Unlocking Value in Underperforming Assets: A CRE Turnaround Guide

2024’s commercial real estate (CRE) market is flooded with over $107 billion in distressed assets — and if you’re sitting on one, you’re not alone.

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Before you offload a property at a loss, consider this: With the right strategy and expert support, that "underperformer" could become the most profitable asset in your portfolio.

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This guide outlines clear and proven steps to help you unlock hidden value in underperforming assets and get your investment back on track.

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What Are Underperforming Assets in Commercial Real Estate?

Underperforming assets are commercial properties that fall below expected income, return or overall performance benchmarks. These assets often reduce the growth and financial gains you expect from your portfolio.

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Different factors affect how assets perform, but some of the reasons why commercial properties underperform are:

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• Poor property management
• High vacancy rates
• Outdated facilities or design
• Overpriced rents
• Market shifts
• Weak financial oversight

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These issues can quietly chip away at your returns if left unchecked. That’s why identifying underperforming assets early lets you take control before losses pile up.

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How To Identify Underperforming Assets

Spotting an underperforming asset early is critical — the sooner the issues are identified, the more effective (and less costly) the turnaround can be. While some red flags are obvious, others are subtle and require a disciplined review process. 

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Analyze Net Operating Income (NOI) Trends Quarterly

Compare current NOI against historical performance. A steady decline in NOI — even if gradual — often points to rising expenses, stagnant rent growth or occupancy loss. Use trailing 12-month financials and compare them to your original pro forma to isolate gaps.

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Benchmark Against Local Market Comps

Pull leasing and sales data from similar properties in the immediate submarket. If competing assets achieve higher rents, lower vacancy or stronger tenant retention, it’s time to evaluate what differentiates them, from amenity offerings to operational efficiency.

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Monitor Tenant Retention and Lease Profiles

Evaluate average lease terms and renewal rates. Frequent move outs or portfolios weighted toward short-term leases often reflect poor tenant experience or weak asset positioning. Properties with low retention tend to underperform even when occupancy appears stable.

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Audit Operating Expenses and Capital Expenditures

Review expense ratios over time. A rise in repair, maintenance or turnover costs can quietly erode margins. Look for aging systems, deferred capital improvements or structural inefficiencies that may not immediately appear on financial statements but impact NOI long-term.

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Implement Data-Driven Inspections and Feedback Loops

Use tenant feedback tools, building system monitors or third-party audits to identify operational issues that may not be visible in the financials. Tracking trends in tenant satisfaction or deferred maintenance reports can surface early warning signs before they become expensive problems.

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Commercial Real Estate Recovery: 8 Expert Recovery Strategies

1. Focus on Day-to-Day Efficiency

Look closely at how your property runs daily. Extra costs often hide in routine tasks, outdated systems or underused staff. Review vendor contracts and streamline your maintenance process. Small changes here can make a noticeable impact on your bottom line.

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2. Put Your Cash Flow to Work

Using a portion of your income for property updates can add value to underperforming assets. Simple upgrades like fresh fixtures or modern features can make the space more appealing to tenants. 

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A recent study revealed that renters are willing to pay an average of $37.65 more per month for smart home technology, with those wanting multiple devices comfortable spending up to $53 monthly. These upgrades can quickly boost rental appeal and generate strong returns.

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If needed, refinancing can free up funds for improvement. The goal is to increase value without overextending yourself.

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3. Rethink the Property’s Purpose

In many CRE redevelopment projects, specific contract performance clauses may obligate landlords or developers to fulfill particular uses, meet specific construction milestones or adhere to lease delivery timelines. For example, converting a commercial office into residential units might conflict with existing zoning covenants or contractual commitments to anchor tenants. 

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Before repositioning an asset, it’s essential to assess whether specific performance obligations exist that could limit flexibility or result in litigation if breached. During the planning phase, consulting legal counsel helps ensure any value-add strategy aligns with enforceable contractual terms.

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4. Review Pricing and Lease Terms

Commercial real estate has grown significantly in recent years. In the first quarter of 2025, industrial real estate saw the highest annual rental growth across the United States commercial sector. 

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While this signals strong performance, rising rental rates can lead to higher tenant turnover. Adjusting rent levels can help boost cash flow or reduce vacancy rates. Strategic pricing updates can make a big difference if your rates are misaligned with local market trends. 

