If you currently own or are considering the purchase of commercial real estate, you are probably well aware there are a number of tasks that must be handled on a regular basis. Space has to be leased, rent collected, the property maintained, and repairs performed as required.

Many individual owners—especially those who own from one to a handful of properties—seem to prefer to manage these tasks themselves. But this often stems from a mistaken notion.

“It’s difficult for some commercial real estate owners to understand the value of professional property management,” said Buddy R. Parsons, president of Borelli Investment Company. “These owners may think, ‘Why should I pay people to collect rent checks, mow the lawn once a week, and do the occasional repairs?’ Not surprisingly, there’s a lot more to it than that.”

According to Parsons, the benefits of professional property management fall into three general categories:

• Protecting you against undue risks
• Reducing your operating expenses
• Increasing the value of your assets

Minimizing your Liability

All investments involve market risk—the possibility that an investment may decline, rather than increase, in value over time due to market forces. However, for commercial real estate investments, there are other concerns that can pose just as much risk to you.

To minimize this liability, professional property managers work to ensure that all parties involved with a property—you, your tenants, and any vendors who may provide maintenance services for the property—are adequately protected by insurance. Property managers take a systematic approach to reviewing these coverages—regularly checking to ensure that insurance remains in full force and effect, and has the proper coverages and endorsements to protect you in the event of loss.

In addition to managing your insurance, property management firms can offer owners the advantage of buying policies as part of a larger group of properties handled by the firm. The portfolio is bid on a competitive basis, and this can significantly decrease the premiums an owner might have to pay if buying insurance individually.

Reducing your Operating Expenses

When property owners handle their own repairs and maintenance, they often unwittingly assume a high degree of risk. To control costs, they may pay a handyman in cash, or search for the lowest-priced contractor. In many cases, they don’t cover maintenance people against accidents through workers’ compensation insurance, and they don’t insist on liability coverage to protect themselves against shoddy workmanship, delays or unfinished projects.

“These owners think they’re reducing the costs of managing their buildings, but it only takes one problem or accident to wipe out all the potential savings and a lot more,” Parsons explained. “They’re strictly relying on luck.”

Professional property managers reduce operating costs safely and methodically. These firms establish long-term relationships with highly qualified and reliable vendors that do all the needed work for repairs or upgrades. Because of these relationships, and the high volume of work these vendors receive, they often charge more favorable rates, as well as provide rapid response to “emergencies” such as a leaky pipe or a broken window—even after hours or on weekends. And, if a job isn’t done right, the property company’s history with the vendor ensures that you’ll get the satisfaction you deserve.

Property management companies also employ systems to collect rent on a timely basis, deal effectively with slow or missed payments, and reconcile the building’s operating expenses, so you can recoup your costs by charging each tenant a fair share.

Increasing your Asset Value

The third area where professional property managers provide substantial benefits is asset value.

First, a third-party manager looks at rents without the emotionalism of an owner-manager, who may feel “loyal” to his or her long-time tenants. The top-flight professional also doesn’t avoid raising rents due to a fear of losing tenants. Often, owners actually fight against rental rate hikes, believing that if rents are raised, tenants will leave, and their building or buildings will fail.

Actually, the opposite can be true. Experienced property managers know that if they have done a good job of analyzing the market and establishing fair-market rents, the loss of one tenant will easily be replaced by another—at higher, market rents. Achieving and maintaining the right level for rents is a key to enhancing a building’s long-term asset value.

Second, a professional property management firm should have an effective marketing group to advertise and promote its portfolio of properties to a large group of potential tenants, as well as commercial and residential brokerage firms. This creates higher demand, which leads to rising occupancy and better returns on your investment.

Borelli Provides Unmatched Property Management

For more than 50 years, Borelli Investment Company has provided a variety of real estate services to owners in the Silicon Valley and beyond. Among these is the first-rate, highly professional third-party property management that helps owners reduce risks, lower operating expenses and continually increase asset values over time.

Borelli often goes beyond traditional property management to provide complete asset management that includes:

• Investment analysis
• Land acquisition
• Construction
• Financing
• Development

“We participate in the really important decision regarding properties,” stated Parsons. “These decisions include how to leverage properties within a portfolio to provide the highest benefits, how and when to renovate or add onto properties, and when the time is right to dispose of a property. Many of our clients enjoy the real advantages of receiving professional property management within the larger context of comprehensive asset management.”

For the past three decades—through market upswings and downswings—Borelli has maintained a remarkable occupancy rate of more than 95 percent across its portfolio—which has grown to more than four million square feet valued at $500 million. Borelli has also been very successful at doing the little things that add up to make a big difference for owners.

“Many owners won’t bother to try to re-bill operating expenses to tenants,” Parsons commented. “Their reasoning is that it’s too complex and not worth the effort—plus, they think they can just ‘pack it’ into the rent. But the reality is a lot of money gets left on the table—the owner’s money. We have a very good track record of being able to apply systems to efficiently get this money from tenants, and it is often enough to completely pay for us as a property manager, while putting more money in our owners’ pockets and providing the many other benefits of professional property management.”

