In our last article we discussed the various factors that should be considered when you are contemplating the purchase of commercial property. As promised, in this follow up article we will touch on several things you can do to enhance the value of the commercial property you already own. The two most prevalent situations that we encounter are: 1. a physician who owns an office condominium or stand alone building within which he or she runs their medical practice, and 2. a physician or group of investors who own commercial investment property in partnership primarily for the purpose of financial gain.

 

Whether you fall into the first or second category, there are a few things you can do to enhance property value that apply to both situations. The first is to make a good decision on the front end by purchasing property that is likely to retain its long term value. It is ill-advised to purchase property solely based upon its projected investment returns over the next few years, without giving serious consideration to the long term viability of the investment. Are there factors that will limit demand for the property when vacancies occur? Are the current rents likely to be above market when it comes time to renew the leases? This dynamic has occurred across South Florida over the last few years as investors purchased fully leased medical buildings, only to lose tenants or be forced to offer concessions in order to maintain high occupancies.

 

The second area within your control to preserve and enhance value is to maintain the property to a high standard. Too often, medical office condominiums defer maintenance in order to keep costs to a minimum. Not only does this affect the value when it comes time to sell, but may impact your business revenues as patients and customers drive away with a negative impression. In extreme cases, maintenance shortcomings result in hazards and potential liability to the property owners. Consider going so far as to create a reserve fund so that capital is available when it comes time to replace the roof or paint the building.

 

Often physicians finance the high cost of property renovations and the purchase of medical equipment into their mortgage, as lenders clamor to lend as much as can be justified through tying up not just the real estate but the practices’ receivables. We have encountered numerous physicians who purchased their office space and by the time they were finished with renovations and out-fitting the office, their basis in the property far exceeded its value. The physician is now locked into a mortgage and is unable to sell the property for anything near what he or she is obligated to pay.

 

Ultimately, the value of commercial property is determined by either what the market is willing to pay today for a given stream of future cash flows, or what a buyer perceives as the value of the property by locating his or her business there. Enter into solid leases with your tenants, maintain the property to a high standard and don’t over-burden it with debt that will impact your ability to readily sell the property in the future. By following these guidelines and more, you will greatly enhance the likelihood that your experience as a property owner is a profitable one.