COVER STORY, JUNE 2010

MANAGING SUCCESS
What should property owners ask of their managers?
By Michael Manno

Prior to and during this latest investment cycle, property managers drove owner’s financial objectives while balancing the needs of current and future tenants. Still, many believed our only specialty was making sure the light bulbs were changed and the A/C was working. In the boom years, the brokerage firm that brought the deal was often awarded the leasing and management contract, even if there were better teams available. In that market, the abundance of debt and equity drove commercial asset values faster and higher than the traditional model of strong leasing and management. Even with this disconnect of management from value, the one-stop-shop approach appeared to be working fine.

Well, a funny thing happened on the way to the bottom falling out. The emphasis on creating significant long-term value for assets returned. The impressive offering books became less important than the profit and loss statement, and it became clear that the cog was actually the piston all along. In the aftermath, many owners found themselves digging out of a rather deep hole, resulting in a welcomed return to basics. At the forefront of this return is a reliance on astute management as the fastest way of maximizing value.

So what should owners be asking of their managers? Fortunately, the basics should already be the core functions of property managers. Your manager should always seek to protect anyone who steps foot on the property. This helps maintain the asset. Items such as cracked sidewalks, hanging tree branches and wet floors are the easy liabilities to spot. The real concerns are  less obvious and include fire/life safety issues as well as municipal building and ADA codes. Your manager needs to spot these before they become a serious  issue. Unfortunately, too many managers wait until they receive a violation before even recognizing it as problem.  At the very least, this can lead to costly emergency repairs, disruption to budgets and unscheduled inconveniences to tenants. Here are some things to consider when searching for a property manager:

Is your manager knowledgeable enough to protect you?

Predicting the most likely components of a building that might be damaged during a hurricane or other natural disaster and mitigating potential damage is imperative. Sometimes, this isn’t possible, so it’s equally important to have the appropriate contractors on call immediately after the storm passes.

Is your manager proactive or reactive?

Maximizing profitability of a property is where a good manager can prove they are superb. Unfortunately, property management firms are also feeling the effects of the economic slowdown. Occupancy rates are dropping, and this is leading to lower revenue and lower management fees. In turn, many firms are responding by reducing or sharing staff across multiple properties. Stories from tenants abound regarding the revolving door of property managers, how there is no personal contact, and that critical communication and key daily decisions are being delegated to on-site secretarial personnel.

Is your management company maximizing your bottom line?

Once the cost savings are done, the challenge of revenue growth needs to be evaluated.  Income can be found in creative ways, but managers really need to assist by driving businesses to the property and grabbing market share. Tenants talk to each other and to other business owners. Cultivating a reputation that your property is both tenant- and broker-friendly can only help all parties involved. Part of driving market share includes ensuring that brokers know they will be compensated expeditiously and equitably.

Has your manager given you an idea to drive income recently?

When it comes to maximizing the income potential of a property, tenant retention will be the single most important objective over the next few years. Managers must be as visible to tenants as if they owned the property. Economics aside, most tenants want to stay where they are well serviced, their needs are being met, and they have a personal relationship with the manager. 

This year will be a challenge, for sure. It will be a year that will clearly bring us back to the basics that have governed the industry for a long time. So, should you make a management change in 2010?

Michael Manno is managing principal of Steelbridge Real Estate Services.

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