Tenant Retention

Bluestone and Hockley Real Estate Services

I received a card today congratulating me on my purchase of a vehicle. This was a follow up from a company that bent over backward to help me. I went through the hands of three people and all of them treated me with respect, dignity and gave me the feeling that I was their only customer. I felt like a king.

Unfortunately I do not feel like a king very often. Most of the time I am treated, well… like a number. One could say that the era of customer service is almost dead.

You may ask why this is important.

Tenant Retention
Looking at the costs of re-tenanting should motivate you to try to keep tenants. In office and commercial buildings you have vacancy costs plus leasing commissions, tenant improvements as well as the challenges of the construction coordination that will affect other tenants.

We know that you will not be able to keep every tenant.

Some tenants don’t pay their rent or pay their rent late. Some tenants are just not the right fit. Just this last month we asked a tenant to move from a building because their clients were harassing other tenants in a building. But the landlord’s objective needs to be to keep every tenant they can.

Tenant Mix
This leads us to the concept of tenant mix. Many years ago before I knew better, I leased a large space to an office tenant in an industrial park. My client’s were very happy, the rent was low, and the location was great. Even the parking was good. They were happy until the new neighbor moved in. The new neighbor was a metal stamping operation. Their equipment went bang-bang all day long. My client’s employees were very frustrated. The walls and the floors were shaking with every stamp. Those people located within 20 feet of the wall they shared could not make phone calls anymore. We learned a big lesson then about how to combine tenants with similar uses, to keep them all happy.

Bad Economy and Pressure to Pay the Mortgage
There are times when the tenants have opportunity and can motivate landlords to offer low rent because landlords still have to pay the mortgage. This is balanced by times when the landlords have opportunity and can raise the rents to keep up with costs in the market place. In both cases there is opportunity for landlords to keep their tenants.

If you treat your tenants with exemplary service, they will want to stay. This can help create additional opportunities for landlords. For example if a company is growing, a landlord might be able to build a new building for them or expand them in their existing location.

This is the key to successful ownership and management of properties — great relationships. Many landlords forget that they need to care about their tenants. This does not need to be expensive. Some landlords throw holiday parties for their tenants. Some give holiday gifts.

Some landlords go the extra mile to make sure the property the tenant leases stays in first class condition. This may sound expensive. But bear in mind that if your building is well taken care of, the tenants and their visitors will notice. Visitors will comment. The tenant will be happy because they picked the right building and will extend their lease if they can, or ask the landlord if they have another building they can lease. Our tenants spend more time in our buildings then they do at home. It is their “home away from home” and that is why we can have so much impact.

The holiday cards, the birthday cards, the personal site visits, the building improvements the personal service, the quick responses all tell a tenant that they are appreciated.

Of course not all tenants appreciate you going the extra mile and take advantage. But we should not let the minority spoil the positive aspects of our relationships.

Just this month we installed exterior lighting at an industrial building that had been broken into recently. The landlord paid the $3000.00 bill and did not pass it through the common area maintenance charges.

Why did the Landlord do this? Because he is sending the tenant a signal that he cares about the tenant and their security. This kind of small investment pays large dividends. Sometimes you can negotiate a lease extension, when you improve the property.

As companies get bigger and landlords have more assets, they tend to lose that personal feel for the tenant. It is critical for the landlords to encourage their property managers to listen to their tenants and be proactive in their management activities.

Property managers should have thank you cards or personal stationery at their desk that they can use to send to tenants. They need to make it easy to solve problems. The quick resolution to problems shows a tenant that their problems are important and that they are appreciated. Let’s put it in perspective. When you stay in a four star hotel, you expect to pay more and receive special attention.

Applying this concept to commercial real estate can work the same way. Tenants will pay more if they are taken care of. For example in a four star business park you might be able to offer a tenant a better Internet back bone, an emergency location or a generator if they have a flood or power outage. Maybe you offer a small portion of your office while they get back on their feet after an emergency, or a shared conference facility, extra parking, or a park newsletter that highlights the tenant accomplishments.

Anything you can do to make a tenant feel special will help keep that relationship into the long-term.

I could go on, but I think you get the picture. Treat the tenant like a king (or queen) and you have a good shot at keeping them as a tenant and profit from them renewing their lease. That is what tenant retention is all about.

Bluestone and Hockley Real Estate Services

Tom and Irma spent a lifetime buying real estate. By the time they were in their sixties they owned 4 houses, a 30 unit apartment building, three commercial buildings, and had additionally invested with a couple of friends in some real estate partnerships.

Their cash flow was pretty good. They had almost paid off all of their investments. They kept their properties up. You could call them pride-of-ownership owners. They even found a property management firm that helped them care for their investments so that they only had to read the monthly reports, help prepare annual budgets, and inspect their properties from time to time. Things were going pretty well.

Their three kids had all finished high school. One daughter had gone on to graduate school and was working for a real estate developer. The middle child, a son, was a carpenter and an artist. Their youngest daughter was a school teacher. All were comfortable and did not need money from their parents.

