The budget season for 2022 is fast approaching. For some property managers it brings anxiety and dread, and others thrive on preparing their budget. Regardless of which category describes your situation, it is clear that we may need to change our thinking and our approach after weathering the effects of the pandemic the last two years. Throughout these last two years, the face of real estate has changed. Owners of office and retail are looking for ways to bring tenants and activity back, while owners of medical and industrial are looking for ways to better partner with their tenants to provide the support they need during the rush of activity they are incurring.

Depending on which sector of real estate you manage, the challenge faced as a manager determines how you can add value to your owner. To do this, you must be willing to let go of what has worked in the past and be open minded to new possibilities. To begin making that change, there are a couple things you can do.

Survey your Tenants

This is a great starting point. Most management companies provide some type of survey tool that can be used. Often, this is a feature in your work order system. If not, a small investment in something like SurveyMonkey is worth its price. Learn where your tenant is headed in the future and what their needs are. For instance, in office, how many employees are still working at home? Will they be bringing them back? Will they have a hybrid work model? What amenities are important to them? How can you help support them?

In medical, you want to know their plans. Will they need additional voltage for upgraded medical equipment, additional sanitization, or clean building certifications?

In retail, you may also want to ask some questions. How many employees do they have coming in? Have they reduced, increased, or changed their product?

For Industrial tenants, has their product changed? Do they need more space? Do they need assistance maintaining their building?

There is an abundance of opportunity to provide services the tenants are responsible for and collect an admin fee for this service. It is a win, win for both the tenant and the owner. Be creative. There are many questions to ask as you get to know your tenants needs.

Know your Competition

Consider visiting other buildings in your area. What are they providing that you are not? How can you make your building the building of choice? It is hard to make those decisions if you are not visiting other buildings. How full are their parking lots and, what is their condition? What do their lobbies look like? Do they provide amenities that you do not, such as a fitness center, a conference room, a lactation room, a grab and go food market?

Another way to know you competition is by reading commercial real estate articles or attending different speaking engagements. Many companies are publishing market trends in articles posted on LinkedIn or in real estate publications. Additionally, many real estate organizations such as BOMA, have programs with speakers that are reporting on what is happening in the market. There is also a lot of value in joining these organizations to simply have the opportunity to network with other managers. You should always know what your competition is doing. Otherwise, you could be late to the game!

Develop a 3–5-year Capital Budget

You should be working with your Engineers and other staff members now to determine what the capital needs are for the next three to five years at your building.

These are the largest dollars you will spend. It is important that you can paint a picture of these needs for your owner. You do not want to be in a position of having to make a lot of capital expenditures because you did not plan, leaving everything to fail at once. We are in a time when cleanliness is more important than ever. Although we have focused on clean air, air filters, sanitizing, and additional janitorial services, nothing speaks louder than the appearance of your building from the moment a tenant pulls into your parking lot. Are your parking lots clean and stable or are they due for a replacement? Is your lobby open and bright or is it still dark and full of old furniture and plants?

Tenants are looking for bright, open spaces. We are finding many smaller companies are leasing a lot of space in the market. The entrepreneur is on the rise. These companies want to come to buildings with fitness centers, conference rooms, and grab and go markets. Do you need to be budgeting for lobby renovations and amenities to accommodate this?

Reach out to your architect and have plans drawn to update or add some of these amenities so you can put that pricing in your capital plan. Retail tenants are looking for shopping centers that have been revitalized. Do you need to budget for this?

Medical tenants are upgrading equipment to keep up with the quickly changing science needs. This could require more voltage in your building. Do you need to budget for this?

Industrial tenants have more traffic than ever which is hard on parking lots and truck courts. Do you need to be budgeting for repairs or replacements? Energy efficiency continues to be a priority, particularly with the price of oil being so high. What do you need to do to become more efficient?

Plan ahead and anticipate needs. This creates value for the building, the owner, and you, the manager.

