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Property Portfolio Best Practices for Community Real Estate

Managing community properties benefit from best practices in portfolio review and planning.

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The San Diego Real Estate Assets Department (READ) adopted a portfolio management model to improve customer service, increase financial return from its assets, and position itself to provide superior facilities to City operations.

Corporate real estate organizations face many of the same issues that concern the City of San Diego - acquiring and controlling the real estate necessary to accomplish the business of the organization, in the most economical and efficient means possible.

For the investment component of the portfolio, the largest opportunity lies in positioning READ's practices so assets are viewed competitively. Inflexible leasing structures, slow response time, and unpredictable approval processes involved in leasing or acquiring property from an owner can detract from the potential return of real estate assets.

Real Estate & Property Best Practices

A set of processes that is well-understood, and that is supported by standard forms and methods. These include:
  • A formally administered list and categorization of appraisers
  • A library of approved forms and agreements, incorporating calculations and methods required by federal agencies
  • Consistent timelines and methods applied across the team

Administrative functions include budgeting, bookkeeping, Service Level Agreement (SLA) compliance, forecasting, lease setup and payroll.

The adoption of modern technology, including lease administration and property management tools such as a library of legal forms for leases can address many process issues,and it is important that old tools be removed, so that users work with modern processes in a consistent manner.

Existing property data files in READ are stored in a central library but scanning the documents without integrating them in a modern real property administration environment will not achieve a significant change in the effectiveness of the department beyond making the documents more usable. Scanning documents should be part of a larger migration, in which READ will use real property administration tools and real property abstracts for most of their work, and will occasionally refer to the underlying property documents. Links to the electronic version of those documents will exist inside the property administration tool, and may be supported by links from a GIS-based navigation system.

Real estate investment trusts (REITs) and corporate real estate organizations both have migrated to an electronic document management environment. For the most part, corporate real estate organizations had created customized versions of real estate applications, with strong linkages to core accounting systems.

Adopted Best Practices for the Real Estate & Property Portfolio Plan

A formal portfolio plan is at the center of the recommendations for READ. The portfolio is reviewed on an annual basis. It includes the following:
  • A review of the portfolio
  • An operating plan for corporate property
  • An investment or disposal plan for surplus property
  • Market research and specific parameters for anticipated transactions in support of these two plans
  • Request for authority to act within those parameters

Public service portfolio plan

    Review of current holdings
  • Summary of changes since the prior year
  • Proposed changes to the portfolio (summarizing requests from other departments)
  • Market research and estimated pricing parameters for executing those changes
  • Request for authority to execute transactions in line with those parameters

Corporate Real Estate & Property Portfolio Plan

This portfolio consists primarily of office space.

    Portfolio review

    This is a review, building by building, of every space occupied by this function.
  • Condition
  • Cost, total and per square foot
  • Upcoming events (lease expirations, renewal options)

    Demand review

  • Occupancy, by building and floor
  • Stacking plan, by building and floor, with key data for utilization by employee
  • Anticipated demand, by department and floor

    Portfolio response

  • Market Research – Market and actual cost for any building with an upcoming event
  • Recommended actions – Expansions, contractions, new development Request for action
  • Request for authority to execute leases within parameters set based on market research

Surplus / Investment Real Estate & Property Portfolio

    Portfolio review

  • Broken down by property type (farmland, telecommunications tower, hotel)
  • With performance data for each major property or group of properties

    Upcoming events

  • Leases approaching expiration
  • Leases requiring action
  • Properties identified as surplus

    Portfolio RESPONSE

  • Market research
  • Recommendation of monetization strategy (sale or lease)
  • Recommended pricing

    Request for action
    Request for authority to execute within described terms

  • Sale of surplus property
  • Execution of leases within terms (authority within a box)
  • Designation of properties as surplus

Major elements in developing and administering the Real Estate & Property plan

We have identified several major processes to be adopted under a best practices model. Some are full processes, and some are detailed some components of other processes. They are discussed below, and are as follows:
  • Property evaluation and characterization
  • Occupancy strategy development
  • Surplus / investment portfolio plan
  • Not-for-profit portfolio review
  • Business case development
  • Supporting structures
  • Legal document development and review

Real Estate & Property evaluation and characterization

One key process is the evaluation of every property in the portfolio. This starts with a cataloging process, but also involves characterizing properties as to their fitness for purpose, physical condition, and utilization. Based on the conclusions reached in this characterization, each property is assigned a status that determines the processes applied to it thereafter.

Facility's Fitness for Purpose

This attribute considers the suitability of the property for its trade use. (Note – this is most applicable for corporate and public service properties).
  • Built for this purpose? – i.e. fire station operations in a firehouse vs. office operations in an industrial building
  • Appropriate location – is the property near the people it serves, or the departments with which it works?
  • Size – how well does the function fit in the property?
  • Physical configuration – does the shape and layout of the property correspond to the function carried out in it? This includes parking, workstations, customer service areas, and other specific features

Cost/value of Real Estate & Community Properties

  • Highest and best use – disregarding current use, what uses most likely to achieve maximal value for the property, based on surrounding uses, market trends, site and building characteristics, zoning and other restrictions
  • Market value – again, disregarding current leases or contractual obligations. Based on appraisal, comparable sales, market offerings, or appropriate analysis of other properties in the portfolio
  • Market rent – appropriate measure of return based on highest and best use, and using the same terms under market value
  • Contractual rent – if the property is under lease, the income stream under that lease

    Elements of a portfolio plan

    Within the portfolio plan, this section presents • portfolio overview, broken down by classification, in summary form • Properties whose status has changed since the last portfolio plan • Changes in the composition of the portfolio since the last portfolio plan

    Types of Community Operational Assets

    • Administrative Offices
    • Parking Lots
    • Education - Adult
    • Education - School
    • Enterprise Centers
    • Leisure Amenities and Facilities
    • Libraries
    • Museums
    • Public Access
    • Residential Homes
    • Storage Facilities
    • Youth and Community Centers
    • Civic Ameities
    • Parks & Land
    • Agricultural Land
    • Ground Leases
    • Industrial Leases
    • Land
    • Mooring Rights
    • Offices
    • Public Houses
    • Public Services
    • Shops
    • Health Care Facilities
    • Commercial Units
    • General Buildings
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