So often I see commercial property managers offer a very simplistic and basic service without much inventiveness. Given the complex nature of commercial property you would think that the situation would be better.
Here are some facts to be remembered:
- A property management portfolio for a brokerage offers regular income to soften the ‘peaks and troughs’ of irregular or seasonal sales and leasing commissions.
- Many property management appointments will generate leasing and sales opportunities over time.
- A client with a group of properties will give you the opportunity for portfolio services and multiple fees.
To ‘set the scene’ here I will say that the fees you charge in providing property management services are very important. Low fees don’t allow you to provide quality services. Here are some rules that are useful in setting property management service fees:
- Understand the demands of the client in reporting and control. Some clients can be very ‘hands on’ and thereby take a lot of the property managers time. Before your appointment starts, interview the client to set guidelines on communication and approvals in day to day property matters.
- The fees you charge can be set on a percentage of ‘passing income’ from each of the leases, however take that fee and relate it back to cost of providing services and hence the hours of involvement to be given to the property and the client each week.
- Most property managements at the start of services will be ‘time intense’. It is wise to have the client agree to a ‘set up fee’ that applies to the first few weeks of bringing in a new client and property to the brokerage.
- Some properties will require a good number of inspections on a regular basis to control tenant activity and property performance.
- A retail property is a lot more work to manage than an office property. It is also the case that an office property is more work to manage than an industrial property. Similar assessments apply when you look at the depth and type of tenant mix. More tenants mean more work. Review the leases and the tenant mix before you set your fees. You can find that some leases are very ‘time intense’ for the property manager.
- The collection and control of property income and expenditure can be complicated. The larger the property, the larger the problem. You will need good business processes to provide strong financial controls of management with some properties.
- Consider the tenant mix to see what the arrears factors could do to the base property income; it directly follows that you will need leasing strategies and replacement tenants to stabilise property performance. Check the landlord’s plans for the property currently and into the future. It is likely that you will need to do a tenant retention plan, tenant mix strategy, standard lease profile, and property income and expenditure plan. The growth and projections of rental will need to occur now to make that plan of relevance to the property today.
So these are all quite specific processes and are very special to a quality property and client. Now you can see why setting ‘fees for service’ should be carefully considered in setting the fees for any commercial real estate property management service.