The backbone of any commercial property is strong property management. If you have recently purchased a commercial building or have a building that you have owned for a while, there comes a time when you must truly consider hiring a professional property manager to skillfully guide the property through its economic life and multiple real estate cycles.
Your property manager will develop a business plan for the property consistent with the goals and objectives of the property ownership. A team of professionals is then assembled to implement the business plan. What many owners don’t realize is that the right management company will, in many cases, save you more money than the management fees being paid. Of course, there are key factors to look for while considering hiring a property management company. Here are three important areas to consider.
1. Don’t Go on Price Alone
The quality of management will make the difference between a property that is operated as a first-class asset and one that has chronic problems.
Experience of the firms’ owners is extremely important. While there are many strong property management firms, numerous companies have been started by principals with very little management experience. It is important to determine how long these people have been working in commercial property management and to make sure that this is not a “quick fix” business to carry them through slow times. Thus, make sure you ask for their background, history and resumé before spending too much time with a particular firm, especially if they are offering cut-rate prices.
2. Always Check References
It is important to see how other property owners feel about the services of the firm you are looking to hire. Many firms, like ours, have specific hiring requirements and standards for property managers. The proper experience, education, training and background must be met. If an inexperienced management firm is hired, or one that is unable to produce references, it is just a matter of time before your property will suffer. A property management company and its managers must be able to adapt to an industry that experiences cycles within cycles, and they must be able to meet the needs of different property owners. The primary responsibility of the property manager is to achieve and, hopefully, exceed the property owner’s goals and objectives. If a firm is unwilling to provide references, keep looking.
3. Ask Very Specific Questions
MAINTENANCE: How strong is the firm’s maintenance staff? Are they in-house, and are they qualified? Can the firm assure an immediate response to tenant and building issues?
An effective maintenance and management program is essential for a building to maintain its competitive position in the market, as well as efficient and cost-effective operations of the property. It is important that tenants are not waiting days for service requests and that major service calls are addressed immediately for the integrity of the building. Minor items should be handled as quickly as possible, since these sometimes “annoying” items will slowly build animosity from the tenant toward management and ownership. Ask to see how each work order is handled and how the preventative maintenance is documented and managed. Meet one or more of the maintenance personnel. These individuals are in front of the tenants on a regular basis and should be uniformed, clean-cut and professional.
TENANT RELATIONS PROCEDURES: Experienced firms have tenant relations procedures in place, such as tenant move-in and move-out policies, after-hours contact systems and emergency procedures. Ask to see what the management company provides to individual tenants. Do they receive a building procedures handbook or emergency procedures manual? An experienced management firm will have procedures, forms and standard letters as integral parts of managing and leasing commercial properties. Daily interactions with tenants, clients, contractors, attorneys, accountants, leasing agents, city officials and mortgage holders require that property managers conduct business in a consistent manner.
TENANT RETENTION: Does the management firm have an established plan to maintain relations for the duration of the tenancy? What efforts are being made to retain tenants now and upon their lease expiration? During the down cycle of real estate, a tenant retention plan can be the determining factor of a building’s survival. Ask to see what tenant retention plan would be in place for your building.
FINANCIAL REPORTING: Are you going to be provided with monthly reports and a budget for the building? What do the reports contain, and on what day of the month are they generated? How will they handle bank reconciliations and check requests? How will invoices be coded for proper accounting? Will the property records be kept on a cash or accrual basis? What system does the property owner require for approval of expenses that are over budget? Ask to see what can be provided and whether there is flexibility for special reporting requirements.
MANAGING SOFTWARE: There are a few strong (and very expensive) property management software programs that most of the top management companies are willing to pay for. These are the leading programs for a reason; the right software will integrate everything from accounting to tenant information and maintenance tracking. Make sure your management company has one of these systems in place. A sample financial report or demonstration should be readily available.
MULTIPLE PROPERTIES UNDER MANAGEMENT: Remember economies of scale. A management firm with just a few properties under management will not have as much strength in reducing your operating costs. The firm with dozens of properties under management will be more likely to achieve savings with much better and more cost-effective vendors to work on your property.
AFFILIATIONS AND DESIGNATIONS: Many firms are affiliated with professional organizations such as IREM, BOMA and BOMI. These organizations offer ongoing education, peer networking and sharing of information. Ask what organizations the management company belongs to and what credentials and licenses the staff has. Property managers who take advantage of the benefits offered by these organizations are enabled to manage, market and lease a property owner’s real estate business better.
Now that you know what you are looking for, understand that making a change to a professional property management company is not as difficult as it seems. An experienced firm will make the transition easy and professional. Your tenants will appreciate you more, and you will soon enjoy more of the benefits of commercial property ownership.