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The Warsaw Voice » Real Estate » June 17, 2010
Crucial Role
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Crucial Role
June 17, 2010   
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A good tenant mix, profitable lease contracts, and transparent shared costs—in a shopping mall, all this must be taken care of by a professional asset manager, who plays a crucial role.

The main job of an asset manager is to increase the value of the project.
“We make sure that the owners get the highest possible return on their investment each year,” says Krystian Modrzejewski, property management director at CB Richard Ellis. “Asset managers look at a building from the viewpoint of the owners and their needs. They remember about the loans taken out for the project, supervise negotiations with tenants and service providers, and make strategic decisions on reducing employment and cutting costs. Asset management also involves spinning off companies and overseeing their day-to-day operations to meet the budget plan for a given month, quarter or year.”

Asset management is different from facility and property management. Facility management is about keeping the building in good condition, including maintenance, security, and cleaning services. Property managers make sure there is always something going on at the mall, to make it attractive and bring in customers, Modrzejewski says. An asset manager monitors all these activities and makes strategic decisions that help raise the facility’s value in the longer term.

Mixing for success
An asset manager’s work begins at the stage of looking for tenants and signing lease contracts with them. A well-formulated long-term contract with tenants can increase a property’s value, making it better collateral for the bank providing the investor with loans. Two identical shopping malls in comparable locations can have different values because of the kind of contracts they have with tenants. This means that if an asset manager does his or her job well, the project will yield a higher price after the investor decides to sell it, Modrzejewski says.

A good tenant mix is of key importance to a mall’s success and high sales, according to Modrzejewski. It’s not a good policy to decide once and for all, at the design stage, how the mall will be positioned and what kind of tenants you want to attract. A new project in the vicinity can quickly ruin your plans.

“If a similar project is started nearby, the asset manager has to react,” Modrzejewski says. “Depending on the data you get from the market, you can do one of two things. You can quickly change your mall’s positioning and find a different idea to make the facility stand out regardless of the competition close by. Or you can decide to strengthen your original idea instead of abandoning it. This could involve highlighting the entertainment aspect of the project, for example, or focusing on products for the home and interior. Sometimes you need to make strategic decisions at the design stage and build an even bigger center, with greater panache, and then promote it as the biggest facility in the region.”

Whether your mall is a success or goes bankrupt could depend on a flexible reaction to the moves of the competition and market changes. “For example, the Klif mall on Okopowa Street in Warsaw was the only shopping center in the area until Arkadia opened in 2004,” Modrzejewski says. “The two centers are just a 3-minute drive apart. That’s why Klif, being unable to compete with the much bigger Arkadia, focused on top-of-the-range brands. Today both malls are doing very well.”

No man’s land
One of the most important clauses in a lease contract, next to the rent and lease period, is setting the costs of maintaining common areas. What usually happens is that key tenants pay a lump sum for common areas on top of their rent, and when the actual costs are calculated, the small tenants pick up the difference. This is where a danger lurks, Modrzejewski says. “If you have too many tenants who don’t contribute to the shared costs, the smaller tenants or the owners have to cover the difference,” he says. “Meanwhile, rent should constitute real income for the owners and the costs should be fully covered by the tenants. Making a profit on shared costs is unethical, but the owners shouldn’t have to chip in either.”

According to Grzegorz Mroczek, director for leases at Caelum Development, there are also other things that should be kept in mind when signing a lease. “One thing that increases a project’s value is an appropriately formulated clause on fixed rent plus a percentage of sales,” he says. “For foreign investors, having the rent expressed as an euro equivalent is a major value-raising factor limiting the exchange rate risk that will exist until Poland enters the euro zone.”

Rule and economize
Building maintenance, selecting offers, preparing contracts with service providers and monitoring their performance—the asset manager oversees all these aspects and this is where they look for savings. “You have to remember that shared costs have a certain limit; they cannot diverge from the market average for similar facilities,” says Mroczek. “Effective management means making sure these costs are as low as possible, because additional costs for tenants lead to reduced profitability for their stores, and that’s something no one wants. During a crisis you need to ask your service providers for a renegotiation of the contract terms or, if that isn’t effective enough, find cheaper service providers.”

Outsourcing could be a good cost-cutting method, according to Modrzejewski. “It makes it possible to reduce employment and shift responsibility to the subcontractor. The owners get the necessary staff, without worrying about sick leave or vacations,” Modrzejewski says. “You should also seek savings by holding bidding procedures for all the main services, chiefly in facility management. A bidding procedure increases the chances that you will choose one of the cheapest options on the market without compromising on quality.”

You can also cut costs by placing orders for security, cleaning and maintenance services from the same company, Modrzejewski says. Obvious choices, such as choosing a well-known outsourcing company, are not necessarily the best option, he adds.

“When you build a shopping center in a small city, it’s worth looking for technicians, security guards and cleaners among local businesses,” Modrzejewski says. “They might need more supervision from the building manager, but can offer competitive prices. Besides, network operators don’t have branches in every small town, and if they have to open one especially for your mall, the costs will go up.”

Communication with tenants is key
Investors choose different models of asset management—setting up a unit within their company or outsourcing these services. “Sometimes investors invite an external consultant to join the management board of their company in order to have objective data about the company’s real estate portfolio,” says Modrzejewski. “This practice is more common in the West, where employees of CB Richard Ellis sit on the boards of special-purpose companies, for example.”

Asset managers, whether employed by the real estate’s owners or hired from an outside company, have to keep their eyes and ears open and come up with thousands of new ideas. The best specialists and well-tested management systems reduce building maintenance costs, increase a facility’s value, and allow investors to focus on their core business. According to Modrzejewski, asset managers should “listen carefully to their tenants. Talking to retail chain managers will show you who isn’t coping too well at your mall and who is doing fine. That is a clear message about what kind of customers visit the facility.”

Neinver Polska, the owner of the Galeria Malta mall in the western city of Poznań, has a customer relations management system based on “building long-term relations with tenants and stimulating their activity.” The core of the system is the Galeria Malta Council, a joint initiative by the mall’s administration and tenants. The company received a Certificate of Merit for Exceptional Management from the International Council of Shopping Centers this year.

“The Galeria Malta Council is of key importance to us, because every meeting is primarily about exchanging information,” says Bożena Gierszewska, Neinver Polska’s director for shopping center management. “Only two-way communication brings the expected results. This is obvious both to us and to our tenants, who willingly share their observations with us and propose new ideas. We review and analyze each proposal together.”

Added to this are advanced facilities, such as a customer counting system enabling continuous monitoring of visitor statistics for the whole mall and individual stores, Gierszewska says. Based on the data it gathers, the company can monitor how a store functions over a month, a quarter or a year as well as compared to its particular sector and the mall as a whole.

Neinver Polska also offers its tenants advice from experts and training courses in sales techniques and visual communication inside a store. Every business can ask Neinver’s experts for help, and they will provide advice on developing optimal repair plans based on a comprehensive analysis of a given store’s operations, Gierszewska said.

Magdalena Fabijańczuk

Krystian Modrzejewski, property management director at CB Richard Ellis: “Rent should constitute real income for the owners and the costs should be fully covered by the tenants. Making a profit on shared costs is unethical, but the owners shouldn’t have to chip in either.”

Grzegorz Mroczek, director for leases at Caelum Development: “During a crisis you need to ask your service providers for a renegotiation of the contract terms or, if that isn’t effective enough, find cheaper service providers.”
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