dependent upon aligning owner’s objectives with market conditions, interpreted by the portfolio manager and asset manager.  Mutual agreement about asset goals facilitates economic success.  Holding periods exceeding 7 years may require the asset management plan to be revised to re-align SWOT of the asset with market conditions.

Whether your investment house is considering acquiring new assets, upgrade owned assets, or exchange an asset for a different one, BREG can assist as portfolio manager, asset manager, investment sale agent, or team leader of your leasing team.  Please click “Request A Consultation” link in the upper right of the screen.  Enter “Portfolio Management” in the subject line; please include the name, email address and telephone number of your executive assistant in the message body; I reply within 24 hours to arrange an exploratory conference call.  Thanks for reading and listening.###