Expand Your Commercial Property's value by signing a proper lease. Commercial property investors must be aware of what is required to maximize all aspects of a property's value over a period of time before deciding to sell. This is according to Rainer Stenzhorn of In2assets who says that investors often make the mistake of realising too late and decide to sell their investments before realizing their true value.
"Unlike residential properties, commercial properties generally have longer term leases in place. This places constraints on large-scale changes and initiatives to add value quickly."
Stenzhorn explains that a commercial property's value is directly related to its capacity to maximize future income (rental) flows. "Hence, what are the major aspects that affect the generation of future cash flows and rentals?"
"One needs to start with paperwork. A good, neat, efficient filing system is required for each property. Documentation ideally includes up-to-date plans of the property, with correct measurements of actual and rentable space and copies of title deeds and a thorough understanding thereof is always useful."
"The single most important aspect is that of making sure all the leases are 100% complete and include all aspects of one's agreement with a tenant – in writing," says Stenzhorn.
"The lease must be correctly signed by all signatories. It is also advisable to note on the lease where the deposit will be kept as after a lease has run for five or ten years this can be difficult to trace. When one sells a commercial property, the leases on the property become the single most important aspect of the property's value."
"Finances need to be up-to-date as well as all payments of municipal charges - even if a tenant pays municipal charges directly to a municipality, it is the ultimate responsibility of the landlord to ensure these payments are up-to-date. Rates clearance certificates will not be granted to the seller if there are any payments outstanding and new owners will also not pay a good price for a property where tenants are in any form of arrears."
Stenzhorn further advises that building cosmetics and visual outlook are always important. "These include painting the parts of the property that have not been attended to for a while as well as renovating central and entrance areas."
"The old adage in office buildings says that one must make sure the three L's are kept in tip top shape - Lifts, Lobbies and Loo's. Good landscaping always gives a good impression as well as making tenants happy occupants. Remove all clutter and clean where necessary – first impressions do count in commercial as well as residential property (this will be for both prospective tenants during the course of ownership as well as one's purchaser at the end of one's ownership cycle)."
"Additionally, one must maximize the income potential of one's commercial property. Is there additional land on the site that can be built upon? Can one create additional parking? Could an extra floor be added? In certain circumstances owners have even purchased properties purely to erect a visible signboard, which is then rented out at a huge premium and the property is subsequently sold at a significantly higher price."
"Before selling a commercial property owners need to ensure the above factors have been considered to maximise the value," Stenzhorn says.
"Depending on the property, many of these aspects are only able to be implemented over time. If they are left too late one may just be looking at achieving a lower selling price than would ideally have expected."