​​We acquired a former GSA facility as part of a larger real estate portfolio. After the government tenant vacated, we began backfilling the vacant space with new tenants.

​

The first tenant we placed in the building was paying below-market rent. We negotiated that arrangement to secure an attractive initial tenant, begin leasing the building, and help position the property to attract higher-end tenants at stronger rental rates.

​

That strategy did not work out as we had hoped.

​

Later, we decided to improve the quality of the asset and create a property that would compete effectively for better tenants. That meant making a substantial investment.

​

We began renovating the elevators, replacing flooring throughout the building, upgrading common areas, modernizing all the restrooms at considerable expense, and making other improvements.

​

Construction in an occupied building, however, creates a management challenge that does not exist in a vacant one.

​

The work included installing sprinkler piping above the ceiling tiles in a hallway. That created a temporary access issue for the tenant. We tried to route the tenant and its visitors through another hallway while the work was underway, but that solution was not acceptable to them.

​

We made a serious effort to address the situation. We sent the head of our property-management department to oversee the project and work directly with the tenant. We attempted to accommodate concerns while continuing the improvements, but the relationship became increasingly difficult.

​

The tenant eventually retained counsel. Because the dispute was unfolding in another state, the head of our legal department had to become directly involved in overseeing our legal response there. We also engaged a local broker.

​

What had begun as a program to improve the property was consuming more and more management time, outside-professional expense, and executive attention.

​

We believed that, once the improvements were completed, this property could become the pride of a city of approximately 60,000 people. It had the potential to be the best building in town and to attract high-end tenants.

​

Interestingly, I later learned that the tenant himself had wanted to purchase the building. Whether that influenced his behavior was something I could not know.

​

What I did know was that the property was no longer following the business plan we had envisioned.

​

Eventually, we made a decision that property owners sometimes hesitate to make:

​

We sold the building.

​

The sale still produced a profit. The net proceeds exceeded our original investment in the property, the capital improvements, and the operating expenses we had incurred. We did not make as much money as we had hoped, but it was time to move on and redirect our capital and management attention to other opportunities.

​

The buyer was a local individual who saw the same promise we had seen in continuing the improvements. He recognized the property’s potential to become the leading building in town and attract a higher-quality tenant base.

​

That experience reinforced something I learned repeatedly during my years of owning and managing commercial real estate: the economics of a property are not limited to rent, operating expenses, capital improvements, and eventual sale proceeds.

​

Management friction has a cost.

​

A difficult tenant relationship can consume executive attention, complicate construction, increase administrative and professional expenses, distract property-management personnel, and divert resources from other assets and opportunities.

Good asset management therefore requires more than asking, “How much more value can we create if we finish this plan?”

​

Sometimes the better question is:

​

“Is continuing to own this property still the best use of our time, capital, and attention?”

​

In our case, the answer eventually became no.

​

Ownership decisions should be based on circumstances as they exist—not simply on the business plan written when the property was acquired.

​

Sometimes successful property management means improving an asset.

​

Sometimes it means working through a difficult problem.

​

And occasionally, it means recognizing when it is time to hand the keys to the next owner and move on.