'SWAT Team' Approach Adds Value in Asset Management

An asset manager’s objective is relatively clear on all properties: increase value for real estate owners and operators through functional strategies. Management of a distressed asset is quite different than that of stabilized assets, however, and requires a SWAT-team mentality and specialized skills.

A stabilized asset is typically fully occupied or nearly full, with tenants who are all paying rents, and a borrower who is paying his or her mortgage. An existing property manager generally hands over a wealth of current information, including up-to-date operating expenses, rent rolls, etc., and the asset manager begins management from there. The process is typically smooth and orderly.

A distressed asset is an entirely different animal. For these properties, the borrower is typically gone, or is losing the property. There may be no property management in place, so obtaining complete operating expense budget, rent roll, or historical data is difficult. In fact, in many distressed properties, lease documents can be incorrect and incomplete, and tenants have been ignored for extended periods of time.

In these instances, a team with expertise in distressed asset management is best able to sort through the pieces in order to turn the property around. Like a skilled SWAT team, the asset management team moves quickly to gather data, assess risks, develop a strategy and complete all tasks.

At Voit, we begin the process by walking each property to determine immediate action items, including liability concerns, deferred maintenance, fire safety problems—anything  that might incur risk for the owner.

Next we launch a process the Voit team calls “forensic accounting.” This is the process of recreating budgets, many times from scratch, and also includes tracking all charges to ensure that costs have been accurately calculated, billed and collected. A firm with specialized skills in distressed properties will be able to accurately generate a financial plan, even without all the information up front.

These plans can be extremely helpful to our clients’ bottom line. For example, Voit recently took on an asset management assignment in Rocklin, CA and quickly identified the construction issues over which the primary 40,000-square-foot tenant had stopped paying rent. Voit managed $300,000 in building construction to complete the work and obtain the certificate of occupancy, negotiated a lease extension with the primary tenant which increased the asset’s value and obtained $67,000 a month in rent for our client.  

The next step is specialized tenant relations. Tenants in distressed properties require a higher level of care and understanding to make up for the neglect they have likely experienced.  

Taking care of these tenants can add tremendous value to the asset manager's clients. The retention of a tenant means lower legal fees and commissions, and less cost for tenant improvements. In addition, by retaining and renewing tenants, we are able to ensure uninterrupted cash flow for our clients.

Another area where specialized management can add value to owners of distressed properties is when there is vacancy in a property. In these instances, the owners are in need of a thorough analysis of capital and leasing expenses to determine if leasing will add sufficient value. Once an analysis is complete, the asset management team can advise the owner whether the property should be re-tenanted, or sold as-is.

When an owner chooses to add value by leasing, an asset manager turns to a brokerage team to identify and secure the right tenant. That means identifying the broker who will be able to provide the best solution for the asset.

For example, a retail property Voit recently began managing in Las Vegas had lost its anchor tenant. The asset managers turned to Voit’s Las Vegas brokerage team, and Voit’s brokers are now nearing the completion of a long-term, 50,000-square-foot lease for a national retailer, which will help stabilize the asset and attract other tenants to the property.

Experience in these specialized skills enhances the abilities of an asset management team to bring value to its clients. The ability to use a SWAT-team mentality to respond quickly and solve problems means that being better equipped to recognize problems before they arise on future projects.  

This expertise directly translates to better management of stabilized assets as well. While some may be tempted to manage a stabilized asset on auto-pilot, an asset management team with expertise in distressed properties is already trained to proactively seek information and anticipate problems. This approach results in increased value for owners of all types of properties.

Susan Doris is an asset manager in Voit’s Sacramento office. She may be contacted at sdoris@voitco.com. The views expressed here are the author's own.

(Visit the Distressed Assets page on GlobeSt.com.)