Tom and Irma had focused on buying real estate when they were young and had developed their holding with a goal towards retirement. They were concerned that social security was under funded and doubted that there would really be any income or medical care for them, in their retirement. See excerpt from May 2, 2006 Yahoo news article below:

“The annual (Social Security) trustees’ report moved up the date that the Social Security trust fund will be depleted by one year to 2040 and moved up the date that the Medicare hospital insurance trust fund will be depleted by two years to 2018.

The problems in Medicare were depicted as far more serious because of the skyrocketing costs of health care, but the trustees presented a somber assessment of both programs facing the looming retirement of 78 million baby boomers.”

At this point in their life, they were healthy — relatively speaking. Irma had been struggling with diabetes for 10 years and Tom had some arthritis in his knees. They had been traveling all over the world and loved going to sea on cruise ships. They took two cruises a year all over the world. They were very happy except for one nagging question. What were they going to do with their real estate assets as they got older and it became tougher for them to take care of their investments?

Roger and Janine
Tom and Irma had always taken care of their real estate together. They had learned a valuable lesson when their close friend Roger passed away and his wife Janine was left with great real estate assets but no understanding how to manage them. Janine sold all of their assets within 12 months after his death because she just did not understand all of the details. She wanted all of her money in cash where she could see it. She had no idea that she was going to get taxed by the state and the federal government when she sold her real estate and ended up with almost 30% less than she had started with. In addition she was no negotiator and lost some of the value of her assets because she just did not want to be bothered with the process of going back and forth.

What was most important to Tom and Irma was to maintain their independence for as long as they could so they would not be a burden on their children. They had been able do this so far. As their friends grew older they noticed a disturbing trend.

As their friends gave significant financial gifts to their children, the children began to expect more and more cash or other gifts: stocks, real estate, cash, etc. This was most likely due to the increase in the standard of living and the struggle for every one to keep up with the Joneses. Real estate values had skyrocketed and only the fewest of their friends’ children were able to own homes.

Tom and Irma noticed significant skirmishes between children who wanted a piece of their parents rock (i.e. real estate or other estate holdings). The word “greed “came to their mind. This concept disturbed them. Most of these skirmishes were driven by the kids not seeing the future in real estate, and not seeing themselves as real estate investors. They definitely wanted the cash to spend and not real estate to care for.

One of Tom & Irma’s friends, Dolores, was in her 80s and owned 3 homes in a trust. The cash flow from these homes paid for her stay in a senior assisted care facility. Her daughter Margaret was the trustee of her estate. Margaret took good care of her mother and in return charged the trust $500 a month to look after her mother and the properties. This was okay for a while, but Dolores had five children who wanted to know what was going on. They asked Margaret for monthly financial reports. Margaret refused to share the information, so they banded together and got an attorney involved. They just wanted to know what was going on, but Margaret became defensive and it became all-out sibling war. Margaret used Dolores’ cash reserves to hire an attorney. As a result Dolores’ asset values dropped to the point where they had to sell one the rental houses to pay the bills.

The Plan
Tom and Irma realized that not every child is the same. They decided that they needed to get all of their kids on the same playing field with them, so they decided to skip their next cruise and arranged for all of their children to meet them for two days without their families for a “business” retreat. Their intent was to plan for the next twenty years and the end of their lives. First they needed to make the kids relax and make sure they still got along. Then they explained to their children that one of them needed to be the real estate point person and another, the senior care point person. They laid out their plans for their investments and also asked the kids whet their needs would be.

Critical to the success of the business meeting was that the kids saw their future as tied together at least through their parents lives and then also after the parents deaths. Tom & Irma invited their property manager, their stock broker, their insurance agent, their CPA and their attorney to the meetings so the kids could see the whole picture.

What was extremely important was to make sure that the kids established common and a way to communicate. Then they discussed the issue of spouses, the potential for future divorce, and how to plan the future. None of the kids saw divorce on the horizon, but they did agree that one spouse had a very strong personality and could be very pushy and intimidating. They also agreed that the husband of the teacher was a good conciliator and could be very helpful to the group once the parents passed away.

This was a very difficult meeting, mostly because the kids had to come to grips with the mortality of their parents — something no one wants to do. At the end of the meeting they had hammered out a plan and an agreement to meet once a year make sure all were still on the same page. The kids also agreed that the daughter with the development experience would work closest with the parents and would give the rest of the siblings a monthly update.

At the end of the two days Tom turned to Irma and said, “I feel much better now.” She agreed.

Tom and Irma managed to plan a strategy. But what happens if you do not have children, or your children are not old enough, don’t have the skills or are not capable? What happens if the kids have no desire to be involved at all? If you find yourself in this situation, you may want to involve hired help. Trust companies, trust departments of banks, attorneys, friends, partners, and charities can provide help here. If you need to use one of these resources, you need to be aware that there is a significant additional cost involved. In addition you need to set annual investment goals, and develop a double check system of people you trust to administer the funds for you. For example, if you could set up a trust and have a board of advisors make decisions. This board must be selected by people that do not have a vested interest in your decisions or the implementation of your decisions. In other words, they should not be employees of the trust organization due to conflicts of interest.

