Tangible versus Intangible Assets
Recently, deteriorating global economic metrics have roiled the equity and bond markets, causing wild swings in all the major indexes. The trade battle with China, GDP contractions in Germany and the United Kingdom, an inverted US treasury yield curve and mounting challenges for emerging market economies, among other things, have combined to increase uncertainty for investors. If there’s anything that can ruin the day for an investor, uncertainty tops the list.
For the moment, the economic dust-up is primarily focused on intangible versus tangible assets. Trades in commodities futures, stocks and bonds happen at the speed of light with a tap of the enter key on a computer these days, and the vast majority of trades in these markets are executed by computer algorithms designed by super-smart “quants” employed by institutional investors. That leaves small investors at a disadvantage and at the mercy of market forces that are driven by the big boys.
That is not case when it comes to investing and managing portfolios of more tangible assets like real estate. The pace of trading real estate assets is glacial compared to buying pork bellies, oil, stocks or bonds, and the metrics that drive dispositions and acquisitions of real estate assets are entirely different. Nobody decides to sell their office or industrial building because the stock market had a particularly good or bad day. Prudent real estate investors look more to how long term economic conditions will impact business growth over months or years, rather than how a bad earnings report will tank the price of a stock in the next few hours or days.
For these and other reasons, savvy investors balance their portfolios with a good mix of tangible and intangible assets. With the intangibles, the investor counts entirely on the decisions of others to enhance asset value. The great thing about real estate, is that the owner calls all the shots. So, if you own an office building, every spending and revenue decision is either yours or your designated asset/property manager’s to make. You can drive to your building and walk it with a keen eye for how to make it better. You can visit and thank the people who pay rent for your space and ask them how you can make their experience better. Sure, you are subject to market forces and trends, but you have the decision making power to help you deal with challenges and take advantage of opportunities. As a real estate investor you look at trends in absorption, vacancy, rent growth and other market drivers to help you make informed decisions.
While it’s true that you don’t have control over market conditions, you do have control over what you do in response to them. That’s where we come in. As a professional asset and property manager it’s our job to help you make those decisions. Running a real estate asset successfully is a complicated process that requires a variety of specialized skills coupled with the requisite experience in managing assets through all stages of the economic cycle.
Whether you run your own real estate asset portfolio or you engage other professionals to assist you in that effort, it is always important to know how your properties are positioned relative to competitive properties in your market. Questions that always need answering include:
Is my occupancy level in sync with the vacancy rate in my submarket?
Do my vacant spaces lease up as quickly as they do in competitive properties?
Am I achieving market rents and terms on new leases?
Do I have a good program for renewing leases for good tenants to avoid losing income?
Is my building properly maintained so that I can attract the best tenants?
Are there elements of functional obsolescence that need addressing?
Do my tenants have access to popular amenities?
Should I be making a further investment in property improvements to gain a competitive advantage?
The list goes on, but these are just a few of the key aspects of operating a property to maximize NOI. We stand ready to assist you in answering these and other questions that will help you maximize cash flow and enhance the value of your real estate assets. We are just a phone call away at (949)668-1110.