Building Nevada - October 2004

Team Players

Commercial Property Managers Help Owners Succeeed

by Elizabeth Gamble

A funny thing happened on the way to collect the rent checks; commercial property managers found themselves sitting at the boardroom table with the property owner’s financial team. Once considered a minor player whose primary responsibility was to pick up tenant rent checks and make sure the garbage was collected, today’s property manager is a complex professional often responsible for running a multi-million dollar business.

"These days, property owners expect managers to improve the property's performance in ways that contribute directly to their balance sheets," said Frank Gatski, president and owner of Equus Management, which manages 2 million square feet of commercial space in Southern Nevada. "In a real sense, property managers have become asset managers, financial advisors, marketing professionals, contract negotiators, technology whizzes and customer service representatives."

Because of this, owners are increasingly selective about who should manage their assets. Although some owners prefer to handle the job themselves, others turn the task over to a full-service property management company. "Over the last several years, in part due to economic changes, stock market declines and lower interest rates, novice property owners have entered the market, placing portions of their assets into real estate instead of stocks, options or other alternatives," said Karlene Politi, president, property management for NAI Horizon in Las Vegas. "The role of the property manager has changed with the expectations of the client."

"For most owners, the key to success is to find a management company that understands their business goals and objectives," added Gatski. "It’s more important,

however, for the property manager to be an expert in his or her field and to have team members who bring to the table the cross-disciplines necessary to assist clients with what they ultimately want to do – attract tenants, retain tenants and increase the value of the property."

Contracting with a third-party management firm can give owners advantages over the competition. For example, the economies of scale allow property owners, particularly sole proprietors and smaller organizations, to better compete in their respective marketplaces. "Third-party property management firms have the ability to both share resources and spread expenses over their entire managed portfolio. The result is increased efficiencies and decreased operating costs for each individual property," said Mary Costa of Kennedy Wilson in Las Vegas, which manages 1.5 million square feet of office, industrial and retail space.

A comprehensive knowledge of the industry is another benefit derived from utilizing the services of management companies. Full-service management firms generally use a team approach to working with property owners. "Clients benefit from the expertise of industry veterans, including leasing, development, market research, management, marketing, tenant coordination, legal, technological and environmental issues," said Gatski. Owners who use property management firms whose employees offer diverse disciplines that work in conjunction with one another gain immediate access to this expertise, along with the resources needed to support it.

"The more sophisticated real estate investor may even employ the services of a property manager prior to purchasing property, for the purpose of securing an analysis of the property’s potential," said Barbara Holland, whose company, H&L Realty, manages approximately 800,000 square feet of commercial space and 5,000 residential units in Southern Nevada. "We’re constantly shopping the competition to stay on top of the marketplace.

"I’ll often insist that an existing client or potential client meet me at the property so I can demonstrate to them what I’m seeing from the perspective of a property manager and to put it into the context of the marketplace," said Holland.

From the viewpoint of the retail property manager, understanding the marketplace and its demographics is of top priority. "The success of retail properties depends largely on having tenants who provide the mix of products and services that shoppers in their respective marketplaces desire," said Dick Dooling with Newmark Merrill, which both owns and serves as a third-party manager for retail centers totaling 800,000 square feet. Because of this, retail property owners frequently turn to management companies with expertise in demographic research and a proven track record for attracting and retaining high-performing, profitable tenants.

While property marketing is a common thread to managing all commercial properties, it takes on a more promotional bent for retail centers, and according to Dooling can include monthly merchant meetings, promotional events, direct mail campaigns and coupon mailers.

"Whether the property is industrial, retail or office, our clients face crucial business decisions daily. Property managers provide an experienced perspective on the many financial and logistical issues integral to the success of the property, helping to ensure that owners make better-informed decisions," added Politi.

A Changing Role

Enabling owners to focus on other business objectives, property managers and their teams assume responsibility for yearly strategic operational planning for each property, as well as budgeting, physical plant maintenance, tenant retention, revenue enhancement and expense containment.

"Most property managers visit each property a minimum of once a week. However, while the standard appears to be weekly, the frequency of site visits can be determined at the request of the owner. Some owners, as in the case of a single-tenant commercial property, require only monthly visits, while others have asked for a daily drive-by.

"These visits are essential to maintaining and enhancing the fiscal and physical aspects of a property," said Politi. "They allow us to not only stay on top of any immediate needs, but to foresee the necessity for future improvements and budget appropriately. In addition, they enable the property manager to make pro-active recommendations that will improve the curb appeal of the property and maintain tenant satisfaction."

Owners should expect property managers to assume full responsibility for such activities as: maintaining the exterior of the property and making pro-active recommendations for improvement, when necessary and appropriate; market research; marketing and leasing the property; contracting for security services; engineering services; rent collection and accounts payable; maintaining the interior through janitorial and repair services; negotiating insurance premiums; tenant retention programs; and accounting and reporting.

