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Creating a seamless transition to new ownership

Today's hot investment market demands speed, communication

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One of the most striking economic trends of the past 12 months has been the amount of investment capital that continues to flow into Southern California in San Diego, Orange County, Los Angeles and the Inland Empire.

Doreen Reagle

Arden Realty Inc. recently purchased 707 Broadway, a 169,500-square-foot, 19-story office tower in downtown.

Sorrento Mesa Corporate Center consists of four office buildings with a total of 555,000 square feet and a 53,000-square-foot retail center. The center was recently purchased by Arden Realty Inc.

Last year's volume for commercial property investment was particularly heated as San Diego led the way, posting an 82 percent gain from 2001. Orange County followed by 63 percent, with Los Angeles and the Inland Empire achieving volume increases of 43 percent and 25 percent, respectively.

These significant boosts to the investment market delivered more than $3.5 billion in sales in Southern California in 2004 alone.

On the face of this competitive investment environment, the challenge and rewards seem to lie squarely with the winning investors and the brokers that navigate their complex transactions and rapid escrow periods.

Once the deal is done, however, the real work begins, with the property management team hitting the ground running to provide a seamless transition that minimizes disruption and maximizes service for owners and tenants. It's a multilayered process that demands a finely tuned system of simultaneous activity often overlooked by buyers, sellers and their brokers, who are already pursuing the next opportunity.

What then, comprises the perfect transition, especially from a tenant's perspective?

While every landlord has its signature program, there are some "best practices" that have emerged as potential standards in the industry so that new ownership means not just avoiding an obvious shift in title, but also creating an opportunity for better tenant service. A few key communication practices comprise the baseline of setting the stage for success early on.

The basics: Systems and lease review

Preferably, the new management team will have a complete checklist poised weeks prior to the close of escrow that covers review and update of every system and procedure in the building.

The basics include completing lease abstracts, reviewing contracts, creating a complete profile on every tenant in the building and receiving a briefing on challenging tenant issues or renewals.

Essential steps are also collecting pro-rations on utilities on the day of the close, changing all signage and former landlord branding, transferring utilities, review of the janitorial work order system and parking procedures, and building upgrades, as needed.

Project managers also need to ensure that the accounting group is in sync with the existing data entry system so the flow of financial information begins immediately. With deals moving at warp speed in this overheated market, a thorough system review by management cannot begin too early in the process before the change in ownership actually occurs.

Internal communication: Before, during and after the close

Often, principals in a multimillion-dollar office investment transaction resist addressing systems on the management side of the equation until the deal is done. This also applies to planning a media strategy, changing signage and/or meeting with property teams to set up the general transition plan.

It is, understandably, a product of both sides not wanting to hex a deal with too much assumption before the ink is dry on the contract. It can also be due to the sensitivities of impending lay-offs or personnel changes that may result from a change in ownership. In fact, the sooner that management and marketing teams are able to start talking with one another to work out internal, tenant and press communication strategies, the better it is for all sides when the transaction is actually completed -- especially given the accelerated escrows in today's investment market.

An internal dialogue that can start early is one between marketing, management and leasing that sets up a potential media relations campaign including an approved press release draft, a designated spokesperson, distribution lists and broader media coverage for significant, newsworthy transactions.

With high-profile properties, buyers or sellers, developing media messages early is an important element of giving the market lucid, comprehensive information on the deal and the principals in the transaction.

Internally, property management can also work weeks in advance with human resource and marketing teams to craft messages that ensure that employees on both sides are aware of the acquisition or disposition, are fully briefed of personnel changes and are attuned to how the transaction reflects the company's business strategy. The more that everyone, especially property management, has an overview of the project, the more effectively they can execute their jobs.

Setting the stage for top tenant service

One of the most challenging aspects of the ownership transition process is ensuring that as early as possible, and certainly no later than when the deal is done, all tenants receive a personnel introduction from the new landlord's in-house or third-party property team and a comprehensive information package on the new owner.

Both the administrative staff and the tenant company's decision maker should be included in that process, followed by roundtable discussions and "coffee chat" meetings regularly scheduled to bring issues to light, and discuss concerns and what works for tenants, especially if there are holdover issues from the previous owner.

At Arden we have tenant service managers, designated customer service personnel that work with property team members but act as a third-party advocate for tenants to facilitate requests and solve challenges.

A vice president of quality control for the entire portfolio is also a key team member, servicing tenants and ensuring that the property and relationships are in solid shape on an ongoing basis.

All these team members interact with tenants the moment the contract is signed, creating a cohesive management and service group that covers every conceivable detail. Another extremely effective tool to introduce and implement, as quickly as possible is a tenant survey -- in Arden's case, twice a year - which establishes the starting point of service for the new landlord, enables management to set service goals and addresses tenant issues quickly throughout the year.

The need for speed and balance

For seasoned property managers, many of these practices are well embedded in their current systems.

However, the accelerated pace created by both the high-volume, fast-paced investment environment and the underlying competition between many landlords vying for a limited pool of tenants means implementing these steps sooner, faster and with greater attention to superior customer service.

As management teams race to set their procedures and communication strategies in motion, we can only hope that the upside for all of us will be greater efficiencies, increased professionalism and new benchmarks of tenant service that will raise the bar for the entire industry.

Arden Realty Inc. is a self-administered and self-managed REIT that owns, manages, leases, develops, renovates and acquires commercial office properties located in Southern California.

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