Asset repositioning is a constant in the commercial real estate arena. Creating new appeal for an existing property, or finding creative ways to rekindle an under performing asset is the most crucial component for sustaining the life-cycle of a property and putting owners at ease. But before any changes are initiated, a straightforward dissection of objectives and due diligence will ensure that commercial professionals make the right recommendations and achieve the most value for an asset.
Today's current interest rates, market expansions and economic redevelopment initiatives targeted in many locals throughout the country, coupled with improving or strong absorption of Class A properties, have created an opportunity for an owner to capture increased returns through asset repositioning. Owners that might otherwise have had to settle for less have the ability to capture improved returns from the market through an asset. Conversely, there exists an opportunity for an astute management company to recognize an asset's position within the marketplace and offer the owner the opportunity to enhance their own position and improve the operating performance of the property. In both instances it will take effective communications, a strong partnership, market knowledge and clear, well-defined objectives.
Asset repositioning represents the opportunity for the management company to work with the owner and not just for the owner. The team will need input from every member involved in the property's ownership, management, investment advisement, leasing, asset management and research.
When repositioning an asset in the market, having a thorough understanding of the owner's goals and objectives for the property is the foundation of the plan. Moreover, there are several core components, both tangible and intangible, that need to be considered and factored into the decision to reposition.
Some of these core components include, but are not limited to:
- Ownership objectives
- Geographic location
- Market perception
- Market rents
- Ownership funding source
- Transportation infrastructure
- Amenity base
Many of these same components are part of a general assessment and examination of a property. Common ownership objectives run along the lines of an asset's position within a portfolio (where applicable) and include market value, value to the owner as a stand-alone, value within the larger portfolio, hold objectives, internal rates of return and opportunity costs, to mention just a few. These considerations notwithstanding, improving a property's position either through increased net operating income or market value will always be deemed a positive improvement by any owner.
One of the first and most important steps in assessing a property's current and future potential position is a SWOT (strengths, weaknesses, opportunities and threats) analysis. This is a comprehensive survey of the building and of the outside factors/trends affecting its position in the market. The team at the property performs the analysis in order to identify the feasibility of value enhancement options and the components making up the repositioning plan.
The SWOT Analysis will involve the following components:
- Identify value
- Enhancement opportunities
- Evaluate capital enhancements and overall financial benefit
- Assess and analyze overall market for product type
- short- and long-range investment goals
What is the relationship of the specific asset to the owner's larger portfolio? The SWOT Analysis will provide for the owner a specific, formulated repositioning plan, to help capture current market conditions, improve the property's position, and add value that might otherwise go unrealized. If planned and implemented properly, the analysis should result in enhanced value returns with potential for:
- Increased and improved ROI
- A more stable and credit-worthy tenant mix
- Reduced or stabilized expenses
- Improved market position
- Highest and best use
Taking the time to conduct a SWOT analysis is highly recommended for asset repositioning. A team approach is critical not only for a successful analysis, but to the overall effort. Input from management, leasing, finance and investment advisory are necessary to develop the most comprehensive summary and recommendations for the property. Only an integrated approach will result in the full benefits of asset repositioning for both the owner and management company.