"One of the most recent challenges facing our profession is in the area of expense containment on behalf of our clients," said Politi. "The rising cost of operating expenses such as real estate taxes, insurance – partially due to added security issues – and climbing utility costs are requiring creative solutions."

"Security has always been a critical component of our management strategy, but now more than ever, tops our lists of concerns," said Jennifer Campbell of CB Richard Ellis, which manages a portfolio of approximately 2.3 million square feet in Las Vegas. As a result, we established a strategic collaboration with a leading international security, investigative and intelligence firm to serve clients according to the emerging needs and demands in today's global marketplace. Together, we are working to design, implement and monitor activities encompassing vital internal and external security, plus financial operations risk matters for our clients."

The area of technology also has brought changes to tenant requirements and the responsibilities of property managers. Most in demand by tenants is high-speed Internet connection. Gatski underscores the complexities of tenants’ issues as they evaluate space – especially given today’s technology needs. "Tenants have more technological requirements then they did even five years ago," he said.

Some companies like CB Richard Ellis are using technology to help with energy conservation by creating a customized management plan to analyze energy consumption. The Web-based energy-benchmarking tool provides cost-effective data collection and analysis of energy use and savings potential.

Accountability

"Higher performance expectations" is the mantra of the 21st-century property manager. "In the past, the majority of clients were passive. They were long-term investors," said Costa. "Today’s property owners are often short-term investors with short-term objectives. They want to develop the upside and sell at an increased value that meets a predetermined investment expectation." Politi noted, "There’s no question, emphasis is on improving return on investment and that means property managers have to be more pro-active."

Gatski agreed that the focus of owners has changed, and added, "Most owners are more savvy investors and they want detailed reports on their investments." The majority of full-service property managers provide clients with detailed monthly financial reports. Again, at the discretion of the client, reporting also can be provided weekly. "The goal is to explain every expense. It’s what clients want and deserve," said Politi. Additionally, managers also are expected to supply clients with annual itemized budgets that are based on strategic plans for the property.

Gatski noted, "Real estate service firms are playing a greater role in helping clients realize value from their properties. There is more and more demand on property managers and leasing agents to be creative to sustain and add to that value."

"Clients want an analysis of what it will take to retain current tenants, attract new ones and – bottom line – increase the value of the asset, and they want to know what it is going to cost," said Costa.

This analytical approach to commercial property management also translates to residential management. According to Debbie Smith of Gaston & Wilkerson’s Reno office, which manages 2,000 apartment units, "Our goal is to ensure the property is performing with the highest occupancy possible. Seeing property as a business unit, as an asset that should be performing as a stock would, or as customer service industry, is a relatively new concept. Today, expectations are different on numerous levels including: owners expect to see more charts, graphs, trending, projections and statistics, while tenants are better educated and have more needs, too. A good owner or manager responds to those issues."

Customer Service Remains Top Priority

Wrapped around the technological advances, sophisticated reporting and accounting methodologies, and analysis and evaluation is customer service. The success of property managers in meeting the challenges of their new responsibilities, and in positioning their companies for success, depends on how well they serve their clients’ customers – the tenants. And, tenants are increasingly aware of, and concerned about, the level of service they receive.

"Property management remains a relationship business," explained Politi. "You just have to pick up the phone and talk to people sometimes. All the e-mails in the world aren’t going to explain why there is a water leak in the copier room. The property manager has to know the tenants by name and be available to shake some hands in person."

This sentiment of personal and customized service is pervasive throughout successful property management companies. Managers recognize that knowing and responding to the needs of tenants is key to maintaining a fruitful relationship with owners.

Costa said her firm is intently focused on customer service, implementing tenant retention, as well as marketing programs designed to attract new tenants. "Now more than ever, tenants are discriminating about customer service. This mandate by tenants can lead to enormous financial implications for owners," added Politi. "The manager/tenant relationship has to be a personal one."

"Don't underestimate the importance of addressing tenant concerns. We have found that for the project to be successful year after year, the tenant feedback we receive must be highly regarded, with each concern being addressed in order to continue providing tenants with top-level service," added Gatski.

Choosing a Property Management Company

Fee structures among property management companies are generally based on a percentage of gross with a minimum flat fee. Therefore, the choice of a property management company is often founded on less tangible concepts. There are a few basic tips for selecting a company, including looking for certifications such as Certified Property Manager (CPM) from the Institute of Property Management, and contacting references – not only other owners, but tenants as well. Also, asking about the educational background of the management staff can be helpful. In today’s environment, many individuals have accounting, MBA and/or marketing specialties.

With all factors considered, perhaps the most intangible, yet most crucial element in choosing a property management team is trust and the ability to establish a personal connection between the owner, manager and tenants.