10 Asset Management Strategies to Use in Times of Crisis
By Christopher Levarek
“Passive vulnerability refers to the condition of being vulnerable without choosing to be. Active vulnerability stems from a contemplated risk that considers the intrinsic( e.g. personal fulfillment) and extrinsic(e.g. financial reward) payoffs for that risk.”
Anthony Tjan, Good People
During times of crisis or recession, investors, landlords, property owners are put to the test. Asset management and investment strategies are questioned as budgets tighten or stock market losses bring in question long term impacts.
Although real estate in itself can be a good recession-resistant asset, any large scale financial crisis, disaster or pandemic will ultimately have repercussions upon renting tenants, bank financing options and local businesses (contractors, attorneys, etc). These in the short and long term can greatly affect any investment strategies or ownership management plans.
As a property owner, landlord or asset manager, consider utilizing any of the below strategies to better shield the property, weather the storm and come out of a crisis in a position of strength.
Asset Management Strategies
Maintain Occupancy - Occupancy means rental income. It is recommended to protect that occupancy by offering care packages(supplies), concessions or even residential referral fees. Tenants will be dealing with possible job loss or personal financial challenges so assisting in any way possible will better protect occupancy levels.
Assistance Programs - Research and provide possible services relative to the disaster or recession at hand for tenants to employ. This could include financial or even services relative to a pandemic/disaster such as FEMA, medical testing facilities, unemployment assistance, etc.
Evaluate Tenants - Specific industries will be affected in a recession, disaster or pandemic. By understanding where tenants are employed or who is “at-risk” to be most affected will allow the property owner to understand how directly their tenants will be affected.
Payment Assistance - Implement some payment assistance programs for tenants having difficulty meeting payments. Some possible strategies include late payment fee waivers, splitting the rent into two payments or even skip 1 month rent which is then amortized over the following 12 month period.
Improve Business Processes - Depending on the disaster, health risk (e.g. Coronavirus) or recession, there is always room for improving an investment strategy or business processes. In the case of health pandemic, online leasing or video property walkthroughs for new tenants to view will better accommodate health protection measures. Online marketing could also be increased as physical drive-bys will most likely decrease.
Modifying payment options to be online or at the very least having a dropbox are also some ideas for limiting physical interaction or implementing “social distancing”. Additionally, perhaps it makes more sense to hold a virtual webinar/meeting instead of monthly property meetups or weekly onsite visits.
Increase Reserves - Prepare for long-term implications by placing more of the monthly cashflows into reserve. In the case of a joint-venture, syndication or partnership, communicate with investors about withholding distributions temporarily as well as payment of any asset management fees to increase reserves. Decrease any non-critical expenses and place any extra capital in reserve.
Financing Lender Relationships - Communicate with bank lenders or mortgage brokers to understand what can be done at financial level with ongoing loans. Examine possible solutions in case of any payment issues relative to the property loan if the monthly mortgage can not be met.
Halt Renovations/Rent Increases - Consider temporarily suspending any new unit renovations and instead hold renovation funds. In order to assist with occupancy levels, limit rent increases as this could drive away existing tenants.
Critical Maintenance Only - Lower monthly expenses by only issuing repairs needing immediate attention. Non-emergency repairs can be postponed until necessary.
Limit Exposure (Pandemic) - In cases of a medical pandemic, respect implemented quarantine or “social distancing” governmental restrictions such as canceling or closing large public events/areas on property. Unit inspections should be suspended and administration offices closed.
In Final
In a recession, natural disaster or health pandemic it is important to consider previously implemented investment or ownership strategies and determine if they still hold strength. Explore any weaknesses and take steps to mitigate risk.
Such times of crisis can be good to temporarily halt new investments/business or alternatively offer opportunity for those adequately prepared. As the great Warren Buffett says, “Be greedy when others are fearful, be fearful when others are greedy.” Invest Smart!