Any experienced property manager is no stranger to calculated risk management and disaster planning for the assets under their care.But after a global pandemic and civil unrest followed by continued climate change, property managers can add substantial value to property owners by implementing new technology, digging into data, leveraging contractors, and creating plans to minimize the risk and cost of any future disaster. 

During the pandemic, property managers were at the frontline, adding signage for social distancing, implementing facial recognition for access control, providing unprecedented cleaning protocols, and working with HVAC contractors to improve air quality and filtration in their buildings. Today, they are on the frontline combating rising insurance and operating costs and increased office vacancies, creating cool amenities for tenants, or even pivoting office assets to multifamily.

For each of those challenges, property managers are invaluable to property owners and tenants by bringing their creative problem-solving, practical experience, and judicious expense control to the 530 million square feet of commercial office, retail, and industrial space in the Twin Cities.

Rising costs drive operating expenses

In the world of CRE, property managers are often in the background, focused on the large and small details. Every detail contributes to the building’s operating expenses and directly to the tenant’s monthly expenses. It’s the job of the PM to find the best option for long- and short-term expenses necessary to operate buildings.

Among these, insurance costs can have a substantial impact on property operating expenses.  Over the last three years, insurance premium increases have reached double digits, driven by the increasing frequency and intensity of natural disasters and rising replacement values due to inflation of construction materials. 

Catastrophic insurance coverage for properties with poor risk profiles have seen increases from 45% to 150% over this timeframe.   Some PMs combat rising premiums by bundling buildings together under one portfolio policy, which benefits all clients.  This often offers better coverage and significant cost savings that smaller-scale property owners cannot purchase on their own. This kind of expense control allows owners to pass the savings on to their tenants or use the money to improve buildings.  Shrewd expense control also leaves room for incremental rent increases for landlords.

Property taxes — another rising cost — have extended to industrial spaces in most cities due to office valuations declining and significant increases in industrial property valuations. While the increased value of industrial assets has been good for industrial property owners and sellers, tenants in industrial properties may receive serious sticker shock when reviewing year-over-year expenses with the increased property tax included. For tenants in office spaces, the reduced valuation of the property may not translate into lower property taxes for 12 months or more, unless the property managers and owners are diligently seeking reductions.

When will the next crisis strike? What are the possibilities?

A few crises are predictably looming. According to Bloomberg, more than $900 billion or 20% of the total US commercial and multifamily real estate debt will mature this year.  The potential for lenders to require payback of outstanding debt on office properties with significant vacancy could be crippling to the regional banking and commercial real estate industries.  The remaining debt on these properties is likely to exceed today’s appraised value, meaning the owners would need to find additional capital to pay or renew the loan. If the owner doesn’t have that option, it’s possible to “give the keys” back to the lender.    

That process, called Receivership, requires the court to appoint an impartial third party as Receiver, typically a property management team, to take control of a property and act as owners on behalf of both the lender and the property owner during the Receivership period.  Receivership is a big step for both lenders and owners, and few in the industry take that step lightly. While widespread Receivership hasn’t started, property management teams are already thinking about what that might look like to get prepared. As the frontline for the tenants, lenders, and property owners, PMs are key to the success in that process.

Being appointed a Receiver is not for the faint of heart.  The process can be hostile if both parties are not aligned in the decision to proceed. The relationships can be emotional if the defaulting party has long-standing ties to the property and is not ready to exit. It is also often that the defaulting party simply abandons the relationship and there is little information or transfer of knowledge for the Receiver to operate the property. Tenants can feel lost in the process if the Receiver is not knowledgeable enough or staffed well enough to effectively oversee things like lease renewals, approvals of tenant requests, or problem-solving on their behalf.  Simple account receivable disputes can be difficult to resolve if the information is not available from the debtor. The rules for Receivers are clear in Minnesota but each lender and debtor bring a different set of operating challenges.   

Inevitably, climate, workforce, and market changes will continue to challenge the operations of commercial properties. In some locations, the PM staff will need to plan for wildfires due to drought. In others, drought will cause reduced water available for operations, which may drive new environmental regulations.  Hybrid workforce preferences will likely require new ways to heat/cool, clean, and operate buildings allowing for more flexible and sustainable systems.  All change is interconnected, and we see building operating costs increasing in response. 

