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MANAGING AND LEASING COMMERCIAL PROPERTIES SECOND EDITION PROFESSIONAL REVIEW Aaron M. Bosshardt, CPM®, CCIM Sam Chanin, CPM® David Domres, CPM®, CCIM Carrie E. Woodring, CPM® Kristine M. Moore, CPM®, CCIM, CPA Mark Polatsek, CPM® Jacqueline Harris, CPM®, CCIM Richard H. Forsyth, CPM®, CCIM IREM EDUCATION PUBLISHING Nadia Geagea Pupa Managing Editor, Publications Ronald Gjerde Vice President, Knowledge Center MANAGING AND LEASING COMMERCIAL PROPERTIES SECOND EDITION Alan A. Alexander Richard F. Muhlebach, CPM® ©2007, 2016 by the Institute of Real Estate Management of the NATIONAL ASSOCIATION OF REALTORS® All rights reserved. First edition 2007 Second edition 2016. Printed in the United States of America ISBN-13: 978-1-57203-242-2 Ebook ISBN-13: 978-1-57203-275-0 SKU: 791-2 This book or any part thereof may not be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Inquiries should be directed to: Publishing Department Institute of Real Estate Management 430 North Michigan Avenue Chicago, IL 60611–4090 This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. Forms or other documents included in this book are intended as samples only. Because of changing and varying state and local laws, competent professional advice should be sought prior to the use of any document, form, exhibit, or the like. This publication is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or any other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Text and Cover Composition: Nadia Geagea Pupa Cover photos left to right: © Brus_Rus; © xijian; © zhudifeng; © imaginima; © beijingstory; © lichaoshu; © ivo Gretener; © Maxiphoto / istock photos IREM® logo, IREM®, CERTIFIED PROPERTY MANAGER®, CPM®, the CPM key logo, ACCREDITED RESIDENTIAL MANAGER®, ARM®, the ARM torch logo, ACCREDITED MANAGEMENT ORGANIZATION®, AMO®, the AMO circle logo, Income/Expense Analysis®, Expense Analysis®, JPM® and MPSA® are registered marks of the Institute of Real Estate Management. IREM encourages diversity. We welcome individuals of all races, genders, creeds, ages, sexual orientations, gender identities, national origins, and individuals with disabilities. Our organization strives to provide an equal opportunity environment among its members, vendors, and staff. IREM is dedicated to supporting real estate management strategies that advance an environmentally sustainable and economically prosperous future Library of Congress Cataloging-in-Publication Data Names: Muhlebach, Richard F., 1943- author. | Alexander, Alan A., author. | Alexander, Alan A. Managing and leasing commercial properties. Title: Managing and leasing commercial properties / by Richard F. Muhlebach, CPM(r), Alan A. Alexander. Description: Second Edition. | Chicago : Institute of Real Estate Management IREM, [2016] | Revised edition of the authors’s Managing and leasing commercial properties, c2007. | Includes bibliographical references and index. Identifiers: LCCN 2016023393 (print) | LCCN 2016033535 (ebook) | ISBN 9781572032422 (pbk.: alk. paper) | ISBN 1572032421 (pbk.: alk. paper) | Subjects: LCSH: Real estate management. | Real estate management–United States. | Commercial buildings–United States–Management. | Commercial leases–United States. | Building leases–United States. Classification: LCC HD1394. M845 2016 (print) | DDC 333.33/87068–dc23 LC record available at https://lccn.loc.gov/2016023393 To my loving wife of 37 years, Jeanne, thank you for your love, support, backing and encouragement in all that I do. You are always there for me in every way. The accomplishment of writing such books as this is made so much easier when one has someone to share the load and to provide loving guidance for the betterment of all that I attempt. Thank you, Alan Alexander In a few years from the date of this publication, Maria and I will celebrate 50 years in real estate management. Maria, for 50 years you supported me in my endeavor to change professions, start a career in a field I knew little about, and build a career and a company. While you served as the COO of our family, you encouraged and supported me through the excitement and challenges of venturing into the unknown while many nights you waited for me to come home from late meetings, teaching assignments, and business trips. Maria, thank you for being there for me over and over again! I also want to thank IREM for serving as my mentor and jump starting my career by providing me with opportunities to network with real estate professionals, attend incredible courses and education forums, acquire publications that became invaluable desk references, and the opportunity to serve in leadership positions. Maria and I have made many lasting friendships with people we’ve met at local and national IREM meetings and conferences. – Richard Muhlebach, CPM® PREFACE Managing and Leasing Commercial Properties, Second Edition provides practical and successful techniques for a proactive approach to operating, managing, marketing, and leasing commercial properties. This is not a book on the theory of real estate management; rather, it is