Many top real estate brokerages understand the high value of a commercial and retail property management portfolio to the overall business. Many good clients and a variety of commissions will usually come from a well-crafted and established property management portfolio. In saying that, quality is everything when it comes to the establishment of a property management portfolio and the associated group of clients.
It is always preferable to manage the larger buildings in better locations, so quality should always take precedence when it comes to selecting buildings and clients to serve. Selective prospecting is required.
The levels of rental achieved from the leases in higher quality buildings will give you a better fee base. Most property management appointments and fee structures are based on a percentage of passing rental. The older buildings typically have a higher vacancy factor and on that basis property management fees can suffer when occupancy rates fall.
An Important Fact
Whilst it is always nice to get the larger commissions from the sales and leasing transactions, but they are short lived and have no ‘repeat’ value for the brokerage; property management, on the other hand, brings in sustained business over time. Sales and leasing activity can usually spin out of a good property portfolio under management. A good property management client will usually require a variety of services over time. Every service is a fee opportunity in waiting.
Here are some ideas to help you identify the right buildings to manage and the clients to serve in property management:
- Vacancy Factors – Understand the vacancy factors within a location and within a property type. Choose your vacant buildings and landlords with care and bias towards ‘quality’. Some landlords will have vacancy challenges and require the services of an expert leasing agent. A leasing transaction that solves any vacancy problem will be the first step required to move to a property management appointment. Note that older buildings and those with high vacancy factors are not typically good buildings to manage (unless you can see an ‘upside’). Be careful that you do not take on a property that is close to ‘redundancy’.
- Tenant Mix Problems – Some properties have challenges when it comes to the tenancy mix and the existing tenancy profile. Poorly selected tenants can impact the overall rental cash flow, and escalate the vacancy factors. In a retail property, the problems of tenancy mix can be magnified many times. Changes to a tenancy mix should be incorporated into the annual business plan for a property. You can provide specialized tenancy mix strategies and recommendations to local investors and portfolio owners; there can be a fee for that service. Ultimately you can also be involved in the leasing requirements to bring about tenancy change. A successfully crafted tenancy structure will give you the opportunity to ask for a property management appointment.
- Outgoings Challenges – When the investment property outgoings are high or mismanaged, the impact on the property income can be high. You can help a client resolve outgoings challenges and develop new financial strategies for the property. Use financial experiences with other local properties to resolve many outgoings issues for selected properties. Ultimately such service can position you well for managing the property into the future.
- Sales Activities – When you sell a property to or for an investor, ask for the property management. Many investors do not have the skills or the systems to manage a complex property with multiple tenants.
- Leasing Results – Why not talk to every client that you have helped with leasing challenges in the last few years about property management? A successful leasing transaction is an opportunity for managing in the future.
- Referrals – Don’t forget to ask your current clients for referrals to others that they know now and may have a property interest. Typically most property investors know a few other people of similar interest. There are relationships in the investment community that can be explored for referral opportunities.
- Industry Professionals – Get to know industry related professionals such as accountants, financial advisors, and property solicitors. They all will have groups of clients with property portfolios. A strong and trusting business relationship with an industry professional can lead to many property management opportunities.
- Local Investors Owning Quality Buildings – Review all the buildings in your location and rate them as to quality and volatility. Some of those buildings and the owners can be property management targets.
It directly follows that all of these strategies involve a degree of direct prospecting, cold calling, meetings, and relationship building. There is no other way to approach the business. That is how you can build a commercial real estate property management portfolio inside a brokerage. Choose the best people with the right skills to support your brokerage activities across sales, leasing, and property management. Cross-link your services to grow all levels of client interaction.