What happens if you don’t think you can increase the value of your commercial property and are thinking, “None of these strategies fit my commercial property. What do I do now?” If you find yourself in this situation, don’t worry—it’s not all doom and gloom. Sometimes, it just requires patience and a strategic approach.
1. Review Your Financing
If you can’t see any immediate asset management opportunities to increase your property’s value, start by looking at your financing. Mortgage rates have likely changed since you first secured your loan. For example, if you were negotiating rates around 9% last year, you might now find rates closer to 6%. By refinancing, you could potentially improve your cash flow, even if you’re not able to increase the property’s value directly.
Consider the cost of early repayment charges versus the savings from a lower interest rate. This could be a simple way to enhance your cash flow while you wait for better opportunities to arise.
2. Assess Lending Options
If refinancing doesn’t suit your situation, evaluate your current lending. Can you increase the lending on your property if it’s commercially viable? Increasing your loan-to-value ratio, particularly if it’s at 50%, might allow you to free up capital to invest in another asset. Always make sure the numbers add up—this strategy only works if it makes financial sense.
Think about how much equity you could pull from your current assets and where you could invest that money to get a better yield. This could help expand your portfolio while you wait for more significant opportunities to enhance your existing properties.
3. Implement a Review Cycle
If neither financing nor lending adjustments are feasible, enter a management and review cycle. This doesn’t mean you’re standing still; rather, you’re preparing for future opportunities. Start by analysing the local property market every six to twelve months. Even if you can’t make changes today, regular reviews ensure you’re ready to act when the market shifts.
Look for changes in market rents, tenant behaviours, and property yields. Are rents rising? Are certain tenants moving in or out? These market dynamics could signal opportunities for rent reviews, lease renewals, or renegotiations.
4. Explore Minor Enhancements
If market conditions aren’t favourable and you’re not ready to sell, consider whether minor enhancements could increase your property’s rentability or value. You don’t need to undertake major redevelopment projects. Sometimes, small improvements can make a big difference. Consult with an architect to see if there’s anything simple that could be done to improve the property.
If these improvements aren’t feasible, evaluate whether the property still fits within your portfolio. If it does, continue monitoring the market for better opportunities.
5. Decide Whether to Hold or Sell
If you’ve exhausted all other options and still don’t see a path to increasing your property’s value, it’s time to ask yourself a crucial question: Do you believe you can do nothing more to the property, and would you prefer to invest in other opportunities? There’s no right or wrong answer, and selling doesn’t mean you’ve failed. If you’re ready to move on, sell the property, reinvest the funds, and seek out new opportunities.
However, if you’re not ready to sell, continue with your market analysis and property management strategies. The key is to keep an eye on the market and be prepared to act when the right opportunity arises.
6. Monitor Market Yields and Values
While you’re analysing the market, pay close attention to yield trends and property values. If market yields have decreased on comparable properties, this could indicate that your property’s market value has increased. If so, consider whether you can leverage this increase to refinance or sell.
If the value has risen, you might be able to extract additional equity from the property to reinvest in another asset. This cycle of market analysis and financial assessment should become a regular part of your strategy, helping you identify the best moments to act.
7. Continuous Property Management
Lastly, even when no immediate opportunities are apparent, maintaining high standards in property management is crucial. Poor management can lead to a decline in your property’s value. Ensure that maintenance, health and safety, accounting, and rent collection are all up to par.
Regularly review service charges, rental markets, and comparable rent reviews or lease renewals. Keeping these elements in check is essential for sustaining and potentially increasing your property’s value over time.
Conclusion: Keep Moving Forward
Increasing the value of your commercial property isn’t always about making big moves. Sometimes, it’s about staying vigilant, managing well, and being patient. Diarize key dates, like rent reviews and lease renewals, and continually analyse the market. Even if you can’t make changes today, knowing that you’re prepared to act when the time is right will keep you on track.
Remember, complacency is your enemy. Time can slip away, and before you know it, years have passed without any action. Diarizing and staying proactive will help you avoid this pitfall. While you might not be able to increase your property’s value immediately, having a long-term strategy in place ensures that you’re always moving in the right direction, ready to capitalise on opportunities when they arise.
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