a hands-on guide that provides problem-solving methods, procedures, tactics, and tips. The suggested approaches come from the combined experiences of the authors, who have more than 80 years’ experience in the management, leasing, and marketing of all types of commercial properties, which include medical office buildings, high-rise office buildings, major industrial parks, regional enclosed malls, and large mixed-use developments. In addition, Managing and Leasing Commercial Properties, Second Edition offers the philosophy that managing an income property is managing a business. Each real estate investment is the business of its investor—whether the property is a 10,000-square-foot strip shopping center, or one of the tallest office buildings in the world. Effective real estate managers do not manage brick and mortar, steel, and concrete —they manage people and relationships. These approaches ultimately lead to the long-term success of managing and leasing properties, and are the foundation which this publication has been written. This book begins with a historical overview and evolution of commercial properties throughout the years, providing insight into how real estate management and leasing opportunities were created more than 100 years ago. The introductory chapter also identifies future opportunities in real estate management and leasing. The second chapter provides information on managing income-producing real estate as a business, which contains the necessary information to develop a business plan for each property. A study by the Institute of Real Estate Management (IREM) found that leasing and retaining tenants are the top concerns of real estate investors. There are greater opportunities to increase a property’s cash flow and value through leasing compared to any other management activity. Therefore, a major portion of this book is devoted to the marketing and leasing of commercial properties. The daily responsibility of real estate managers has an impact on the marketing and leasing efforts and overall success of the properties they manage. Real estate managers must be proficient in developing an effective and efficient marketing and leasing program for every property they manage, along with being prepared to negotiate scores of lease provisions. Effective management techniques for all types of commercial properties are discussed in the chapters on budgeting, maintenance management, and emergency procedures. Many commercial properties have common approaches to the management process, but where they differ, those differences are discussed as well. Specific approaches to management and leasing techniques are covered for shopping centers, office buildings, medical office buildings, and industrial properties. The final section provides information on the development process and rehabbing commercial properties. The real estate manager has an important role in each of these development activities and should understand the responsibilities of each professional involved in developing and/or renovating all types of commercial properties. The intention of this book is to provide a resource for real estate managers, property accountants, marketing personnel, leasing agents, and security and maintenance staffs to confront and exploit the opportunities and challenges in today’s complex commercial property operations, management, marketing, and leasing. Without a doubt, this publication will be your handy reference guide for daily operations, management, marketing, and leasing of the properties in your portfolio. – Alan Alexander and Richard Muhlebach ACKNOWLEDGEMENT Professionals in real estate management generously share their expertise and experiences with each other. This has enabled the real estate management profession to evolve and prosper and enables real estate managers to better serve their clients and the community. We have been beneficiaries of the generosity of our peers who have shared their knowledge and experiences with us. Without the guidance and mentoring from several real estate professionals, we would not have been able to write these and other real estate management and leasing books. We thank Eric Muhlebach of Bond Retail in San Francisco for his invaluable leasing and marketing advice. This book would not have been possible without the experience, dedication, patience, and insight of Nadia Geagea Pupa, Managing Editor of IREM®. We would also like to acknowledge the insights and experiences of the following CERTIFIED PROPERTY MANAGERS® who served as reviewers of the book’s manuscript: Aaron M. Bosshardt, CPM®, CCIM Sam Chanin, CPM® David Domres, CPM®, CCIM Carrie E. Woodring, CPM® Kristine M. Moore, CPM®, CCIM, CPA Mark Polatsek, CPM® Jacqueline Harris, CPM®, CCIM Richard H. Forsyth, CPM®, CCIM We would like to acknowledge our long and valued association with the Institute of Real Estate Management® (IREM®). The opportunities for networking and training from the IREM® publications, courses, and conferences have been invaluable in the development of our careers. – Alan Alexander – Richard Muhlebach CPM, CSM, RPA, CRX, CRE