For commercial real estate investors, aside from acquiring a property at the right price, it’s properly managing the the day-to-day operations of the building that mean the difference between profit and loss. That’s why the selection of a quality property management company for your property is one of the most important decisions you can make as a commercial real estate investor—the right property management company can improve cash flow, retain tenants, and increase the building’s value over time.
The decision can also be a long-term one since investors tend to stick with one property management company once they see the relationship is working. So when selecting a property management company, it’s important to take the decision seriously and follow some best practices.
Here are some key things to think about when hiring a property management company:
- Talk Directly with the Property Manager
In addition to negotiating with the senior members of the property management company, it is crucial to interview the person who will be at the property and handling all the daily building management. Having met this person first-hand will help to assure you that the day-to-day operations of your building will be in good hands. When something goes wrong, it’s also much easier to have a direct line of communication to this person rather than having to go through the senior staff to get a simple issue resolved. If you do not think that the proposed property manager is the right fit for the property, then ask the management company for another candidate to interview.
- Examine the Financial Reporting
In this day and age, detailed monthly financial reporting is a service every serious property management company should offer. During your initial evaluation of a property management company, be sure to request a sample of the company’s monthly reporting package, and make sure it has the level of detail you’ll need on an ongoing basis to evaluate the success of your investment.
- Look for Experience with Similar Properties
Property management companies come in all sizes, from mom-and-pop operations that manage single residential buildings to large corporations that manage high-rise office buildings and regional malls across the country. When selecting a property management company, confirm that the company has experience dealing with institutional-quality owners and with the size of building you’re looking to manage. It would be even better to be able to get a testimonial from an investor who owns a building of similar size and function to yours.
- Negotiate the Contract Carefully
Before contracting with any property management company, make sure to interview 2-3 companies who provide property management services. When the time comes to negotiate a contract, you should have your real estate attorney examine the contract carefully to ensure your interests as an investor are appropriately represented. Even though property management agreements are usually for a term of no more than one year, try to arrive at a fee which is competitive with the market and provides a reasonable fee for the services to be provided. While agreements can be renegotiated upon expiration, it is better to set up up a fair fee arrangement upfront to provide the proper motivation for the property management team to perform well. Property management companies may offer leasing services along with their base management services, but there is no requirement to use the same company for both management and leasing. Be sure to interview separate leasing teams as well to ensure having the best team for each property.
- Pay Attention to Conflicts of Interest
It’s not unusual for a property management company to have subsidiary companies in the building services industry: maintenance and cleaning crews, landscaping, contractors, etc. Sometimes, this relationship can actually get you preferred rates on these building services. However, make sure that these partnerships are always disclosed to you, so that you can be aware of any situations in which you may not be getting the best price for a building service and also require that all services go out to bid annually.
- Use Their Expertise When Acquiring Property
Use the experience of the property management company to your advantage not only in the operational stage, but also in the planning and acquisition stage. If you can get the property management firm involved when acquiring new real estate, their expertise can help you confirm the validity of your operating expenses projections. With time, as you find a property management company you can trust, this company can become a valuable member of your due diligence team when acquiring new properties.
While hiring the right property management firm is important, so is hiring the right asset management company, who will be overseeing the performance of both the property management and leasing teams. We will discuss the role of the asset manager in a future blog post.
As an experienced investment advisor for family offices and high net worth foreign and domestic investors, RMC Realty Advisors is involved in all phases of the product life cycle, from acquisition to disposition. Our goal is to provide comprehensive and cost effective asset management services for investors of commercial real estate, allowing our valued clients to outsource this critical ownership function.
Our Comprehensive Asset Management Services Include:
- Sourcing, evaluate, and acquire new properties
- Formulating strategic management and leasing plans
- Hiring, directing, and evaluating the performance of property management and leasing teams
Contact RMC Realty Advisors today to set up a consultation!