Community Magazine March 2009

R isk is an unavoidable element in all commercial real estate investments, but in today’s troubled economy, property owners and managers are especially eager to minimize their exposure to risk while max- imizing the return on their investments. In order to attain these goals in the coming year, investors should consider utilizing specialized strategies in the acquisition of property or notes, as well as in the management of their existing real estate portfolios. When acquiring real property, the primary task is to gain a clear financial picture of the asset, by uncovering any current or potential trouble spots. This is accomplished with a comprehensive financial due diligence review, leaving no stone unturned. A thorough analysis of all relevant docu- mentation should include income and expense veri- fication, CAM (common area maintenance) recon- ciliation and validation, financial modeling/cash flow analysis, and IRR (internal rate-of-return) analysis of leveraged and non-leveraged returns. Armed with this data, investors are far better quali- fied to negotiate from a position of strength in order to strike their most advantageous deal. Similarly, investors looking to acquire a note or assume a loan would also benefit from due diligence services. In this process, the first step would be to organize and abstract the loan documents, so as to ensure a clear understanding of the obligations and respon- sibilities of all parties. Next, a financial review of the underlying property should be conducted to the extent that accessible docu- mentation allows. If subsequently there is a need to foreclose on the underlying property, there will be a need to take charge of the situation. Due diligence services can assist with the complex organizational and logistical issues that arise when taking ownership over a foreclosed property. Once an acquisition is completed, investors can benefit from specialized assistance in preparing for the management and opera- tion of the property. These services include compiling an accurate rent roll for internal use, preparing the initial CAM reconciliations and methodology for each tenant, providing comprehensive lease abstracts with a summary of all essential lease provisions, and iden- tifying and tracking all critical lease dates and options. Even in the ongoing management and operation of a commer- cial real estate portfolio, there are many tasks which could benefit from specialized organizational support. These include accurate invoicing of tenants for base rent, preparing CAM billing and rec- onciliation for each tenant, compiling and updating comprehensive lease abstracts, overseeing collections, and ensuring that adequate property management software is in place. For any company acquiring or managing real estate, the goal is to minimize risk and maximize return. In today’s uncertain economy and volatile market, implementing due diligence and portfolio management strategies can ensure the clearest picture of the assets being acquired and maximize the return on properties in existing portfolios. David I. Tesler, Esq., is the CEO of Real Diligence, LLC and LeaseProbe, LLC, two interrelated companies that are part of Madison Commercial Real Estate Services . MAXIMIZE REVENUES and MINIMIZE RISKS When Buying or ManagingRealEstate DAVID I. TESLER, ESQ. 62 COMMUNITY MAGAZINE