Know Your Neighborhood's Market Value

You assuredly did your research to determine that your property was in the right place at the time and that you were leasing parallel to market prices when you first began letting. But neighborhoods and surrounding environs change, making it essential that you keep up with how much your locale is worth. Knowing this ensures that you stay competitive by marketing and leasing appropriately—and profitably.

Do Your Research
The first source you should try for current information about local property values is your real estate broker, according to Todd Rissel, CEO and chairman of e2Value Inc. in Stamford, Conn.

“I tell everybody that your best friend in any of these cases is your broker,” he says. “They will know any neighborhood like the back of their hand. That’s your best source.”

You want to check with people who are experts in the field and knowledgeable in your local area, he says, adding that attorneys who deal with leasing and buying of commercial properties are great resources.

Scott Roberts, national sales manager for World Properties International in East Hartford, Conn., agrees that real estate companies are a prime source for information.

“There are a lot of commercial real estate companies that offer a wealth of knowledge as far as what kind of inventory they have and if that inventory is selling or just sitting there,” he says.

But you can’t rely solely on outside sources for guidance. Rissel stresses that you have to understand your market and your local area. The simplest tools are usually the best tools, he says—such as newspaper ads for available spaces, which can give you an idea of how property values are doing. You also can try anonymously contacting competing management companies to find out what space in their buildings is going for. Rissel also suggests visiting the tax office of the municipality in which you operate. Because the town gets tax revenue based on what the buildings are worth, you can check recent sales to see property values.

Roberts recommends paying attention to what’s happening in residential markets, noting that commercial and residential property markets are symbiotic.

“If I’m a property manager or owner, I have to know what’s going on on the residential side through and through,” he says.

The Internet is a huge resource, Roberts says. Many feel that you don’t need a real estate broker anymore, he says, adding that for some there is a psychological benefit from working with an agent. But you can find much of the information you could get from a broker on the Web, he says.

And don’t forget to keep your eyes open; there are signs if you look for them. “[The information] is all over the place,” Roberts says. “It’s on billboards—in a dead commercial zone you’ll see it on billboards driving down the highway—‘Special discount, first three months’ because they’re trying to get people back in.”

Use What You’ve Learned
Once you have the data you need, you want to gauge your next steps, Roberts says. Do you have room to increase your rents or is it time to get out and move on to something bigger and better? Is the market completely dried up? It all depends on what’s going on in that economy, in that market, he says.

“If [the property] is selling, you know that companies are trying to come in and the economy is booming,” Roberts says. “That gives you a good hint that ‘I might be able to slowly increase my leases.’ What you want to do is get in low, honor the rents that are there and then eventually raise your rents to meet what the market demands.”

“If an area is becoming less desirable, unfortunately your rents are going to be adjusted to reflect your demand and that would mean down,” Rissel says. “And it’s going to affect the way you search for your tenant base. But who your market is and what your building is capable of is going to affect all of these processes.

“It’s an ongoing process,” he adds. “You’re going to keep an eye on where your building is going and where it stacks up, and ultimately how the value of the building itself is increasing relative to your ability to extract more rent from it.”

According to Roberts, much of how you expand your knowledge of local property values, and how you use that knowledge, falls to your instincts and talents as a businessperson.

“If you’re a property manager and you don’t see the writing on the wall, you probably shouldn’t be in that job, that’s for sure,” he says.