There are more than 11,000 property management companies in the Unites States alone. But which one can you trust to safeguard your commercial investment properties? A professional commercial property manager can help you achieve maximum return on your investment by:
- Finding and keeping quality tenants
- Improving cash flow
- Increasing asset value
The firm you are considering must have expertise in serving your type of investment objectives as well as your type of property, because the requirements each type of ownership will be different.
Commercial Property Management Services
Companies can provide a wide range commercial property management services, depending on a particular owner’s needs.
The key to a successful partnership with your management company is having a detailed and comprehensive written management agreement or contract. You cannot automatically assume that a particular service is provided or not provided. The contract will specify exactly which services the firm will provide, as well as the associated costs. Thus, the owner will know exactly what services to expect, which services are included in the management fee and which services are charged extra.
A commercial property management company will typically provide some or all of the following services:
- Management Planning – The management firm analyzes the local and national business environment, as well as the specific property within that environment. It recommends a marketing strategy that will best enable an owner’s objectives to be achieved.
- Financial Reporting – Record keeping and financial reporting are critical services provided by commercial property managers. Owners should determine what procedures are available for the efficient electronic exchange of information and reports, and should inspect samples of the firm’s regular monthly reports, as well as some of the specialized and less common reports. Ask what commercial property management software they use.
- Budgeting – The manager will set and monitor each property’s budget, which encompasses every cost associated with running the property. The manager should periodically provide the owner with reports tracking actual versus budgeted expenses. If any budgetary adjustments are needed as the year progresses, the manager should provide a detailed explanation.
- Accounts Payable – Managers can pay any bills associated with the operation of the properties, including insurance, taxes, and first and second mortgages.
- Marketing Programs – Commercial property management companies design and implement marketing programs that promote your properties and enhance the chances of successful leasing. Marketing consultants can help develop essential marketing tools such as print advertising, brochures, online marketing, email and direct mail campaigns, special promotional events, newsletters, videos and virtual tours, maps and signs.
- Maintenance – The management company will track monthly maintenance costs, and develop and implement programs for preventive maintenance.
- Market Rent Analysis – Commercial property managers analyze current market rents as well as competitor’s rent levels. They track demographic data, projected market vacancy rates, and provide recommendations on setting optimal rent levels for your properties.
- Rent Collection – Collection of rent is another essential service provided by management firms. They should prepare a daily record of deposits. Ask about a cash management system which includes interest returns on rent monies collected. Consider methods of sweeping funds electronically to owner’s accounts.
- Tenant Relations – The management company communicates with tenants and responds to their needs immediately. The owner should review their written policy for recording and resolving tenant concerns.
- Lease Negotiation – The manager will negotiate and sign all tenant leases and renewals. They will screen tenants as well, in order to weed out bad tenants ahead of time before they can cause problems.
- Purchasing Procedures – The manager will set procedures for the purchase and renewal of all contracted building services, supplies, equipment and insurance policies.
- Contract Specifications – The manager prepares specifications for all contracted work (such as tenant improvement construction, snow removal and trash hauling), solicits and selects competitive bids, and supervises all project work.
- Documented Procedures – Good commercial property management companies follow documented procedures to ensure compliance with all state, federal, county and local governmental regulations, as well as compliance with all fire, safety and health codes. Ask to see their policies and procedures manual.
Reputation And Stability
A good commercial property management company will have a good reputation within the local business community Ask around to see which management firms other businesses use, and how satisfied they are with the service. Look for signs of professionalism, integrity, and honesty mentioned in the recommendations. Word-of-mouth counts for more than all the impressive glossy brochures in the world.
Although the number of years a management firm has been operating is not necessarily a reflection of professionalism, it is related to organizational stability. Ask yourself these questions:
- How long have individual managers been working with the company?
- Do you deal with the same manager, or with a stable group of managers?
- Is there high staff turnover?
Owners and tenants will both benefit from consistent service and familiar faces, so look for signs of stability and longevity within the company. Commercial property management jobs provide stable and long-lasting employment for highly qualified managers.
Accreditation
All property managers must be licensed by the state. But a firm that is accredited nationally, or has key managers with professional certifications, sets itself apart from the competition because it has demonstrated that it meets higher standards. Look for specialized designations such as these:
- CPM – Certified Property Manger
- CSM – Certified Shopping Center Manager
- IREM – Institute of Real Estate Management
- AMO – Accredited Management Organization (awarded by IREM)
The more varied designations that a commercial property manager has, the broader his or her understanding will be of the many aspects regarding investment real estate. Ideally, the company should have staff with knowledge of marketing, leasing, accounting, taxes, sales, legal, appraisals, construction, architecture and maintenance.
Conflicts Of Interest
Ask to see a list of any related companies that the management firm owns or has exclusive contracts with, such as maintenance contractors or landscapers. An owner should steer clear of firms having conflicts of interest that can prevent the owner from receiving the full value of services.
Insurance Coverage
The owner should review the management company’s insurance coverage, as the owner is sometimes held accountable for the actions of the manager. Look for the following types of insurance coverage:
- Fidelity bond – Protects against fraudulent or dishonest acts of employees
- Depositor’s forgery and alteration – Covers loss due to alteration or forgery of checks
- Professional liability – Insures against professional misconduct
Management Fees
As with residential property management, commercial fees are based upon a percentage of monies collected. The fees will vary between different types of properties, and different parts of the country, but bear in mind that they remain completely negotiable between owner and manager.
Percentage fees might be based on different parts of the income stream, or on all of it. For example, the fees for standard services can be:
- a percentage of net rent collected
- a percentage of gross collections including triple net expenses
- a flat fee up to a set level of income and a percentage after that
- leasing commission as a percentage of the full lease yield
- leasing commission as a set amount tied to annual minimum fixed rent
- a percent administrative fee applied only to triple nets, in addition to a base percent
- any other calculation
Final Selection
Remember that you usually get what you pay for. Property management fees are directly related to the services provided, both in terms of quality and quantity. It would be a mistake to select a commercial property manager on the basis of fees alone, without considering the quality of services rendered.
Look for commercial property management companies that blend well with the type of services that you need. Not all types of properties are suitable for every management firm. The right commercial property management firm will provide the integrity, professional excellence, management expertise, and financial stability required to keep your investment properties performing at their highest potential.