For the first time, the William C. Jennings Award for outstanding effort in a commercial transaction was awarded to a company.
Turning around an underperforming property, making needed improvements, keeping the finances in order, and arranging a sale took multiple members of Wheeler Commercial working together.
“It was a team effort,” says Lee Wheeler of Wheeler Commercial in Beaumont.
And it all started with a client who trusted the team.
The initial conversation
When a past client came to Wheeler with a request to help him sell a 20-unit apartment building in Beaumont, it didn’t look promising. The poor financial performance of the complex meant the owner was routinely putting money into the property, and the hassle of management was taking its toll.
“He wanted to get out of it,” Wheeler says. With an outstanding mortgage on the property, the owner was simply looking to walk away without coming out of pocket. But once Wheeler and his team had a chance to examine the net operating income for the property, they realized the fire-sale price supported by the financials wasn’t going to be enough.
“I brought in my team and we sat down and went through the issues with the property,” Wheeler says.
That included Becki Bates-Pitre, who leads the property management team; Jenny Bonham, the service manager who oversees property upkeep and improvements; and Jessica Odom, the firm’s bookkeeper. Together they came up with an alternative solution for the client: Let Wheeler Commercial manage the property and guide it to a place where it could support an asking price the client would be happy with.
Wheeler sat down with the client and laid out the situation, making sure to explain that it would get worse before getting better—there were nonpaying tenants, disputes among tenants, and other issues to sort out.
“One of the key pieces to this is having a client who trusts you,” Wheeler says. “And they did.”
“The owners gave us free rein,” Bates-Pitre says.
The team went to work on making improvements, attracting new tenants, and improving the financial health of the property.
“We spent a lot of time at the property and getting to know the tenants,” Bates-Pitre says.
As disruptive and nonpaying tenants left, the occupancy rate dropped—going from 70% down to 25% at one point. That dip in income made the team’s job harder, as improvements were budgeted from the property’s cash flow.
Odom put together a budget each year to show the owners how regular maintenance and improvements to reposition the property would be paid for.
That didn’t account for unforeseen issues, like a leak behind an electrical panel that took almost the entire period they were managing the property to find. Or the tree that fell on the property from a neighboring lot, which turned out to be owned by a college that didn’t know it owned the lot.
Bonham was in charge of making sure vendors took care of work promptly and respected the tenants’ space. A vendor who tracked grease into a tenant’s apartment and left construction debris on the furniture had to be let go, for example.
“We made sure contractors treated the units like they were someone’s home—because they were,” Wheeler says.
What made the process go smoothly, Bonham says, was developing a first-name relationship with tenants and recognizing their numbers when they called, making them feel heard.
To fill rehabbed units, the property management team turned to longtime tenants and advertised in convenience stores and nearby laundromats.
Wheeler was skeptical, he says, when Bates-Pitre started using the old-school marketing technique of fliers with tear-off tabs at the bottom. But it worked, and the tenants they found from these methods helped bring in others, too.
“We wanted to encourage tenants to have their friends or relatives live near them—people who would respect each other,” Bates-Pitre says.
Thanks to the work of Bates-Pitre, Odom, and Bonham, the financial health of the property started to improve. Where the owners were accustomed to paying expenses like property taxes and insurance out of pocket, those costs were now being covered by revenues. Once that performance was maintained for at least a year, it was time to put it on the market.
“It took us three years, but we turned it around,” Wheeler says.
When Wheeler Commercial took over the property, net operating income would only support a sale price of less than $240,000. The new financial picture allowed it to list for $640,000.
It went under contract almost immediately, according to Wheeler, but the deal fell apart. That hardly mattered, because almost as soon as it went back on the market it had a full-price offer.
“If people had lived on that street for a long time, they might’ve said the apartments had a bad reputation,” Wheeler says. “But we could show potential buyers that the people who lived there had pride in their homes.”
The new value wasn’t created through adding perks or a capital infusion, but through solid management, steady financial planning, and working to foster a positive relationship with tenants.
“Becki was instrumental in showing the property,” Wheeler says. “The tenants trusted her, and it really went a long way. Buyers could ask her any question and she knew the answer.”
Once the sale closed, Wheeler’s client invested in a piece of land using a 1031 exchange and opened a Steak ‘n Shake in Beaumont.
“They loved us from the get-go because we weren’t calling all the time for a check,” Wheeler says. “But now they’re one of our biggest fans out there.
It’s part of our mission statement to create raving fans, and we did that.”