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Offering flexible lease terms or move-in incentives helps retain tenants. Even small pricing adjustments can have a lasting impact on occupancy.

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5. Strengthen Your Marketing

Clearing listings with good photos and detailed descriptions makes a huge difference. Use online platforms, social media and virtual tours to show off the space. For example, reports revealed that properties with virtual tours received over 87% more views than those without.

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Marketing is all about volume and the right audience seeing the right message. Special offers or referral bonuses can also help bring in more leads.

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6. Offer Paid Extras

Instead of raising rent across the board, consider offering extras like reserved parking or package lockers. Tenants appreciate having the choice to upgrade. These optional amenities can create extra income with minimal effort. It’s a smart way to boost revenue without creating pressure.

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7. Partner With Experts

You don’t have to do everything on your own. Seeking guidance from experts like Alliance CGC  can help you spot gaps you may have missed. Fresh eyes often lead to a better strategy. These partnerships can prevent missteps and strengthen your turnaround plan for underperforming assets, contributing to broader commercial real estate recovery trends.

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8. Keep Checking Performance

Once you make changes, don’t stop there. Monitor how your asset performs going forward. Track income, costs, occupancy and tenant feedback consistently. This helps you stay on course and respond before problems grow again. The more attention you give it, the more stable your results become.

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Why Creating Value Is Better Than Selling Struggling Properties

Selling a struggling property might seem the easiest option, especially when returns fall short. But in many cases, holding onto the asset and making smart improvements can lead to better long-term gains. 

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When you reinvest and fix what’s holding the property, you create value that compounds over time. It also puts you in a stronger position if you decide to sell later with better terms and higher interest.

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Instead of cutting losses, you’re building a path toward commercial real estate recovery and future profit. All it takes is a smart investment plan and the right experts to guide you through each step.

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Revive Underperforming Assets With Strategic Partnership

Reviving an underperforming asset takes the right strategy, timing and support. With the right partnership, struggling properties can shift from liabilities to long-term wins and become part of a broader commercial real estate recovery.

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With over 30 years of industry leadership and a 28% historical internal rate of return (IRR), Alliance CGC specializes in turning overlooked properties into value-rich investments.

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If you're ready to stop guessing and start making smarter real estate decisions, it's time to work with experts who’ve seen it all. Partner with Alliance CGC now and start turning missed potential into lasting performance. 

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Frequently Asked Questions (FAQs)

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What is an underperforming asset?

An underperforming asset is a commercial property that fails to meet expected income, return or performance benchmarks. Some of the common causes of this include poor management, high vacancy, outdated design or market misalignment.

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How to add value to commercial real estate?

You can add value to commercial real estate properties by improving daily operations, updating property features, adjusting pricing, offering optional amenities and repurposing the space to match current market demand.

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What is a benchmark in real estate?

A real estate benchmark is a standard used to compare a property’s financial and operational performance, such as rent levels, occupancy rates or net operating income (NOI), against similar properties in the same market. These benchmarks help identify performance gaps and guide strategic improvements. Understanding how your property stacks up can uncover areas to enhance value and competitiveness.

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How do you optimize return on assets?

Optimize return by identifying inefficiencies, reinvesting in smart upgrades, refining leasing strategies and consistently tracking performance metrics like NOI, tenant retention and expenses. Focus on operational efficiency, offer value-adding amenities and benchmark your asset against local comps to uncover opportunities. Strategic repositioning, flexible pricing and expert guidance help maximize long-term asset value and returns.

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How do you optimize return on assets?

Beyond the numbers, consistent attention to asset behavior and tenant experience is key. Think like an owner-operator. Monitor every dollar, every detail and surround yourself with experts who know what you don’t.

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Quick Self-Check: Is Your Property Underperforming?

Are you unsure if your commercial property qualifies as underperforming? Use this simple self-check guide to evaluate:

• Your property has a vacancy rate higher than 12%
• Net operating income (NOI) has declined for more than two consecutive quarters
• Repair and maintenance costs are rising faster than your rental income
• You’re experiencing a higher-than-average lease turnover rate

If two or more of these apply, it may be time to consider a strategic recovery plan before value erosion compounds.