• Work with your Brokers on a Leasing Plan – Leasing is an area that are often overlooked yet is a critical part of operating your building. Reach out to your leasing brokers now to have them work with you on what they are projecting for next year. Do not wait for them to come to you. Do not wait for the owner to give you this information. Do not wait until the last minute. Again, you are creating value. In addition to getting projected leasing and TI costs, remember to budget for dead deals. This includes legal and architectural fees that the property will absorb.
• Bid out your Recurring Service Contracts – You should be doing this now. This is a great way to utilize your staff to support you during this process. Prices are going up daily. Do not assume your vendor is giving you the best price just because you have used them a long time or they have become your friend. The competition in a tight market is great and you can benefit from this. Showing your owner that you have done your due diligence goes a long way in showing them your partnership with them. Think like an owner! It makes a difference.
• Set up a meeting with your Asset Manager or Owner – Find out what the plans are for your building. Be ready to give them some of the information you have gathered from the above steps. Determine how you will handle costs with reduced occupancy and what the owner envisions that to be. Make suggestions.

Put It All Together

Once you have completed these things you will be ready to put the pieces together. A few things to consider.

1. Do you know your leases? What is the tenants’ obligation and what is the owner’s responsibility? It is important that you are fully enforcing the lease. Waiving late fees, not charging admin fees where appropriate, not getting updated tenant financials when required hurts the owner. It also makes it harder to enforce other aspects of the lease when needed. Examples include tenant audits, tenant signage requests, or tenant construction requests. Consistency is the key. This will prevent you from budgeting or spending dollars that are the responsibility of the tenant or vice versa.
2. Real Estate Taxes. This is a large expense that needs attention. When occupancy is down or revenue is down, it is always worth appealing taxes. Find a good tax advisor and proactively work with them to reduce your taxes. Everyone benefits from this.
3. Timing is Everything! Do not over budget and commit to more than you are physically able to do. It is easy to dream big and want to do everything at once, but you will end up losing credibility when you do not fulfill those plans. Asset managers, owners, and investors are counting on, not only the revenue that is projected, but also the cash flow that is projected. If you budget for something in January, that means the payment is made to the vendor in January. This does not mean that the work begins in January.
4. Be realistic and always be one step ahead. A January project should begin before January. Budget the project in the month the project will be paid for and do the project you budgeted to do. You have heard the adage, “Do what you say, and say what you do.” This means, don’t plan so much that you cannot do it all and do it when you say you are going to do it.  No one is looking for you to have a budget packed with everything on your wish list. Your 3–5-year capital budget will show that you have plans. Your budget should be realistic.
5. Practice minimalism. The world is different, and priorities are different. Creating a bright, clean, and uncluttered environment creates safety in the mind of others. For instance, making adjustments to your interior landscaping can open up space and reduce operating costs. There are many such areas that can be changed. Be open minded!
6. Be prepared for additional accountability. When the economy turns, it feels like everyone brings out their magnifying glass. Mortgage holders or tenants will begin to exercise their audit rights. This is one more reason to do what you say and say what you do. Live by your budget’s timing and costs as closely as possible and be prepared to explain where it changed.
7. Communication, communication, communication. This cannot be overstated. Almost every problem we face is due to failed communication. Most people can handle anything if it is communicated to them. Talk to your tenants, talk to your staff, talk to your asset managers, talk to your owners. Make sure you are all on the same page and all working for the same thing. This will reduce the amount of time you have to spend creating a budget that pleases everyone.

As you step into the preparation of your 2023 Budget, take a moment to sit down and outline your plan and then follow it.

Have fun!

Bring in some bagels and have a brain storming session with your team. Take a tenant to lunch each week and find out what they are prioritizing. Attend a few BOMA lunches or join a committee and find out what others are doing. These things will help take away the drudge of the budget season and, hopefully, spark a new flame in your thinking. A property manager is continually trying to balance the needs of the tenants with the needs of the owner. Your job is never easy but always rewarding.

The final piece of advice I would leave with you is to THINK OUTSIDE THE BOX! You are the greatest asset to your owner. Managing the owner’s building as if you are the owner is how you show that.

Article written by Melody Frcek, RPA, Vice President of Property Management with OA Management, Inc.

To stay up to date on news and resources such as this and other topics of importance to the real estate industry, subscribe to the free CRE Insight Journal Newsletter using this link.