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Watching the bottom line

Property managers seek new ways to boost revenues and cut costs.

Property managers have their hands full juggling a myriad of responsibilities these days. But the primary focus for many is simple - dollars and cents. That means continually looking for innovative ways to increase revenue, control costs and become more efficient.

"Property managers are certainly under more pressure to add value wherever they can - by both decreasing costs and adding revenues," says Patrick McGinley, a vice president at Phoenix-based Vestar Property Management.

That pressure is even more intense for property managers who work for publicly traded companies because of the scrutiny given to funds from operation (FFO). "REITs are very cutting-edge and aggressive in how they can add value," McGinley notes.

As the industry becomes more REIT-oriented, there is more pressure to meet quarterly dividends and to develop and sustain growth, agrees Stephen Huber, a senior vice president for Cleveland-based Richard E. Jacobs Group.

The need to grow revenues is enhanced by the fact that more tenants, particularly national retailers, are reluctant to pay marketing dues, says Ken McCoy, a senior vice president in the Charlotte, N.C., office of Trammell Crow Co.

To maintain a strong revenue program, property managers need to find ways to replace that lost revenue. They can subsidize programs with landlord dollars, or just work harder to find sponsorships and other revenue sources, McCoy says.

Advertising, sponsorships and promotions are a key strategy toward that end, notes Randy Smith, an executive vice president at Los Angeles-based Westfield Corp. Inc.

Managers are fielding a growing number of calls from companies ranging from Visa to AT&T that are eager to use shopping centers to pitch new promotions or launch advertising campaigns. "But we are also getting more pro-active in trying to find fun or interesting things," Smith says.

Innovative ideas A wide range of businesses, from insurance companies to healthcare providers, recognize the potential to reach thousands of consumers each day by paying for advertising, sponsorships or informational kiosks at shopping malls. Meanwhile, managers are searching for creative ways to bring non-competing products into the mall with the goal of generating shopping center revenue and providing customers with an added service, Smith says. For example, a property manager might strike a deal with an Internet service provider or long distance carrier to come into the mall to set up an informational kiosk.

To grow FFO, property managers also are embracing a variety of new technologies. For example, New York-based Golden Screens Interactive Technologies Inc. recently began introducing interactive kiosks in 36 Westfield Shoppingtowns. Shoppers now use the kiosks to access the Internet and to find out about programs and events taking place at the mall. The program is supported by advertising.

Maximizing revenues One traditional money-maker for shopping centers has been specialty leasing or retail merchandising unit (RMU) programs, and many property managers are working to maximize those dollars.

"Where we're not congested, we're looking at ways to add additional RMUs," McCoy says, adding, for those RMU programs that have achieved full occupancy, managers are pushing rents higher.

Trammell Crow also is going back to the basics when it comes to collecting rents, taxes and other expenses from tenants. "We're going to review each tenant's lease for recoveries," McCoy says. Trammell Crow is auditing its accounts to ensure that retailers are being charged correctly.

Certain tenant recovery charges, such as HVAC, could change due to an increase in electricity rates from the local utility. "It's basic property management 101, but the fact of the matter is that as we all get busier and do more, sometimes these things get overlooked," McCoy says. "We need to rededicate our efforts to make sure we are charging tenants the correct amount."

Manufacturing product sampling is another vehicle for generating income. Westfield has worked with companies such as Procter & Gamble and Starbucks Coffee that have used shopping centers as a venue for testing products with local shoppers, Smith says.

Meanwhile, advertising signage is an increasingly popular method of generating additional income. Companies are willing to pay to slap signage on everything from blank walls to bike racks, McGinley says. "It used to be that a tenant would have a sign in front of the store and maybe a pylon on the street, but now there are more opportunities within the center," he says. In some cases, mall tenants are competing with other companies for advertising space in high traffic areas.

Maintaining moderation The biggest challenge for property managers is to boost revenues without damaging the image of the shopping center. "There is a fine line between creating a positive, shopper-friendly environment and over-commercialization," McGinley says. "Just as we carefully choose what tenants we want to have in the center, we also need to carefully consider the sponsorships and advertising."

One concern is the focus on adding revenue through sponsorships and other advertising will cause managers to lose sight of their primary focus - marketing the shopping center, Huber says.

"Also, there are certain uses where we say, `We just don't want to do that.'" For example, the Jacobs Group hasn't drafted deals with Pepsi or Coca Cola, because the company feels that soda machines wouldn't fit the existing design.

Community centers Compared to regional malls, neighborhood and community shopping centers have fewer opportunities to increase revenue. Smaller centers typically have less common area space. In addition, most cities have restrictions on where and how exterior signage is placed.

"We try to take advantage of opportunities where appropriate, such as with payphones. But we're the type of manager where we don't want to clutter the common area with a lot of signage or vending machines," says Leonard Cercone Jr., a principal at Edgemark Asset Management LLC in Oakbrook, Ill. Edgemark manages grocery-anchored and power centers in the Chicago area.

In most cases, the focus at the smaller grocery-anchored and neighborhood community centers is on managing common area maintenance (CAM) costs and generating top dollar in lease agreements.

One revenue vehicle the smaller centers do take advantage of is pay phones and soda machines. Pay phones alone can produce thousands of dollars each year. In the past, shopping centers received a percentage of the coinage that went into payphones. But now coins are being replaced by credit and calling cards. So property managers are negotiating percentage deals from total calls. A well-located payphone at a high traffic strip center location might generate about $500 per month in added revenue, McCoy notes.

ATMs are another source of revenue. Five years ago, few shopping centers offered the convenience of ATMs. Today, larger centers are providing ATMs as freestanding kiosks. They can generate up to $30,000 per year in added shopping center revenue. Meanwhile, some property managers now rent extra storage space to tenants, McGinley says.

Cutting costs One method to increase operating efficiencies and control costs is to pooling contracts at multiple properties to solicit better rates for the entire portfolio.

"What we're trying to do is consolidate providers to get leverage on pricing with them, along with better service," says Dean Mueller, a senior vice president and director of property management at Colliers Turley Martin Tucker in St. Louis.

Managers are wielding their buying power to take advantage of economies of scale. Consolidating contracts for multiple properties under one vendor is an excellent way to obtain better rates, says McCoy. "We've done that with our trash hauling and cut costs by 20% to 40% at some of our properties."

Another tool property managers are using to get a clearer picture of expenditures is property management software, which provides access to comprehensive portfolio data and therefore helps managers identify still more cost-cutting opportunities. "Everyone is always looking for efficiencies and technology is becoming more and more a part of the business," Mueller says.

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