At this point Tom and Irma are back to being semi-retired, paying attention to their investments, and planning their next cruise, knowing that their future is planned for.

Bluestone and Hockley Real Estate Services

Bluestone and Hockley Real Estate Services

Applies to Commercial, Residential, Condominium

HB 2180 This bill eliminates annual elevator inspections and allows for the frequency and the standards of elevator inspection to be determined by administrative rule. It also allows the elevator Board to set fees that are similar to fees currently being charged for elevator inspections. Most importantly we have a new category of elevator service contractor who is certified by the state and can, by virtue of the certification, submit that an elevator is safe.

HB 2078 Construction Defects This bill creates a task force on construction claims to study the relationship between such claims and construction industry practices, construction defects, consumer protection and state-mandated requirements. Committee will report back to the 2007 Oregon legislature.

HB 2525 Construction Defects This bill gives a contractor an opportunity to remedy problems prior to the start of litigation. Contractors must supply the notice below to clients:

“Oregon Law contains important requirements you must follow before you may commence arbitration or a court action against any contractor, subcontractor or supplier for construction defects.

Before you commence arbitration or a court action you must deliver a written notice of an conditions you allege are defective to the contractor or supplier you believe is responsible for the alleged defect and provide the contractor, subcontractor or supplier the opportunity to make an offer to repair or pay for the defects.

You are not obligated to accept any offer made by the contractor, subcontractor or supplier. If you refuse an offer by the contractor, subcontractor or supplier to repair a defect, your refusal may affect your ability to obtain a remedy for that defect through arbitration or a court action.

There are strict deadlines and procedures under state law. Failure to meet those deadlines or follow those procedures will affect your ability to commence arbitration or court action.”

HB 2071 Construction Defects Allows the client of a contractor to initiate a proceeding to resolve a claim through binding arbitration substantially in conformance with ORS 36.600 to 36.740.

Applies to Mobile Home Parks

HB 2247 This bill requires a manufactured dwelling park or a floating home moorage to register with the Housing and Community Services Department. It requires that at least one owner, manager or person complete continuing education of at least six hours every two years relating to the management of the facility. Failure to register for this education may result in a $500 fine.

This law also defines the methods a landlord may deliver and bill for utility services to park or moorage tenants. This method will need to be defined in the rental agreement between the Landlord and the Tenant. A landlord may not charge a billing service charge to a tenant or any additional charge to offset landlord costs for the installation, maintenance or operation of a utility or service system or any profit for the landlord. The landlord may unilaterally amend a rental agreement to convert a tenant’s existing utility or service billing from their existing system to a sub-meter billing system, with no less than 180 days notice.

For a period of six months following installation of the sub-meter system, the Landlord may not increase the rent to offset the cost of installing a sub-meter system. The Landlord will have permission without further notice to read Tenant’s sub-meters.

Applies to: Residential:

HB 2303 Allows the State Building Codes Division to amend the structural and mechanical codes to keep inline with national alterations of the code.

HB 2524 Landlord Tenant Act Amendments

  • Deposits held by landlords will not be subject to garnishment
  • Landlords will be required to issue a written statement to applicants if they deny their rental application. Failure to comply will incur a $100 penalty that the Landlord will have to pay the tenant, this penalty will also apply if the landlord fails to tell the truth.( Chapter 31, ORS 90.295)
  • Landlords will be exempted from the abandoned property rules if a property was used as a methamphetamine lab.
  • Provides for an Ex Parte review of tenant hearing requests to ensure the requests are based on valid reasons previously defined by the law.
  • Simplifies and modernizes the Writs of Execution
  • A landlord may no longer deny a tenant’s application because they had an FED
  • (eviction) on their record that was subsequently dismissed by their previous Landlord. ( Section 32)

The last item allows the landlord to issue a 30 day notice with a suggestion on how to cure an ongoing tenant problem. (i.e. playing the drums at 3 a.m. every night.) Took the Sherrif’s department out of the process of removing evicted tenants’ goods out of units. .(Section 37 ORS105.156)

HB 3319 Wage Payments for Onsite Employees Allows an employer to estimate the final wages of an onsite employee if that employee quits without turning in a time card and without giving 48 hours notice. This allows the employer to make a good faith payment and then amend the records within five days of submission of employee time records. (think onsite employees , managers , maintenance, painters etc.)

Applies to Commercial Buildings

HB 2458 Extends the sunset provision from the statute authorizing industrial development of buildings of any size and type on lands located in the Willamette Valley for land located outside of the Urban Growth Boundary.

Applies to Condominiums and Planned Community Boards

SB 955 Requires that the 30 year reserve study include repair and replacement of the common elements of associated property.Requires that the annual update of the reserve study be published and circulated to all owners in the association within 30 days after conducting the reserve study of the annual update.Requires that associations actually have an ongoing maintenance plan in place that is appropriate for the size and complexity of the property.

As you can see many issues were discussed in this last session. We also expect to see major revisions in how the Real Estate Agency is run. We additionally anticipate the Agency to set a standard list of penalties for those with real estate or property management licenses who do not comply with current administrative rules.


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