Manage Cash Flow During High-Vacancy Periods

For the majority of buildings, 99 percent of cash flow is derived from rents, so when the unexpected occurs, it’s time to think differently, says Greg Carbone with the Institute of Real Estate Management in Chicago.

Get Creative
The majority of people think of ATM machines as a technology that provides convenient access to their own money. For building managers, however, ATMs can actually enhance your property’s additional revenue. By installing an ATM machine in the lobby, you will likely be able to generate more money. Typically one or two dollars of every fee goes to the landlord, Carbone says, and if it’s convenient for tenants, why wouldn’t they use it? Still bigger—and easier—money comes from providing sites on rooftops for cellular dishes, which often generate as much as $20,000 per year in rent for building owners. Carbone notes that there may be objections—from tenants and neighbors—but, in some cases, a tower (with its improved reception) may even be seen as a plus. Vending machines are another source of cash flow. Carbone’s broad point: When times get tough, “look at alternative sources of cash flow. You’d be surprised how much this can help.”

Reduce Costs
Another route is to closely eyeball expenses, and often the most appealing line item there is insurance. According to Maine-based insurance expert Scott Simmonds: “Property managers interested in managing cash flow should look at their insurance costs. Companies that bid their insurance can save 20 to 40 percent.” Managers who already put their coverage up for bid on a routine basis probably won’t see this level of cost cutting, but when a property has been with the same agent and insurer for a number of years, rocking that boat by seeking competitive bids can produce huge savings, says Simmonds.

Long Island, N.Y. property manager Hilary Becker suggests taking a hard look at small expenses in order to optimize outlays at a time of shrinking income. Lighting, for instance, is often a fast way to tackle costs because recent years have seen a flood of low-wattage, long-lasting bulbs that let any building manager significantly reduce costs. Focus on cutting costs in spots where tenants are not likely to notice obvious differences, says Becker.

Attract and Retain Tenants
When vacancies are strangling a property’s cash flow that is the time to invest in sprucing up the property, says Kevin Schmidt, a property manager in Shreveport, La. Fresh paint, landscaping, new carpets and aggressive marketing can all work to attract new tenants.

Another option for curing high vacancy is to get flexible with lease terms. Offer short-term leases for interested tenants, and balance them out with 24-month lease terms for tenants seeking long-term stability.

Keeping more existing tenants happier may be the ultimate weapon for keeping cash flow healthy. Whenever a tenant gives notice to quit the property, ask: What can we do to keep you? How about new paint or new appliances? Or long lease-renewal term? Keep an open mind and keep asking because a building that already has a vacancy rate that is too high cannot afford to lose more tenants. Often there is a hot button that will persuade this tenant to stay, typically at a cost much lower than bringing a new tenant in.

Whatever the root of your cash flow problem, know there are steps you can take to turn the situation around, including keeping tenants happier, producing alternative income and cutting expenses.