Why do prices differ for the same building? Investors look at the profit structure.

This is an example of a neighborhood commercial facility located in the metropolitan area that recently underwent an exclusive sale.

When the request was first received, the building was an asset inherited through succession. The building owner did not manage it directly but operated it through a manager, and the manager had been primarily responsible for rent collection and tenant management even prior to the inheritance. The structure was such that the building owner received rental income through regular reporting.

Following the inheritance, an unexpected accident occurred at the aging building when a portion of the exterior wall collapsed. Although exterior wall repairs were carried out during the accident cleanup process, the asset's revenue structure could not be improved. Over time, the building owner decided to sell the building.

Compared to the plan first The reality is It moved

At the first meeting, the first direction considered was a strategy to get rid of long-term tenants and sell the property while it was vacant. This was because there was the possibility of utilizing it as an office building through new construction or remodeling, or attracting high-quality tenants.

However, an unexpected situation occurred during the process of reviewing the value. The tenant of some units on the first floor has personally found a new tenant who will pay the key money. At that moment, the question changed.

“hyeon In the situation To the seller most favorable asset nineJoe Something?”

The direction of this sale started again from that question. At the time, the sale was in progress, but a specific buyer had not yet been secured. It was necessary to re-examine whether proceeding with the eviction while bearing the issue of key money in the absence of a buyer was truly a favorable strategy for the seller.

Ultimately, after consultation with the seller, we modified part of the strategy. We decided to proceed by simultaneously inspecting and reorganizing the asset structure rather than investing funds in the immediate eviction process.

The investor Seeing The thing The building not It is an asset structure.

We reviewed the long-standing lease terms. The management fee system was unclear, and the contract terms of some tenants had not been adjusted for a long time. Accordingly, we reviewed ways to more clearly distinguish the rent and management fee systems in contracts with new tenants.

It was decided to inform existing tenants of the plan to reorganize the management system in the future as well. The important thing was not the simple act of raising the rent. It was a process of reorganizing the profit structure as evaluated by investors. 

Structural improvement is not achieved solely through rent increases. This is because the stability of the contract, the clarity of the management system, and the organization of rights and obligations are also important factors that constitute asset value.

more big The problem is different In the place There was

During this process, it was confirmed that some tenants had been in long-term arrears. The interesting point was in the way it was operated rather than the delinquency itself. During the COVID-19 period, the property operated with reduced rent thanks to the landlord's consideration, and flexible management taking into account the tenant's circumstances has continued since then. 

The problem was that at some point, this consideration went beyond the realm of management and solidified into a custom. In fact, the tenant had been unable to pay rent on time for a long period, reaching a point where it was difficult to recover the overdue amount using only the security deposit.

Nevertheless, efforts to find a new tenant were underway so that the tenant in question could receive key money and transfer the business rights. From the manager's perspective, it would have been difficult to ignore the circumstances of a tenant with whom they had maintained a long-standing relationship. However, from an asset management perspective, this can create another problem.

Goodwill and Asset management is different

Considering the tenant's circumstances and managing the rights and obligations of the assets are separate issues. If consideration initiated out of goodwill is repeated, the standards of the contract become blurred, and ultimately, the burden falls on the building owner. This aspect is especially important for assets that are about to be sold. Investors do not look only at the current rent level. It evaluates the stability of the contract, the clarity of rights and obligations, and the reliability of the management system.

The building It's exactly the same value changing reason

The interesting thing is that in this case, the building itself hardly changed.

The land area also remained the same, and
The total floor area also remained the same, and
The building was also exactly the same.

What changed was not the building, but the way it was operated.

Inspect the tenant structure, and
Reorganize the lease terms, and
Improve the management system, and

The process of changing the market's perspective on assets has finally begun. As a result, there is now a possibility that even the same building will be valued differently than before. The value of commercial real estate is not determined solely by the building itself. Investors look at the revenue structure generated within a building rather than the structure itself. However, many buildings are lowering their asset value due to long-standing operational practices.

It is difficult to change the age of a building. However, the tenant structure, management system, and operating methods can be changed. And that fine line ultimately determines the value and sale price of the building. If you own a building, you need to ask yourself a question at least once.

“Is the current tenant structure contributing to the enhancement of asset value?”