Where there’s business, there’s real estate
Cooperation strategy mutually benefits landlords and business owners
Contributed by Alan Phoon
The curtain has drawn a close for the year 2020. Looking back, there were many lessons learnt and therefore we can expect to put them into good use as we move ahead for 2021. As the Covid-19 cases continue its spike, the local economy remains uncertain to say the least. Moreover, the country’s borders are still closed.
In critical times as such, extraordinary measures are pivotal to the changing landscape. Real estate industry is no different. While it is likely that we have hit the bottom, the good news is that here on we should see much heightened activities that will provide plenty of opportunities in both the business world as well as the real estate sector.
As much as businesses requiring venues to operate, from hotel buildings, office towers, retail outlets to shop lots, many landlords do not see beyond just the rental of a tenant’s business. Their focus hinges on immediate monetisation alone. Very rarely would the owner get involved in the business to ensure the sustainability of their rental yield, which seems pretty abnormal.
Now, imagine if these owners can see beyond just the landlord-tenant relationship and get themselves to cooperate with creative entrepreneurs who do not mind sharing their revenues in return? Wouldn’t these synergies be a step forward to ensure sustainability for the performance of the rental income?
While once we may argue and see this as a risk since there are covenants to be fulfilled in the legal instrument in the form of a tenancy agreement, the possibility of such symbiotic relationship would definitely hinder both parties from any breach as the key goal established from the onset would be on the success of the business model. As a matter of fact, this should be on the checklist of every property landlord when selecting the right tenants as an assurance of affordability!
By implementing a cooperation strategy between the business operator and the real estate owner, a whole new paradigm can be unlocked. Do not forget that a property can even be refinanced by the owner to release liquidity and reinvesting back into a profitable and matching business by the tenant where the owner may not have the expertise to run or operate them in the first place while getting the property valued higher with long term tenancy and business viability.
Asset turnaround: A new trend
In more recent times, we have seen many traditional hotel buildings converted into co-living accommodation where rooms are rented with common facilities but for longer-term for the occupants. In short, there is a need to reorder and redraw the real estate industry into unlocking its own value, by redeveloping the internal structure and the business model from inside out.
In the It’s not all gloom and doom article published last year, I specified the need for different perspectives to turn negatives into positives ideas and introduced wellness real estate as a potential sub-sector in the real estate scene in Malaysia. There are untapped markets where assets can be repurposed for a niche market, thereby unlocking opportunities to yield better business profitability.
From the above, it is evident that there is a need for a paradigm shift between owners and occupants as it takes two hands to clap. Some major key success factors for asset turnaround consist of criteria as follow:
• Asset owner’s willingness to understand and explore new business models.
• Occupants are able to access the asset owner’s participation and monetary support for ease of doing business.
• Both parties maintain a high level of trust to ensure healthy gross turn oversharing.
While unlocking the potential of a property is not something new, many choose not to get their hands dirty. Only a handful are willing to delve into distressed assets to repurpose them for immediate tenancy through joint participation. Businesses a lifeline It is no longer just a hypothetical theory but a reality in today’s fast-moving world where extraordinary approaches become the new normal.
Nobody likes to address the elephant in the room. The matter of fact is we need to tackle livelihood issues immediately by acknowledging bottlenecks and revamping approaches to bring about a much-needed change to real estate survival, together with the growth of businesses, no matter how small the growth may be. If a business closes down, the premises it occupied becomes untenanted and the onus lies on the landlord to search for another tenant closest to the usage where the premise is designed and furnished for.
Any downtime would bring more burden to the landlord. A wise property owner should have his real estate negotiators (REN) ready for such eventuality. A wiser REN would target upcoming tenants from a need-based point of view. The question is who can sustain the now-vacant unit in a time of uncertainty when businesses are hard hit the most? The National Property Information Centre’s (Napic) Q3, 2020 figures showed a staggering number of overhang units, particularly for residential properties amounting to RM42.49bil.
A second chance
We have seen how the Covid19 pandemic has brought most global economies to its knees. At the same time, we are also seeing a light at the end of the tunnel, with the advent of the much-awaited vaccines. While real estate may not be the main thing on people’s minds during a crisis like the Covid-19 pandemic but on their bread-and-butter, the key to rebuilding lives and the economy is tightly connected to the performance and revival of the once robust brick-and-mortar market.
The DNA of property investment has always remained as a visionary one where one should be taking a position long before the market or economy recovers. Asset turnaround is one of the keys to ensure sustainability for the real estate market in Malaysia and the world. The adage that there’s always a solution to every problem holds true. The underlying but unconventional truth is because we, as humans, tend to be solution-centric and getting out of a rut like what we are facing now is merely an eventuality.