Looking forward

One key duty of the property manager is to look forward – for operational or staffing needs, capital improvements, budgets for ongoing maintenance, technology trends, and tenant turnover. If the pandemic, recent environmental disasters, and the GFC taught us anything, it was to not be surprised when bad things happen. We’ve also learned yet again to plan for the worst and hope for the best during any challenge.

Amy Melchior is executive vice president of property management with Bloomington, Minnesota-based Forte Real Estate Partners.

SPI Advisory, the Dallas- and Austin-based multifamily private equity firm, closed the sale of Oaks on Marketplace, a 254-unit, Class-A apartment complex built in 2017 at 20400 Marketplace Ave. in Kyle, Texas.

Located just seven miles south of Austin, Oaks on Marketplace attracts renters seeking a high-end lifestyle at an affordable price.

SPI Advisory and its partners acquired the newly built property directly from the developer as part of a two-property portfolio in 2019. The sale of Oaks on Marketplace marks the completion of more than five successful years of ownership and is SPI’s first property disposition of its Central Texas portfolio.

Restaurant openings are on the rise. And one segment that’s especially active? Celebrity-backed eateries.

JLL in a May research brief reported that 361 celebrity restaurants have opened in the United States and Canada from 2019 through 2024. The roster of celebrities backing these restaurants includes celebrity chefs, actors and musicians.

The year 2021 was an especially busy time for celebrity-backed restaurants. JLL says that celebrity restaurant openings doubled from 2020 to 2021. This happened during the height of the COVID-19 pandemic, a time in which overall U.S. restaurant openings only jumped by 13%.

Another interesting tidbit? Chefs and actors opened 67% of the celebrity restaurants during the last five years in Canada and the United States. JLl reported that 37% of celebrity restaurant openings were powered by high-profile chefs and 32% by actors.

Don’t expect the pace of celebrity restaurant openings to slow, either. JLL reported that there were 1,832 new U.S.-planned restaurant openings announced in the first quarter of 2024 alone.

In this competitive atmosphere, attracting investors, appealing to landlords and connecting with customers is a challenge, JLL said. Celebrity-backed restaurants can help bring loyal fans to a new restaurant.

What celebrity-backed restaurants have opened recently? Houston rapper Bun B opened Trill Burgers, a restaurant specializing in upscale hamburgers. Former NFL quarterback invests in Walk-On’s Sports Bistreaux and Smalls Sliders.

Comedians Pete Davidson and Jason Sudeikis, musician Mark Bronson and actors Nicholas Braun and Justin Theroux are all investors in New York City’s Pebble Bar. Kris Jenner signed on as an investor in Health Nut, a healthy-foods chain that is looking to expand beyond its Southern California base.

There’s also Kevin Hart’s Hart House, LeBron James’ Blaze Pizza franchise, rapper Drake’s Dave’s Hot Chicken franchise and Priyanka Chopra’s SONA.

SVN | J. Beard Real Estate recently facilitated a 16,390-square-foot medical office lease with American Oncology Network at the now 75% occupied Physicians Centre at Vision Park at 18354 I-45 South, Shenandoah, Texas.

Developed in 2023 by i3, the Physicians Centre at Vision Park is comprised of approximately 48,000 square feet of Class-A medical space. Physicians Center provides easy access for physicians and patients alike due to its close proximity to all major hospital systems in The Woodlands area.

SVN | J. Beard Real Estate represented the owner, i3, and the tenant, American Oncology Network, represented their own interests in the signing of this ten-year lease. As recent affiliates of AON, Woodlands Cancer Institute will occupy a 6,395-square-foot suite on the first floor and an additional 9,995 square feet on the second, totaling 16,390 square feet.

American Oncology Network (AON) is an alliance of physicians and seasoned healthcare leaders partnering to ensure the long-term success of community oncology at multiple care sites across the country. With additional resources and support from AON, Woodlands Cancer Institute will continue to provide treatment in the Woodlands Community for patients diagnosed with all types of cancer and blood disorders.

Matthews Real Estate Investment Services completed the sale of an industrial outdoor storage (IOS) property at 15221 Market St. in Channelview, Texas.

Matthews associate Murphy Sloan and senior associate Andrew Wiesemann represented the seller in the transaction.

Alpha & Omega Equipment sold the property through a sale-leaseback. The industrial site featured 56,248 square feet on a 4.81-acre lot. Matthews agents secured a 30-day due diligence, a five-day close and a closing price within 5% of asking.

The property was acquired by Triten, a national IOS investment fund. The company plans to hold the investment after a seven-year lease with two five-year options to follow was negotiated with the seller.