Commercial Property

Sweat Your Assets

The Importance of Housing Associations Managing their Commercial Stock

Registered Providers (RPs) have an obligation to ensure that their assets, including commercial stock, are effectively managed and income maximised. Indeed, the RP’s ability to drive value for money across its operations and asset base are taken into account by the regulator (4.23 of The Regulatory Framework for Social Housing in England).

RPs are being pushed to make more of their financial covenant strength and get more out of their assets. The temptation in the current climate is for RPs to sell their most valuable properties to allow them to spend on social housing elsewhere. However, our experience has shown that this is the last thing that RPs should be doing at present. We are aware of a number of RPs that have retained their assets during tough economic times. One in particular which purchased its portfolio in the 1960s/70s has used the portfolio’s increase in value and the consequent increase in their covenant strength as the foundation for borrowing to create additional social housing in their area.

Driven by the current economic climate, the landlord and tenant market presents tenants with an opportunity to streamline portfolios and protect their interests by restructuring and regearing leases, using void sites and unlet properties as negotiating tools to reduce their rent and secure extra break options, more relaxed rights to underlet or assign or reach more favourable dilapidations agreements.

However, re-gearing and restructuring can also be an advantage for landlords and help them to comply with their duty to effectively manage their stock. A busy, fully let parade of shops entices other occupiers to the area and increases footfall. We are seeing landlords use re-gearing and restructuring negotiations to tie strong covenant tenants into longer deals thereby safeguarding the investment value of portfolios.

Outsourcing management of commercial assets is also an option that needs to be considered. RPs with commercial stock face the dual challenge of ensuring that (a) they offer maximum benefits at minimum cost in order to attract and retain tenants and (b) they do not inadvertently fall foul of the intricate legal requirements governing the management of mixed use service charge. Outsourcing management to companies with the relevant experience and expertise can provide the solution to these challenges and the cost of doing so can often be recovered through service charge. Good choice of management company is essential however as is ensuring that service charge caps, which are now commonplace, allow for sufficient recovery of such costs.

At Clarke Willmott we are specialist advisors in how best to ‘sweat the asset’ and regularly undertake re-gearing and relocation work for clients. If you would like to discuss how we can help you maximise the potential of your commercial portfolio, please contact Peter Swinburn, Partner and Head of Commercial Property South at Clarke Willmott LLP.