Why a management risk strategy is essential in today’s climate

James Onions, Director of Building Consultancy at Colliers CRE
T: 0113 200 1826
E-mail:james.onions@collierscre.co.uk

James Onions – Director of Building Consultancy at the Leeds office of property advisors Colliers CRE – discusses his team’s unique approach to managing development risks during the current economic climate.

With over 70 staff nationwide, the experience of the Building Consultancy division of Colliers CRE encompasses all types of property across the United Kingdom and overseas.

We have an established international track record in providing services to all market sectors.

Our core services include Building Surveying, Project Management, Architecture & Interior Design and Cost Consultancy.

In addition through unique partnering arrangements with third parties we can also offer Energy Audits, Environmental Audits, Mechanical and Electrical Consultancy and Structural Consultancy.

In particular our Leeds Office Building Consultancy has a team of five fee earners and enjoyed a record year in 2007 with net fee income of £1.1 million.

During 2007 the team was involved with technical due diligence surveys for numerous UK institutional investors in the UK and overseas.

However, the widely reported credit crunch and its impact on the commercial property market has certainly brought with it a more challenging market for 2008 but it is not one without opportunities.

In Leeds, the building consultancy division has been recently appointed on a major confidential acquisition which certainly goes against the trend.

Whilst demand for our technical due diligence services may have dropped compared with the record levels of 2007, the Leeds building consultancy team is assisting its clients by adding value to their existing property assets.

The added value service includes advising clients on alterations, refurbishments and extensions to schemes where the building consultancy team are already appointed to undertake technical appraisals and determine feasibility for improvement works.

This may take the form of advising on external extensions,, internal alterations to increase the net lettable floor area and refurbishments to attract new tenants as landlords concentrate efforts on maximising returns from their assets.

The team is also seeing an increasing demand from tenants who are looking to consolidate their occupational requirements, and as leases naturally come to the end of their term, dilapidations remain a key factor to consider as part of this process.

The team continues to advise tenants by forecasting their potential liabilities although simply providing a financial forecast is not enough; what our occupational clients need is a clear strategy for minimising liabilities once the lease has run its course.

Furthermore, our clients are increasingly looking to exercise break clauses in leases.
What can often be overlooked is that such clauses might be conditional upon compliance with the remainder of the lease terms – including dilapidations. These can be extremely onerous and non compliance can mean a costly lock-in to the remainder of the lease term. Our team is acting on behalf of a number of clients, national and regional, providing a clear strategy on minimising such risks.

Dilapidations remains one of our core services and the team’s wide experience acting on behalf of landlords and tenants enables us to quickly foresee items of potential contention and provide a clear strategy to achieve a swift and satisfactory settlement.

Furthermore, in the current tightening marketplace the management of risks, including cost control, on any project is becoming imperative.As well as the traditional development monitoring role of reviewing the level of development costs and certifying drawdown payments, our Building Consultancy team also considers wider risks on a scheme. For instance, has the borrower considered potential environmental aspects? Have they specified the project to a standard for the target market? Are there any inherent risks in the procurement route proposed by the borrower? Are statutory matters being promptly and efficiently dealt with whilst works are on site? Such risks may ultimately have a bearing on cost. So, by identifying these early, it can assist in minimising these risks ensuring the success of a project.

Over the past few years, the Colliers CRE Building Consultancy team has worked with many lenders in developing a swift and clear reporting standard, ensuring that pertinent points are emphasised and the implications are easily understood. Working alongside both lender and borrower the team ensures that these risks are managed out of the process. This added value approach has enabled us to forge some strong relationships with clients who need succinct and prompt advice on how risks to schemes can be minimised.