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So how is asset management playing out in today’s market? Let’s look at the Portland CBD office market. Pre-pandemic, we were in the midst of what’s been referred to as the “Amenity Wars.” Owners were making huge investments in lobbies, fitness centers, conference rooms—building areas that are extraneous to the tenants’ operations. Landlords perceived those investments as the best way to attract and retain tenants.
But those are costly improvement projects, and through the pandemic they’ve proved to be of little value in attracting and retaining tenants. Beyond that, they compete with typical long-term maintenance and improvements: security systems, parking, elevators, HVAC, etc. When you factor in the family’s goals for a property, you’re faced with decisions—especially if they’re more interested in cash flow than value preservation or enhancement. It’s a “dollars today or dollars tomorrow” situation. So in the last couple years, we’ve spent a lot of time thinking about the best strategy for a given building’s owners.
Here are the crucial elements:
- Spending that’s fundamental to keeping the asset (the building) viable over the long run;
- Specific tenant improvements that enhance the tenants’ leased spaces rather than common areas;
- Maintaining appropriate cash reserves for unforeseen spending needs and as a buffer against pandemic-related loss of revenue; and
- Maintaining a reasonable level of owner distributions.
That’s a lot of potentially conflicting considerations. After extensive analysis, the NAI Elliott team concluded that we should spend on the spaces tenants actually use. So instead of renovating currently unused common areas such as fitness centers and conference rooms, we’re spending money on the leased spaces for new or rollover tenants. And we continue to spend on building infrastructure for the long term. We think this delivers the best balance of long-term viability and short-term tenant retention and new-tenant attraction.
NAI Elliott is the asset manager, the property manager and the leasing agent for many of the managed assets, so the impacts of our decision are easily measured. During the pandemic, our approach of focusing on core building system upgrades and improving tenants’ spaces has produced excellent results in a tenuous market.
As an asset manager, the passion I encounter in working with legacy groups is one of my favorite aspects of the job. NAI Elliott itself is a multigeneration family business, and that perspective, coupled with the personal interest we take in our clients, has been a key factor in both our success and that of our legacy clients.
Thank you for your time,
Lou |
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