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Property Managers Everywhere... But Who to Pick?

Most commonly Property Management is defined briefly but concisely as,

"the activity dedicated to generating the greatest possible net return from a property over its fullest economic life. "

There are two implications here. Firstly, the property manager will strive to increase income. Secondly, increased income shall not occur at the expense of compromising the physical integrity of the property. This definition underscores the fiduciary relationship that exist between a client and fee manager. The challenge to the manager is to maximize the economic life of the property for his client while meeting his client's requirements for a return on his investment.

To appreciate the significant impact of the management activity I refer to data ( Figure 1 & 2) published by Mel A. Shear in his book Handbook of Building Maintenance Management, Reston Publishing Company, Inc. 1983.

Figure 1 depicts a typical "life cycle" of a major investment property as 50 years. For such a building three years could be spent in the conception phase, two years in the design phase four years in the construction phase. Figure 2 depicts the percentage of life cycle costs dedicated to these activities. Of the total cost of building and operating a property, the allocation of funds is as follows; conception 3%, design 2%, construction 20% and operation 75%. Since 75% of the life cycle cost is under the control of the property manager selecting a suitable "fee-management firm" to manage a property is extremely important.

The following 20 point checklist is designed to enable the selection process to focus on two or three suitable management firms for your property.

1. The nature of your property determines your needs. The requirements for the management of a strata project are vastly different from the requirements of managing a multi-family rental project or a strip center. As an owner it is important for you to focus on management firms and personnel that have a proven track record in the particular type of property that you own.
2. Solicit referrals from business associates or other investors. This process will gain you some insight into the capabilities or reputation of various firms and will yield a list of potential firms that you should consult when you prepare your invitational tender list.
3. Prepare tender guidelines. The guidelines (Figure# 3) will be a list of questions or items you wish the individual management proposals to address. The process will cause you to contemplate your own operational and financial requirements resulting in a standard criteria from which to evaluate future proposals.
4. Get out of your office. Visit various properties managed by firms you are considering. When inspecting other properties talk to tenants, be a consumer in a mall, observe the operation, ask about renting a suite in the and find out who is managing the properties next to yours.
5. Visit the management office. Determine if there is a serious commitment to the property management activity. Is the function there solely to generate leads resulting in sales or leasing commissions? Is it a division operating within a larger corporation or a fee-management corporation dedicated solely to the management of investment properties
6. Are they a national or local company? Accessibility to the decision makers is important for two reasons. Firstly, if you have a problem with your property is it solved where your property is located or will it be in another province. Secondly, although we are in a global economy, real estate dynamics are localized and depth of understanding by your selected fee-management firm of the local market is crucial to the success of your investment.
7. Meet the property manager that would manage your account. You would not hire an employee without an interview therefore you should not retain a fee-management firm before meeting the property manager assigned to your account. The key personis the property manager as he will have the hour-to-hour, day-to-day, week-to-week responsibility for your investment. Driven by investor preferences the shift in the industry is now towards executive property managers. These property managers are personally handling a portfolio, dealing directly with the investors much the same as a lawyer or accountant would deal with their clients.
8. Ask about the compensation package for the property manager. If there is no "performance or incentive" package for the property manager it could be that the property manager's day begins at 9:00 A.M. and ends at 5:00 P.M. while your property is speeding along as a 24-hour a day operation. Look for a situation where the property manager receives a performance bonus based on the management fees.
9. Attend one of their properties similar to yours. Tour a least one of their properties that is similar to yours. During the tour quiz the property manager on certain aspects of management. Ask about rental rates, vacancies, common area charges, maintenance programs, how much are sales per square foot and what marketing activities are planned.
10. Ask the property manager about the policies and procedures for your property. This will enable you to identify how knowledgeable the property manager might be. Ask how certain hypothetical situations are handled. If there is a parking problem in a shopping center ask about solutions; if there is excessive damage in amenity areas ask about rules and regulations. Develop an understanding of how the property manager interprets and responds to problem situations Watch out for evasive answers or non answers. Should the property manager continually defers questions to the on site manager this is a clue that the property manager is not on top of the situation.
11. Ask about their financial reporting. Under no circumstances should you accept a proposal without first receiving a full set of their sample financial statements. Depending on your requirements you might wish to find out if their system has the capacity to produce various custom reports that you might require. The system should also be on-line and real time to provide immediate updates of the entire system as information is entered. This is important as it enables the management firm to; identify and project trends and to spot problem areas.
12. Ask about their computer based management information system. Do they simply have an off-the-shelf spreadsheet package from the local mall or has the management firm invested in a comprehensive property management system that will enable them to provide a variety of reports and analysis for you.

    There are many software vendors dedicated solely to the real estate industry, two which are Minicom Data Corporation , Markham, Ontario and Yardi Systems Inc ., Santa Barbara California. Both are excellent organizations with proven track records meeting and exceeding the guidelines established by the Institute of Real Estate Management.

13. Ask for their corporate brochure. This is where you find out whom and what the management company is all about. You will want to review their corporate profile, operating philosophy, foundation of their management program. The materials provided to you at this point are excellent material from which you should formulate additional questions.
14. Ask that they submit a comprehensive management outline of services provided. For our example, depending on the property, the management proposal should address specific areas such as; marketing, rejuvenation, energy conservation programs, tenant relations and retention, building operations, financial management and management reports as described in Fig. 3.
15. Ask them to append their proposal to the contract. If the management firm agrees it is a good indication that they stand behind their proposal when it comes time to deliver the goods. If there are evasive maneuvers at this point and it would be in your best interest to meet additional management firms.
16. Ask for their contract. Review their formal management contract before making your final selection, this way problem areas or concerns are addressed while you still have options available. It is also a good way to see how flexible the management firm will be in responding to your needs. A response such as "this is the standard contract from head office" should be a red light for you and warrant further research on your part as to the comparability between your needs and the ability and willingness of the management company to meet those needs.
17. Ask for termination notice without cause. The management agreement should contain a clause that will enable you to end the services of the management firm without cause upon one month notice. This scenario is another indicator of the faith the management firm has in meeting and exceeding your requirements. If they remain inflexible and insist that you; agree to a long and complicated termination clause or must sign up on a two or three year contract without a provision for you to speed up the "divorce proceedings", your property could be in jeopardy sometime in the future.
18. Education, Education, Education. Over the last 70 years property management has evolved from the activity of rent collectors to a full-fledged profession. Given that property management is a profession, identify companies and individuals that are licensed that have staff with either of the following designations; Certified Property Manager (CPM), offered by the Institute of Real Estate Management or Real Property Administrator (RPA), offered by the Building Owners Managers Institute. These designations will confirm to you that an individual has completed a Graduate Level Program in the property management field.
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In using these guidelines please remember that property management is an activity dedicated to the process of problem interpretation and problem solving. During the selection process you need to assess the ability and willingness of a fee-management firm to respond to the financial and operational opportunities unique to your investment property.

About the Author: Ben G. Larsson

Ben G. Larsson, B.A., CPM, RPA, FRI, CMOC is President and Chief Executive Officer, Interlink Realty Corporation, Richmond, British Columbia and a frequent contributor to many publications. Mr. Larsson currently serves as a member of the Property Management Advisory Board, Real Estate Council of British Columbia, Mr. Larsson is also a Past Chair, Institute of Real Estate Management, Canada, and has served on the Board of Directors, Real Estate Institute of Canada, Governing Council, Regional Vice Presidents Committee and Executive Committee of the Institute Real Estate Management-USA and has been directly involved in the property management industry throughout Western Canada since 1975.

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    -Ben G. Larsson