Borelli’s aim is to take the burden of property management off of you—the smaller individual owners—so you can enjoy your free time seeing the world or relaxing with friends, instead of worrying about leaky pipes or peeling paint. For more information about Borelli’s experienced, professional third-party property management services, contact Buddy Parsons at (408) 453-4700, or e-mail buddy@borelli-inv.com.

Higher sales prices, shrinkin inventories, and growing construction costs are creating urgency for business looking for commecial space

 5-4-3-2-1 Liftoff!  That thundering you hear is the sound of lease rates on Silicon Valley commercial real estate leaving the launching pad and climbing back toward sustainable levels.  No one expects rents to go through the stratosphere, but after being exceptionally low for the past five years or so, lease rates on commercial real estate are due for a significant rise.  Business owners and property investors who are sitting on the sidelines trying to time the market would be well advised not to wait any longer.

Let’s turn back the calendar a few years to understand what is going on.  Following decades of steady appreciation in property values and healthy rental levels, the dot-com explosion of the mid- to late-1990s sent commercial real estate rents through the roof.  The belief that almost any idea involving the Internet was a money-maker created a tremendous demand for commercial space in Silicon Valley by venture capital-based dot-com startups.

But as so often happens, when the dot-com bubble burst in 2001, the overheated market cooled off quickly, driving rents down. Enormous amounts of inventory—at one point as much as 60 million square feet of space by some estimates—stood vacant. It was a renter’s market; companies leasing space felt they had the upper hand in negotiations with property owners.

Today, there are clear signs the commercial real estate market has come back into balance, after the rollercoaster ride of the past decade.

• Lincoln Property just purchased the four-building, 15-acre former Acer Computer campus on Trimble Road in San Jose for $27 million—handing Apollo Real Estate a tidy $8 million profit on the property it had bought less than a year earlier for $19 million.
• A joint venture between Westbrook Partners and Four Corners Properties just laid out $94 million for Montague Park in San Jose, providing the previous owners a $19 million profit in just 15 months.
• Significant rent increases of up to 30 percent have taken place over the past 12 months—with the upward trend especially noticeable on incubator spaces of 5,000 square feet or smaller.

“The evidence is indisputable,” said Ralph Borelli. “Big real estate companies are buying again in Silicon Valley. The bottom of the market for commercial real estate in the Valley was most likely reached in 2004 or early 2005. The rebound began in earnest last year, and this is fueling the rise in rents now being felt throughout the Valley.”

Multiple Contributing Factors

What is causing the recent increases in property values and rents? In Borelli’s opinion, there are several contributing factors:

• Strengthening job market—According to the Association of Bay Area Governments (ABAG), the South Bay experienced significantly stronger job growth than had been expected in 2006, increasing by 1.8%. The San Jose area outperformed California and the nation, and in fact only trailed the combined San Francisco/San Mateo/Marin area and Solano County in the creation of new jobs last year. ABAG expects the upswing to continue in 2007, with the South Bay predicted to add another 11,500 jobs—many in the technology sector.
• Rapidly decreasing inventories—With the job market on the rise, planning departments have approved the conversion of obsolete commercial and industrial property into residential space. Perhaps 25 percent of the vacant standing inventory has been or will be torn down for new housing by leading homebuilders such as KB Home, according to Borelli. At the same time, big-name businesses such as Google, Yahoo, and Apple have collectively purchased millions of square feet of space over the past several years—effectively removing these buildings from the rental base. This has decreased the vacancy rate for office space from 20 percent or more to approximately 10 percent, according to CoStar Group, the number one provider of information services to commercial real estate professionals in the U.S. and U.K. Industrial and “flex” space still shows slightly higher vacancy rates, but is definitely trending lower.
• Limited land—The Valley floor is largely built out. Unlike in the wide-open Sacramento area or the Central Valley, Silicon Valley has natural geographic obstacles to growth—the foothills on either side of the Valley—placing a finite limit on where building can be done. Open space regulations have slowed growth on hillsides, and areas such as San Jose’s Coyote Valley are still being held for future development. With so little vacant land available, land prices can’t help but increase.
• Rising construction costs—The cost of construction has also risen. It is simply more expensive today to build buildings than it was a decade ago. And the cost of new construction is considerably higher than renovating existing commercial/industrial space.

Lynn Hawkins

Background: Brought 22 years of experience in commercial real estate and commercial mortgage banking to her position at Borelli Investment Company. Expertise included commercial brokerage and sales in the East and Southeast, including loan originations, underwriting, processing, servicing, and loan closings. As group vice president, managed loan portfolios as large as $6.5 billion encompassing nearly all 50 states. Born and raised in Baltimore, MD. Attended the University of Maryland with a concentration in computer science and business management.Held a broker’s license in GA, a sales license in VA, and is currently a licensed real estate salesperson in CA. Is active in numerous industry organizations including BOMA, NAR, the Mortgage Bankers Association, the National Association of Female Executives, and the Reebok Professional Instructor Alliance. Responsibilities: Handles every condominium transaction, from purchase contracting through escrow closings. At the Capitol Auto Mall, moves each deal from lease LOI to signing. Business Philosophy: “I am committed to achieving a win-win in every deal I  touch. Meeting the client’s objectives and expectations, and staying within the guidelines and  goals of the company, can be achieved through clear communication and a high level of professionalism.” Secret to Success: “Lynn focuses on providing personalized service and assistance  to our clients, from the moment they are going into contract until the close of escrow,” said  Tom Purtell, Borelli Investment Company’s chief operating officer. “In staying connected  throughout the process, Lynn always strives for the highest in customer satisfaction.”

Borelli’s Exclusive Lease vs. Buy Calculator

Borelli’s Exclusive Lease vs. Buy Calculator Right on the Money with Buyers

Perhaps you’ve heard about one of the hottest trends in commercial real estate: office condominiums. And perhaps you’ve wondered whether buying an office condominium might be the right move for you and your business. But how can you know for sure? How can you really “run the numbers” and compare buying versus continuing to lease your office space?Now there’s a fast, easy way to make a “real-world” comparison for your specific situation with Borelli Investment Company’s exclusive online Lease vs. Buy Calculator. Borelli’s Exclusive Lease vs. Buy Calculator Introduced in May, the Lease vs. Buy Calculator is available to anyone considering the purchase of an office condominium. You can easily do it yourself from the comfort of your home or office, or one of our professional sales representatives will be happy to walk through it with you.

“Deciding to buy rather than lease office space is a major financial decision,” said Tom Purtell, chief operating officer of Borelli Investment Company. “We wanted to ensure that our clients had all the tools they needed to make a well-informed choice. The Lease vs. Buy Calculator has been very wellreceived since we introduced it last spring.”To use the Lease vs. Buy Calculator, all you have to do is: Go to www.borelli-inv.com Click on the icon for “Lease vs. Buy? — Run the numbers” Select the Borelli office condominium property you’re interested in Select a specific unit for sale Enter the required information. This can include information about your current lease including size of your space, current rent, operating expenses, and scheduled rent increases; the purchase price, closing costs, and mortgage information for your proposed purchase; association dues and any other costs; your state and federal tax rates; and estimated annual appreciation. Then, click “Calculate”. In seconds, you’ll have a real set of numbers based on your specific situation that will help you make a more intelligent decision about whether to lease or buy your office space. “With summer coming to an end, now is the time to start doing your year-end tax planning,” Purtell noted. “If you want to be able to make any substantial moves to reduce your tax liability for 2007, there’s no time to waste. Purchasing property is one of the best ways to reduce taxes, while acquiring an asset that historically has appreciated over time—in good markets and bad. ” For more information about the Borelli Lease vs. Buy Calculator, contact your Borelli sales representative or Tom Purtell by calling (408) 453-4700, or you can e-mail tom@borelli.com.

Borelli Property Management Services Extend Beyond Silicon Valley

Borelli Investment Company is well-known for its high-quality property management services. Borelli’s professional property managers work closely with owners to set rents and efficiently lease space, maintain and improve properties, respond to tenant requests, and keep the books in good order. Clients know they can count on high occupancy rates and proper positioning to maintain value over time in up markets and downWhat you may not be aware of is that Borelli Investment Company provides its property management services not only here in Silicon Valley, but also in other markets throughout Northern California. A Growing Central Valley Portfolio One of Borelli’s hottest growth areas in recent times has been the Central Valley. Borelli now manages multiple properties in Tracy, Turlock, Stockton, Elk Grove, and West Sacramento—among other Central Valley towns and cities. The holdings include retail centers, a variety of office buildings, and industrial properties.

California’s Central Valley is experiencing rapid growth,” said Buddy R. Parsons, president of Borelli Investment Company. “Many of our clients are interested in taking advantage of the attractive ownership opportunities there. Once they have purchased a property, they need to work with someone they trust to manage it. We have the ability to minimize risk, reduce operating expenses, and increase the long-term asset value of properties located up and down the Central Valley.”A good example of the benefits Borelli provides can be found at the 250,000 square foot Countryside Plaza retail center in Turlock. When Borelli was selected as property manager in 2004, Countryside Plaza had not increased its lease rates in years. The prior owner had been hesitant to do so, because he was skeptical that rates could be raised without causing long-time tenants to move out. Borelli managed an increase in rents to market levels and maintained virtually 100 percent occupancy during the adjustment period. “It simply didn’t make sense to leave rental rates unchanged,” Parsons explained. “By acting on the owner’s behalf, we were able to negotiate appropriate increases for tenants without hurting the owner’s established relationships or negatively impacting occupancy. We have also begun a program of planned improvements to ensure that the center is always well-maintained and modernized.” Property Management Everywhere Wherever you decide to buy, contact Borelli if you need professional property management. For more information about Borelli’s professional property management services and pricing that pays for itself, contact Buddy Parsons at (408) 453-4700, or e-mail buddy@borelli.com.